A top official in the European Commission delegation to the United States said in February that the Securities and Exchange Commission should not “cherry-pick” European countries when making decisions about which foreign securities exchanges should be granted easier access to U.S. investors.
Crispin Waymouth, first secretary in the economic and financial affairs section of the European Commission delegation to the U.S., said the U.S. should be cautious about creating a perception that certain countries may be favored “because of political links.” If that were to happen, he said, “the political forces in Europe will, frankly, be very difficult.”
Instead, Waymouth said, the European Union should be treated as a single entity, with the same standards for all nations. His comments were made at a talk sponsored by Brooklyn Law School that took place at the New York Stock Exchange in late February. The SEC declined to comment.
These comments come as the SEC is developing plans to allow exchanges and broker-dealers in certain foreign jurisdictions to access U.S. investors without registering with the SEC. The SEC refers to these plans as “mutual recognition” since they involve reliance on a foreign regulator’s regulatory standards and oversight capabilities. SEC chairman Christopher Cox has said he expects the commission to consider a mutual-recognition rule proposal in late spring.
Although the SEC has not publicly discussed mutual recognition on a country-by-country basis in Europe, Waymouth’s warning highlighted an issue of concern to regulatory bodies in the U.S. and the E.U.
Benn Steil, director for international economics at the Council on Foreign Relations in New York, pointed out that “there’s a very real difference of views between the two sides right now. The SEC is not willing to say that London and Athens are equivalent in terms of their ability and willingness to regulate [the markets].” At the same time, Steil added, “the EC is concerned about maintaining its own power. They do not want the U.S., effectively, to chop up the E.U. into its national components–that would be the worst possible result for them.”
In his February talk, Waymouth stressed that the E.U. has created a single market for financial services across Europe through the Markets in Financial Instruments Directive (MiFID), which went into force in November. In the wake of MiFID, Waymouth said, all E.U. countries are now subject to the same standards of securities regulation. MiFID was developed to provide a common regulatory framework for European securities markets, and to enable cross-border competition among European exchanges, multilateral trading facilities and brokers.
The Brussels-based European Commission is the policy arm of the European Union, a political and economic union between 27 countries across Europe. The E.U. nations range from the United Kingdom, France and Germany to the Czech Republic and Malta. MiFID applies to the 27 E.U. countries and Norway, Iceland and Liechtenstein.
However, while the rules governing trading and markets in the E.U. may be the same, there is no single European regulator. “From the SEC’s perspective, the E.U. is a collection of autonomous regulatory authorities,” said the Council on Foreign Relations’ Steil. “There is no European equivalent to the SEC. The regulatory bodies that do the implementation and enforcement are on the national level. This is the SEC’s concern.”
“We’re not saying the U.S. must accept all E.U. member states point-blank,” Waymouth said in his talk. “I’m not sure that certain exchanges are necessarily going to be applying for mutual recognition. They may not need it.”
Waymouth’s comments echo statements made in the past by Charlie McCreevy, European commissioner for the Internal Market and Services in the E.U. McCreevy has said that “A situation where some E.U. jurisdictions would be excluded (even temporarily) from participating in the scheme for arbitrary, non-substantive reasons, would not be welcome for E.U.’s integrating markets.”
The London Stock Exchange, however, expects the U.S. to negotiate with Brussels on a framework for mutual recognition, but to enter final discussions with just a few countries, at least in the short term. “Whilst you have the same legislative framework, each regulator operates in a different way, with a different size, a different scale, a different history and a different attitude,” said Adam Kinsley, director of regulation at the LSE. “There would be an awful lot of work having to liaise with all local national European regulators where there is not much demand for access and who might not have the sort of practices that the SEC expects. That probably wouldn’t be the most efficient way to do this.”
Regulatory cooperation between the U.S. and the E.U. has become more important in recent years as the markets have become more global. These efforts, which range from accounting standards convergence and the development of a common financial data language to mutual recognition, are praised on both sides of the pond.
The European Commission’s Waymouth stressed the importance of the current dialogue. At the same time, he noted that the “E.U. and the U.S. are condemned to cooperate with one another” when it comes to securities regulation. Because of regulatory changes in Europe, the E.U. has emerged as a “credible partner” for the U.S. in a way that it wasn’t 10 years ago.
“Frankly,” Waymouth said, “we’ve become too big to ignore.”
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