Professor Marie-Anne Frison-Roche
Sciences Po, Paris
Date: 15 March 2005
Time: 1:00pm - 2:30pm
Venue: CARR Seminar Room, H615
Financial regulation at European level is moving towards the creation of a new integrated financial European market. In contrast with the network sectors, financial regulation was national before becoming European. But there is a distortion between the substantive rules, elaborated at the European Union level, and the institutional rules because regulators are still national. The specific issue (which is also a general one because it is also the case for the energy or telecommunications sectors) for the Regulatory system's efficiency is : must this distortion be only temporary ? Should the next step be to set up a European financial regulator, in application of a sort of general method which leads to adopting the same level for substantive rules and for institutions in charge with applying them. Or is this distortion efficient in itself, maybe more efficient than an articulation between European substantial rules and a European regulatory body ? Another purpose of this paper is to determine if the answer chosen for financial market regulation is valid or not also for the other sectors, leading to a more general question about the possibility of exporting a solution from one sector to another.
First of all, the question regarding the need to set up a European financial regulator is a difficult one because of many arguments in one side and in the other. Despite the fact that substantive rules governing the financial market are now elaborated at a European level, I think that it would be not so efficient to build such a European regulator, notably because of political difficulties and of the necessity to create transectorial regulators, across the banking sector and the financial market sector, such as the F.S.A. in Great Britain. We must choose between an institutional horizontal integration (transectorial regulator) and an institutional vertical integration (transnational regulator). The first branch of this alternative is more important to fight the systemic risk, the principal goal of the financial regulatory system. In this sense, European financial integration is different from European monetary integration.
Moreover, this distortion is the most efficient system because financial markets are impregnated by cultural rules, such as the tradition of corporate governance, and national regulators can obtain their consideration in the process of the elaboration of the European rules.
But this distortion is only admissible if the system works. And it is working in the regulation of the financial markets, thanks to the Lamfalussy process and the comitology system. Through this very useful tool, Europe is being constructed more like a rhetorical circle than a hierarchical up-down line. In a sense, this construction is the contrary of the new institutional European Law for antitrust matters. The CESR is the right place to organize an effective cooperation between regulators in general and about particular cases. This regulatory system could be exported to other sectors, as long as it is not necessary to have a body able to react immediately in a event of a crisis, in the banking sector, for example, or regarding energy transportation risks.
The next challenge for the financial market regulatory system is to constitute common principles of corporate governance, despite very different national traditions in national Company Laws, this cross-breeding being possible with national regulators adjusting their own tradition.