Speed of bringing in new regulations 'may result in poor legislation'

The European Commission’s speed in bringing in securities regulations is resulting in unexpected consequences and poor legislation, according to the Central Bank’s director of markets supervision, Gareth Murphy.

Speaking at the Funds Congress in Dublin yesterday Mr Murphy said the manner in which the European Commission delegates the finer details of legislation to experts can result in the purpose of the regulation being diluted or even lost.

“However, the consequences of such delegation can be unpredictable and may not align with the intention of primary legislators, especially if the primary legislation is unclear. In some cases, the thrust of primary legislative acts may be diluted when the technical rules are written. There is also the risk that, when challenging deadlines are set for the delivery of such technical rules, the quality of such rules may suffer.”

The funds industry is to be transformed by the introduction of the Financial Transaction Tax in some jurisdictions, but not Ireland, and it is important that the legislation introduced is correct because if Europe gets it wrong the whole industry will suffer, he said.

Mr Murphy said there is a need for legislation in the funds industry in response to the shortcomings that have been highlighted by the financial crisis, but he said it is not without dangers. He described the alphabet soup of legislation as “ambitious and indeed, risky.”

The risk is that poor legislation will undermine the whole economy and hamper any recovery, resulting in a further shift of power from the West to the East.

“We should all be concerned at the risk that poor execution of this agenda will undermine the ultimate goals of regulation, which is to support real economic activity and, in particular, the relationship between end-issuers and end-investors. Recently, a former colleague of mine observed that if the EU and US do not get it right this time, it will be the Asian powerhouses who will drive the agenda in future years.”

Another issue facing the funds industry is its ability to provide returns for pension funds. He said transparency and selling the right products for the right people will become more important as the world faces into issues of an ageing population.

“Ageing populations must provide for retirement and the funds industry is likely to play a greater role over time. In a well-functioning investment industry, the end-investor can trust the market to deliver a fair outcome. It is important the industry recognises that cost transparency and product appropriateness will support a healthy long-term relationship between investors and the industry,” he said.