He told a European Policy Forum: “The financial services industry faces, over the period 2004 – 2008, the task of implementing more than 14 major EU legislative measures. Each of these will require financial institutions in the UK and across Europe to make substantial efforts to prepare for implementation over the next 12 months: they will need to install new IT systems, train staff, change managerial processes, and in many instances bring in external consultants.
“According to our analysis there will be particular implementation pressure peaks in 2004 and 2006. We will, of course, do all we can to help the firms we regulate, by giving as much certainty as we can to both the content and the timing of FSA’s implementation work. However we are not the masters of the process - the directives themselves dictate the implementation timetable and some require detailed implementing measures under the Lamfalussy process, and all the directives will require action by UK Government departments. The commitment that I can make is that FSA will endeavour always to give market participants a minimum of 6 months of absolute certainty as to the regime to be implemented in the UK.
“The FSAP has achieved the majority of its legislative targets by way of Directives passed and the emphasis lies now on the equally, if not more important, task of effectively implementing these measures in EU countries. I am not talking about rolling back the tide of European-driven legislation. Rather that it be introduced in a phased and measured way, giving firms a realistic timeframe to prepare and plan. We should all be interested in actions, not in legislation"
Callum McCarthy proposes five urgent steps to tackle the looming implementation logjam:
- We need as a question of urgency to establish whether our analysis of the implementation situation is confirmed – by firms and institutions in Britain and across Europe, and by regulators in other countries repeating the analysis for their own country.
- There are a number of things regulators can do individually and collectively to ease the implementation process. We at the FSA must ensure that we do not over-engineer implementation. Given that we will have heavy burdens derived from the EU directives, we need to consider our own initiatives carefully. Collectively, the FSA needs to work with fellow EU regulators in networks such as CESR to ensure that all joint action taken at Level 3 facilitates smooth implementation rather than increasing the height of the implementation peaks.
- We need to be sure that the scale of the challenge is recognised by those who will have to respond to it - principally the management of the firms affected. Firms should now have a clear sense of the nature and scope of the regulatory change they are facing and should plan ahead.
- Implementation will require senior management time to counter the natural tendency for ever more detail to creep into the implementing rules as more junior staff and their advisers seek greater legal certainty.
- We all need to investigate whether there is scope for peak lopping: to rephase the implementation timetable or the intensity of the implementation on a European basis so as to avoid the present prospect of particularly difficult peaks in implementation.
“One important factor is that the European legislative process in financial services has no binding equivalent to the explicit requirement placed upon the FSA under the Financial Services and Markets Act to ensure that any policy is proportionate. The Treaty obligation in Article 7 on proportionality has yet to be translated into an effective tool in this area. The operational corollary of proportionality is that we should carry out an analysis of costs and benefits. The value of the cost-benefit analysis is not principally in the determination of a monetary estimate of the cost-benefit of any proposal. Rather it is in the focus it throws onto the activities involved in any proposal; it requires the regulator, the proposer of legislation and those affected to identify, with increasing clarity as the proposal advances, what steps will be needed to introduce the proposal; the scale and timing of implementation are first defined and then costed. It is the absence of this process in a European context which has contributed to the late surfacing of the problems of implementation we now face.”
Background
