Opening address at the New Year Reception of the Deutsches Aktieninstitut
Opening address by Jochen Sanio, President of the Federal Financial Supervisory Authority (BaFin), at the New Year Reception of the Deutsches Aktieninstitut
- Datum:
- 24. Januar 2008
- Ort:
- Brüssel (Belgien)
Dear Professor von Rosen, Ladies and Gentlemen
“We simply haven’t got the civil servants we need to reduce bureaucracy.” The only people who might find anything funny in this corny joke from the Austrian cabaret artiste Karl Farkas are probably people who have never ever got lost in a bureaucratic jungle. I’m afraid there aren’t too many of those around.
Reducing bureaucracy is one of the most important projects for the year just started for financial regulators, among others. Cutting back bureaucracy wherever it threatens to run rampant – that is the declared aim of German and especially European policy.
For the sociologist Max Weber bureaucracy, which literally means “rule from the office”, was something desirable because it prevented individuals from being disadvantaged or favoured by arbitrary decisions. However, where “rule from the office” turns into tyranny, life becomes more difficult.
By now there is a tool with which we can measure the cost of bureaucracy, or more precisely, the costs that businesses incur as a result of the reporting and disclosure requirements imposed on them by the state. This tool is called the Standard Cost Model (or SCM) and was developed in the Netherlands. With the aid of the SCM we can measure and show where bureaucratic red tape has become excessive. The burden of red tape – once something that was felt subjectively – can now be measured objectively. The variables that we calculate using the SCM are obviously open to debate, but one thing we can all agree on is that they allow the burden on business to be quantified and so provide a starting-point for curbing it.
The aim is to reduce the burden of red tape on business in Germany and the whole of the EU as well by 25%. This target is to be achieved by 2011 in Germany and by one year later in the rest of Europe. If we implement this project successfully, it has the potential to become a motor of economic growth; for once freed from excess bureaucratic baggage, businesses will be able to devote themselves to their core business with greater concentration than before and, hopefully, with greater creativity than ever.
I must warn against any misunderstanding: cutting red tape is meant to result in better regulation, not in any extensive de-regulation. And for me, that is a good thing. For the subprime debacle on the financial markets shows us all too clearly that the factors that encourage disasters include a shortage of reporting and disclosure requirements and a lack of transparency.
The “reducing bureaucracy” initiative now offers financial regulators and politicians the chance to reflect on what information regulators, for example, need in order to be able to do their job properly. Regulators applying principles-based and risk-oriented supervision will continuously have to ask themselves: Is the information that we have sufficient, or do we need some other, possibly more meaningful, information?
In consultation with the Federal Ministry of Finance BaFin is currently calculating the cost of red tape on the German financial market. The initial results of our national survey suggest that around two-thirds of reporting and disclosure requirements are based directly or indirectly on European legislation. So the civil servants that, according to Farkas, we need in order to reduce bureaucracy are therefore to be found in Brussels.
And if we want to have a perceptible easing of the burden for the financial industry, that is where we must turn.
We have, therefore, as good as completed our survey of the current situation on the costs by now; the next item on the agenda will be for the National Regulatory Control Council, which was set up in Germany around a year-and-a-half ago, to analyse the impact of new EU legislative proposals. What we are talking about here is legislative projects that are still at the planning stage. The hope is, therefore, that it will still be possible to influence the drafting of the legislation at this stage and so perhaps minimise the bureaucratic costs. If we, as regulators, are consulted, we shall be only too pleased to provide our input. But it would also be important to get the financial industry on board.
Ladies and Gentlemen, proper cooperation is essential. That applies not only when it is a question of cutting red tape and helping the financial markets to function even better. Singing from the same hymn-sheet is always a good idea if you want to achieve some common goal. A trivial piece of advice – but can we always follow it? The fact that we all too often ignore this truism is due to the phenomenon of the dissolution of boundaries that we are having to deal with on the financial markets.
There are no longer any boundary fences for financial market operators; there are innumerable European and international cause-effect relationships. For that reason we have, on the one hand, financial markets on which people think and trade on an international or at least European scale and, on the other, we have regulatory structures that have been created on the basis of national legislation. A vast chasm is yawning between them.
There are more and more voices to be heard asserting that globalised financial markets have a legitimate claim to a globalised regulator. Or as a first step, at least a single European regulator. That is, central regulatory authorities endowed with cross-border powers. As things stand at present, that is a pipe-dream – no government is currently prepared to surrender its sovereign rights in financial regulation.
There does, however, remain the possibility of close cooperation between supervisory authorities. By going down that path, regulators in the EU should arrive at as uniform an application of their harmonised rulebooks as possible – i.e. at largely identical practices in day-to-day supervision, which would lift some of the considerable burden of red tape from financial undertakings.
The three committees that represent supervisory authorities and operate at Level 3 of the Lamfalussy legislative process – CEBS for banks, CESR for securities markets and CEIOPS for insurers – play a key role in European supervisory cooperation.
As a member of CESR, the Committee of European Securities Regulators, I know only too well what a tightrope-walking act the members of these committees are called on to perform. And Rüdiger von Rosen, as a long-standing member of the CESR Market Participants Consultative Panel, will surely agree with me when I say that regulators in CESR have to balance regulation objectives that are often difficult to reconcile – and at the same time also dance seemingly effortlessly on the high wire of the European financial market.
The aim of this daring act is not only to offer European market participants legal certainty and legal clarity but also to create rules that are so flexible that they maintain order on rapidly evolving markets.
The EU internal market will, however, become a reality only if competition conditions are the same across the whole of Europe. This is where we regulators really have to start showing our acrobatic skills. Firstly, regulatory rules must be created that are worded in the same way and, secondly, they must also be applied in the same way. Achieving this would in fact require perfectly choreographed cooperation between national regulators.
But there is a problem here: they are bound first and foremost by their own national law. And that law is by no means identical, for even when EU member states have transposed the Brussels Directives into their own law,they have used the discretion offered by the Directives in very different ways. No long explanation is needed to account for why, given these circumstances, the authorities are invariably searching for political compromises. The mere existence of three different decision-making procedures in CESR bears witness to the tensions peculiar to each collective decision: on the one hand the group must remain able to function properly; on the other many individual interests deserve to be protected as well.
The eternal question, therefore, is: Ought we to preserve the diversity of national regulation or give precedence to creating greater convergence? The see-sawing between these two poles is just in the nature of things – and I can’t see a way of ending it.
The EU Commission recently published a comprehensive appraisal of the work of CESR and the other two Level 3 Committees and put forward various reform proposals. One of these was to convert the three committees into European agencies. The ECOFIN Council had good reasons for not following this suggestion. CESR would have lost much of its independence, which would run counter to the well-understood interest in good securities regulation.
The proposal, if adopted, would, however, have gone a long way to answering another vexed question: that of the funding of the chronically cash-strapped Committee. At present, CESR's coffers are topped up solely by contributions from the Committee’s members. Their shares of the total budget are based broadly on their respective shares of the EU-wide financial market.
However, with the explosion of EU securities legislation CESR has taken on extensive new functions which have to be funded on a lasting basis. In its reform proposals the Commission also suggested enshrining the convergence objective in the by-laws of the national regulatory authorities. I actually find this idea very attractive – the objective has been written into BaFin’s Mission Statement for a long time now.
Ladies and Gentlemen, finding the right regulation for the European financial markets is no mean feat and its degree of difficulty is increasing from year to year. I sincerely hope that CESR and all of us keep on succeeding.