IMA head warns on “tidal wave” of financial regulation

The “tidal wave” of European regulation flowing from the financial crisis may prove ultimately damaging to the region’s economy, the chief executive of the IMA argues.

Speaking at The Lawyer magazine’s funds summit in Brussels, Richard Saunders (pictured) said there are about 35 separate legislative measures coming out of the European Commission that will affect the financial services industry.

Saunders highlights the Packaged Retail Investment Products initiative and some elements of the new Markets in Financial Instruments Directive (Mifid) as examples of regulation that he says will be ultimately beneficial.

“But others, such as the proposed Financial Transactions Tax (FTT) and some of the detailed provisions in Mifid, will have unintended consequences and will not achieve their objectives,” he asserts.

The speed at which the commission is drafting new legislation is problematic, according to Saunders, as there is insufficient time devoted to ensuring regulations are “right”.

In addition, he claims “mis-placed analysis of the financial crisis” is directing too much regulatory attention towards hedge funds and not enough to banks.

The FTT is one example of this mis-placed effort, Saunders says. He expects the customers will bear the brunt of the tax, rather than the financial institutions it seeks to target.

Allowing the European Securities and Markets Authority to ban short selling will also fail to curb market volatility while adding an extra layer of regulation to investment funds, he adds.

“Much of what is now on the table would be damaging to the EU economy as a whole.”

Saunders’ comments echo criticism by John Cridland, the director-general of the Confederation of British Industry, who says the FTT could damaged the EU’s economic output by as much as €100 billion (£85 billion) a year.

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