Harmonising and Regulating Financial Markets

Abstract

This paper discusses problems of harmonisation and regulation of the European Internal Financial Market. The argument is that the current division of powers between the EU and Member States is not achieving sufficient harmonisation to develop an internal market. The obstacles to the Internal Financial Market presented by national regulatory and supervisory regimes remain too high, and the EU minimum standards and mutual recognition regime has failed to lower these barriers sufficiently. There is a need for broader based regulatory and supervisory institutions, undertaking at a European level what cannot effectively be done at a national level, including providing a system for preventing and dealing with systemic crises and risks of such crises. The European Central Bank may develop a response to the latter, but the establishment of an EU financial market regulator is the better solution. The paper also addresses some of the agency problems of the decision making process, and the crisis driven nature of regulatory reform. The paper was delivered at the W G Hart Legal Workshop at the Institute of Advanced Legal Studies, University of London in June 2008 and an earlier version was delivered as the Annual Guido Carli Lecture at the University of LUISS Guido Carli, Rome in 2006.

Keywords: Harmonization, Regulation, European Internal Financial Market, EU Minimum Standards, Mutual Recognition, European Central Bank, EU Financial Market Regulator, Agency Problems, Decision Making Process, Crisis Driven Regulatory Reform

JEL Classification: G20, K22, K23, K33