Good regulation can do a lot of good

Regulation is necessary when it increases stability, predictability, confidence and trust. Without confidence and trust, everything would stop moving and the world would come to a standstill. But these cannot be created by some mathematical formula or brought about by force. No act or decree can create human emotion; legislation can only appeal to reason.

The majority of financial sector regulation is imposed by the EU, and it is important that it takes into account small countries and different markets. This is also the opinion of Finnish political decision-makers: up to 83% of decision-makers either agree (48%) or somewhat agree (35%) with the statement that EU legislation must be based on high-quality impact assessment that also considers small countries and the specificities of different markets. This was revealed in a survey commissioned by Finance Finland and conducted by Aula Research. Among the Social Democrats, the National Coalition and the Centre Party, up to 90% were in favour of the sentiment.

Finnish decision-makers and authorities have the duty to defend the interests of Finland and Finns at EU tables. Finland must promote regulation that is based on the Nordic market economy thinking and avoid excessive measures that extend regulation to areas typically beyond our regulatory culture.

Finnish decision-makers and authorities have the duty
to defend the interests of Finland and Finns at EU tables.

At its best, regulation can improve the financial sector’s capacity to spread wellbeing. Societies that have struck the right balance between regulation and market guidance see better growth.

But how is good regulation made? In terms of the financial sector, it is vital that we can influence the regulatory content during the drafting stage. In Finland’s national legislative work, the drafting process must be transparent and stakeholder groups must be allowed to take part in the preparation at an early stage. This can be done, for example, by increasing the number of working groups involved in the drafting. In EU-level regulation, the main shortcomings are related to the system not being transparent, especially in the preparation of lower-level regulation. All binding EU regulation, including technical standards, must be drafted as transparently as all other EU legislation. The number of public hearings and consultations must be increased and consultation periods extended.

Financial supervisory authorities need more power in supervision, not so much in regulation. The banking union’s joint supervision works well, but the supervision of other banks and the rest of the financial sector in general is too different in different parts of Europe. National supervisory authorities also apply regulation and related instructions in different ways. Harmonising supervisory practices could better facilitate cross-border trade and reduce overlap in reporting and other practices. It is therefore excellent news that the Commission is about to make the uniformity of supervisory authorities’ work a central goal in further work on the capital markets union, for example.

In essence, the effect regulation has on confidence and trust is simple: successful regulation increases confidence and trust, poor regulation undermines them. Good regulation can do a lot of good.

This column was originally published in the Verkkouutiset blog on 14 December 2022.