Regulatory Bodies (3) Flashcards
Why have specific regulation and supervision for the financial system?
MACROECONOMIC REASONS - financial stability
MICROECONOMIC REASONS - protect users of financial services
Why is there a dilemma between choosing REGULATION and SUPERVISION?
Regulation involves the drawing up of regulations, while supervision involves the monitoring of compliance with already existing regulations.
For the system to work properly we must work on both.
areas of application: NATIONAL // SUPRANATIONAL
for each of these areas we must distinguish: LEGISLATIVE INSTITUTIONS // POLITICAL INSTITUTIONS
SUPRANATIONAL REGULATION in a nutshell
“the relevant one”
- General Political Institutions
European Parliament // Council of the EU // European Commission - Monetary Policy
EuroSystem and European Central Bank - The ESCB (European System of CBs) and the EuroSystem
- The ECB
- NCB
- International Monetary and Financial cooperation organizations
- The Bank for International Settlements (BIS)
- The Financial Stability Board (FSB)
NATIONAL REGULATION in a nutshell
- General political institutions
- Cortes Generales
- Government
- Ministry of economy - Specialist supervisors
- Bank of Spain
- CNMV
- DGSFP
Which are the main REGULATORY BODIES?
(1) ESMA (European Securities and Market Authority)
(2) CNMV (Comisión Nacional del Mercado de Valores)
(3) EIOPA (European Insurance and Occupational Pensions Authority)
(4) DGSFP (Dirección General de Seguros y Fondos de Pensiones)
(5) ECB and EUROSYSTEM
(6) BANK OF SPAIN
(7) BIS (Bank for international settlements)
(8) FSB (Financial Stability Board)
What is MiFID?
MARKETS IN FINANCIAL INSTRUMENTS DIRECTIVE
Key aims:
- New regulatory framework to promote integration, efficiency and transparency
- Increase investors protection
- Strengthen cooperation between regulatory bodies (harmonisation)
- Extend aims of previous directive in terms of financial services covered
What measures promotes MiFID?
- allow a single investment services passport
- guarantee investor protection
- allow internalisation of orders and ATS
INTERRELATIONAL MEASURES
requirements that affect the way entities deal with clients and with the markets
ORGANISATIONAL MEASURES
requirements that affect internal organisation of entities
What is MiFID II?
JANUARY 2018 - based on the improvement of rules already adopted by MiFID
Key aims:
- Increase transparency, investor protection (rules of conduct) and requirements (reporting, obligation of negotiation…)
- Adapt to tech developments (HFT)
- Strengthen and harmonise supervision and sanctions
- Ensures that organised bargaining takes place in regulated platforms
- Facilitate access
What different alternative trading platforms does MiFID define?
REGULATED MARKETS
traditional markets, LOB, diversity of operators
MULTI-TRADING FACILITIES
provides liquidity in the same way as regulated markets but with lower transparency requirements
SYSTEMATIC INTERNALIZERS
investment firms that can “buy” or “sell” customer orders internally
Differences in the broker’s role (tradition vs new situation) and consequences
TRADITIONAL - brokers had to send the orders to the market
NEW SITUATION - the Electronic Communications Networks (ECN) or the broker decide what to do with the order (hold it internally, place it on the market or send it to a trading platform)
CONSEQUENCES OF THIS NEW SITUATION
Increased competition to capture order traffic.
- Lower Costs (lower commission and trading fees, overall increased liquidity)
- Fragmentation (less liquidity in each market, increased volatility and execution cost)
COMPETITION IS POSSIBLE IF COMPETITORS CAN IMPROVE THE CONDITIONS OF EXECUTION
EU market - fragmentation is a reality
Spanish market - fragmentation is variable
ESMA
THE EUROPEAN SECURITIES AND MARKETS AUTHORITY
independent EU authority
safeguarding the stability and integrity of the EU financial system (effective operational network)
fostering. ..
- transparency
- efficiency
- cooperation
- supervisory convergence
- investor protection
- advisory opinion
- day-to-day implementation of legislation (MiFID)
EIOPA
THE EUROPEAN INSURANCE AND OCCUPATIONAL PENSIONS AUTHORITY
independent advisory body (EU Parliament // Council of EU // European Commission)
- rebuilding trust
- protecting consumers
- harmonisation in rule application
- high, effective and coherent regulation and supervision
- strengthening over-sight cross-border groups
- coordination
CNMV
LA COMISION NACIONAL DEL MERCADO DE VALORES
1988; 2002;
supervision and inspection of the Spanish Securities markets and their users
- supervision and inspection
- guarantee freedom of information, transparency, solvency and security
- investor protection
- advisory opinion
activity focus…
- securities offered for public placement in 2ndary markets
- companies/institutions which provide investment services
BANK OF SPAIN
DUTIES AS A MEMBER OF THE EUROSYSTEM
- implement eurozone MP
- proper operation of eurozone payments system
- carry out foreign exchange operations (Maastricht Treaty)
- issue notes for legal tender
DUTIES AS A NATIONAL CENTRAL BANK
- manage treasury reserves
- supervision
- promote stability
- manage money supply
- draw up the stats for the ECB
- provide treasury and financial services for public debt
- advise the government, relevant reports …
DGSFP
LA DIRECCION GENERAL DE SEGUROS Y FONDOS DE PENSIONES
non-autonomous organism
under direct control of the Secretary of State for the Economy
- ensure compliance (Insurance/Reinsurance Act and Pension Funds Act)
- supervision: monitor mergers, associations…
- non-interference
- evaluation before allowing access
- guarantee solvency
- research
- regulatory projects
- coordination with other authorities
- transparency
- responding claims
- administrative protection for users
- facilitate develop a single market
- consumer protection
- SOLVENCY II risk-based system of regulatory requirements
