FECIF - The European Federation of Financial Advisers and Financial Intermediaries

Editorial - March 2015

irí Šindeláriří Šindelář
Chairman of USF CR / Member of the board of FECIF

Squaring the circle, or back to roots? A view of European regulatory turmoil from the former “Eastern Bloc”

When the Velvet revolution overthrew the Czech communist government in 1989, a crucial part of the change was the transition to liberal, market capitalism. The expectations and enthusiasm for entrepreneurship were very high among the people. In the 1990s, the Czech Republic underwent one of the most astonishing transformations from a rigid, central planned economy to an open, quite liberal country, which was particularly true for the newly created financial sector. On one hand, the coupon privatization created outstanding opportunities for investors and investment funds, yet on the other, the almost complete of lack any reasonable rules meant an open playing field for all kinds of entrepreneurs. The result was the bitter experience of many fraudulent funds, their bankruptcy and general disillusionment in a market without sensible regulations, or as we call it: “market without adjectives”.

By the end of the “wild” 90s, the situation changed and stricter and more detailed rules were implemented. The regulation tempo increased substantially after the accession of our country to the European Union in 2003, when a wave of European directives began to pour in. Suddenly, more and more professionals in the financial sector began to ask: isn´t this too much? As strongly as many had advocated greater regulation because of the bitter experience of the 1990s, professional opinion quickly turned against “Brussels” and its Czech counterparts. “Regulation overkill” is a phrase now often used in relation to the Brussels bureaucracy as it produces more and more directives, technical advice and guidelines, even amid talks of “deregulation” and “regaining competitiveness”.

The 2014 European elections showed that this feeling was evidently not limited to the Czech Republic. Part of the job was done and the new EU management at least started to TALK about the need for reducing red tape and curbing excess regulation. But this is only a first step and we all need to ensure that the words translate into actions. In the meantime, we also need to deal with three new layers of bureaucracy: ESMA, EIOPA and EBA. The ESMA in particular seems to be fond of launching many almost shocking proposals that – after formal consultations going into thousands of pages – go even further than the directives approved by the European Parliament. This is a new level of threat, when the regulatory risks in the general rules are substituted (or amplified!) by the stealthy infusion of new regulations into level 2 and 3 papers. This has reached the extent where some of the ESMA proposals scare even our national regulators!

With respect to the above, I feel that we need to step up our collective (re)action to the proposals of the European super-regulators that land on our table. As much as I understand the tactics involved, I feel the industry should not be shy of rejecting the most horrible regulations as a whole, instead of just praising the intent and disproving the implementation modus. From my perspective, it is simply immoral to tell citizens how to pay/be remunerated for their services. Proposals aimed at not just describing and defining business models, but at changing them, should be called what they are: social engineering. The everlasting, calculated cult of “consumer protection” needs to be stopped. The European Union simply needs to get back to its roots and provide what it was created for: a single market and, perhaps, security, and if we all wish it, a political union. This is an ongoing battle that will last for many years and we all, my dear colleagues, stand in the front line. If we want to keep the IFA business alive outside of the history books, surrender is not an option.

And how does this connect to our historical experience described earlier? After 25 years, we seem to be slowly but surely returning to the centrally planned economy which we strived to put behind us in 1989.

We simply do not want it to happen again, do we?

Jiří Šindelář
Chairman of USF CR / Member of the board of FECIF

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