The European Commission has proposed several measures to improve the quality of EU regulation. Finance Finland’s Director of EU Affairs Mari-Pekonen Ranta has observed the development of European regulation from the dawn of Finland’s EU membership and has along the years noted there is indeed room for betterment.
EU policymakers working on ground-breaking and complex regulation frequently do so on a very tight schedule. It has become EU practice that the first date to be fixed is the entry into force, which also binds national application and the subjects of the regulation such as financial undertakings.
Often there is not enough time reserved for the preparation of supplementary but important lower-level regulation. Moreover, the expected standards, specificity and amount of regulation have grown higher each year. This constant urgency creates a cycle in which the problems of hastily prepared legislation trickle down from the legislator to the authorities and further down to financial sector companies.
A good example of rushed regulation is the EU sustainable finance package. Not only is the ambitious package extensive and complex, it has also been politically challenging in member states. This introduces a new layer of urgency in the regulatory process. The different pieces of regulation must also be aligned with each other.
Another massive undertaking on the table is the EU digital finance package. It comes with the risk that some reforms in the package may slow down progress rather than promote it. An example of such a piece is the highly detailed proposal for ethical principles of artificial intelligence in April. Its cumbersome and specific requirements and reporting obligations may in some cases slow down the utilisation of artificial intelligence.
Over the years, the Commission has declared it would improve the quality and reduce the burden of regulation, and has often redeemed this promise as well. Striving for better regulation is much like striving for a healthier lifestyle – even a small improvement is a good thing. The Commission’s ambitious plans have always carried many good elements and we welcome these warmly.
Later this year, the Commission is turning its focus to the very roots of financial regulation by adopting a so-called one in, one out principle. According to this principle, whenever a new piece of regulation is proposed, the process should also involve reviewing where and how the regulatory burden imposed upon citizens and undertakings could be reduced to balance things out.
Striving for better regulation is much life striving for a healthier lifestyle
– even a small improvement is a step forward.
There is much that is good in the plans for better regulation.
It is a good call to evaluate whether an older piece of regulation would be worth retiring already. Much of this regulation has been necessary: a solid and stable financial system is also the advantage of financial sector companies and their customers. Constantly increasing regulation, however, is reflected in stricter terms and conditions of financing and heavier workloads.
Furthermore, the Commission is also placing more weight to the review clauses of EU regulation. The regulatory evaluation process is often launched when many member states are only finishing up their national implementation. It is worthwhile considering whether the review clauses are appropriate when they seem to have created a regulatory machine that feeds itself.
Timetable setting must be properly reconsidered, and companies must be given sufficient transition and adaptation periods. We all know haste makes for poor results. After the great financial crisis, there was a justified need to tighten the regulatory treatment and supervision of banks and insurance companies. But has the momentum carried on needlessly? It now seems like the flood of regulation concerning capital requirements and crisis mechanisms is endless.