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Swimburne: Derivatives vote was for democracy and accountability

5 February 2013

Swimburne: Derivatives vote was for democracy and accountability

A leading Conservative MEP on the European Parliament’s Economic and Monetary Affairs Committee today expressed her satisfaction after the committee accepted her recommendations to reject potentially damaging proposals for regulating so-called over-the-counter derivatives trading.

A leading Conservative MEP on the European Parliament’s Economic and Monetary Affairs Committee today expressed her satisfaction after the committee accepted her recommendations to reject potentially damaging proposals for regulating so-called over-the-counter derivatives trading.

Kay Swinburne, Conservative MEP for Wales, said the vote had “drawn a line in the sand” by preventing a regulators body from extending their reach into areas which should be the domain of democratic and political decision-making.

In a narrow vote late on Monday, the committee decided by 24 to 20 to reject some of the rules drafted by the European Securities and Markets Authority (Esma).

These delegated acts had been prepared under the European Markets Infrastructure Regulation (EMIR) which governs the trading of derivatives. Under the regulation derivatives must normally be traded through a central counterparty in order to safeguard against systemic risk. However it was agreed during the passage of EMIR, in the level 1 text, that an exemption should be made for non-financial companies which trade in derivatives so as to hedge against circumstances such as oil price rises and currency fluctuations.

Dr Swinburne and rapporteur Werner Langen MEP both believe that the delegated acts do not adequately reflect the EMIR regulations requirement to allow non financial companies to make OTC derivative transactions without being subject to central clearing obligations and so tabled the successful resolution rejecting the problematic measures.

Both were concerned when the European Commission recently published several draft regulatory technical standards (RTS) without consulting the Parliament’s negotiating team, which had previously raised concerns about the interpretation of the text and blatant disregard for earlier agreements.

In the most stark example, ESMA chose to calculate thresholds for corporate exemptions by basing them on gross figures instead of assessing the overall net position of a non-financial company as detailed in the legislation. This directly contravened the Parliament’s objective that non-financial entities should be treated differently from financial entities – something which was consistently stated throughout the original agreed text.

Now the committee decision will be followed by a plenary vote of the full Parliament on Thursday.

Dr Swinburne, Conservative spokesman on Economic and Monetary Affairs, said: “The intention was always clear – companies hedging their business risk should not be subject to the same application of certain aspects of the rules as the banks and financial players.”

Speaking after committee vote to reject two of the RTS on the basis they do not conform to the level 1 text, she said: “I don’t want to see delays in the EU living up to its G20 commitments around central clearing and the reporting of derivative trades. There is no reason why this Motion of Resolution has to mean a long delay.

“This could be addressed efficiently in a timely manner, particularly if redrafting is based upon the kind of informal discussion with the Rapporteur and shadows that existed with the Commission under the old commitology procedures.”

“Respecting the democratic process of scrutiny does not need to delay the legislation by many months; but failing to get this right would set an unwelcome precedent for the co-legislative text to be ignored.”

” I hope that the whole Parliament will now vote to reject the regulatory technical standards, as currently drafted by ESMA and endorsed by the Commission, which are clearly in contradiction to the level 1 text.

“ESMA does not, and should not, have the power to make political decisions; that is our role and our responsibility. That is why we have drawn a line in the sand”

“Ignoring these changes to level 1 text could potentially carve the way to creating a European version of the US Commodity Futures Trading Commission and its style of rule-making, which is unaccountable and decided by unelected technicians. That is hardly the model we in European markets should be aspiring to.

“Establishing the European Supervisory Authorities to ensure a single rule book for financial services across the EU was an important step, but we should ensure that our right to scrutinise the resulting Rule Book is not diminished.”

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