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FCA identifies issues in EU financial services framework

The UK's Financial Conduct Authority (FCA) has asked the European Commission to review aspects of its regulatory framework for financial services that could affect financing and market liquidity, and to improve its communications. 09 Feb 2016

In its response to the Commission's call for evidence, the FCA said that the framework poses unnecessary constraints on financing.

Some capital weightings under the framework could reduce investment in certain instruments or types of funds, the FCA said. This is already under review by the Commission, it said.

Other elements of the regulations "warrant review because of their possible unintended consequences and potentially negative effects on market liquidity". This includes obligations and mechanisms under the Markets in Financial Instruments Directive (MiFIR) that "could be clarified", and "disproportionately burdensome" requirements under short selling regulations.

Draft legislation should be worded so that it still makes sense when technology changes, the FCA said, and should follow the EU's 'better regulation' policies to avoid complex and unclear language. The wording should also be technology neutral, to cover all tools that consumers might choose.

The Commission should also look at its disclosure and reporting requirements across different policies to save duplicate reporting, the FCA said.

Implementation deadline should be aligned, so that one "omnibus" set of changes can be made at once by firms and by regulators, the FCA said. There is a "significant cumulative implementation burden" on business, regulators and customers who have to change their systems, documents and communications, the regulatory body said.

The FCA "hopes that the Commission will use the responses to this call for evidence to draw up a short-term action plan of specific measures to address identified problems. In particular, many of our examples suggest areas where a given regulatory policy objective could be achieved in a more efficient or more effective way", it said.

The FCA's feedback should also be used in future reviews of existing legislation, and lessons should be learned for future proposed legislation, it said.

The UK Treasury and the Bank of England have also published responses to the call for evidence, and the Commission is expected to report on its findings by summer 2016.

Financial regulation and enforcement expert Michael Ruck of Pinsent Masons, the law firm behind said: "While firms may take some satisfaction from the FCA’s comments around unnecessary regulatory burdens and the cost to firms and customers of implementing new policies or requirements, it does not appear that the number or breadth of legislation, directives, policies and regulatory requirements is showing any signs of slowing."