Brussels watchers are holding their breath waiting to see the first moves by Commissioner Barnier as he settles in to his new role at Internal Market Directorate. Barnier appears to be very different from his free-market predecessor Charlie McCreevy but he doesnt have a free hand in deciding policy initiatives. His in-tray is already quite full with many half finished initiatives from the previous Commission. So what are his priorities? The most pressing issue is a compromise on the AIFM aimed at hedge funds but which bizarrely also has private equity in-scope. Because of the political agenda this directive isnt going away but surely it has to be modified. As well as the predictable barrage of hostile industry responses many genuine legal and technical issues have also been raised. However the legislation is at an advanced stage where the normal process is to make tweaks, not wholesale changes. My advice to the industry is to accept that the directive will happen and suggest workable compromises. Constant reference to the process being too political is counter productive. It makes the proponents ever more determined. The next priority is surely OTC derivatives and market infrastructure. Unlike the AIFM enough time has been given for proper industry consultation. At present the member states are meeting frequently to agree priorities. The smoke-signals are mostly encouraging except for the considerable distance between the Commission and the UK government. The final big issue already underway is the MIFID review. The scope of this analysis is extremely wide ranging and, so far, the focus areas remain unclear. So how is all this change affecting the Omgeo community? The answer is right now hardly at all. Whilst we all know that something is going to happen we dont know what. No dealer or investment manager can start redesigning structure, process or business model based on the current level of detail. Casual feedback from our clients is that even the Volcker Rule is not assumed to be a done-deal. Whilst many see its logic those of us at the sharp-end cant see any practical method of implementation. So what is real? The answer is Basel. Basel3 may take a year to agree but it will answer the question every banker is asking: how much will I have to pay? I suspect that when the analysis phase concludes Basel3 (and its EU offshoot the Capital Requirements Directive) will be seen as the most practical way forward. Regulators can give up the idea of telling banks what they can and cant do, or how to do it, and instead focus on charging a risk premium. And it can be enforced globally. Lets get on with it.
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