Making a PIIGS ear of financial regulation

Thu May 17, 2012

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Comment by Joy Dunbar, Editor of Absolute UCITS


The economies of the so-called PIIGS (Portugal, Italy, Ireland, Greece and Spain) have dominated the political agenda in Europe ever since the Greeks started to be unable to pay their debts in 2010.

This economic euro explosion, stemming from the Greek budget deficit spiraling out of control, has resulted in threats of it leaving the single currency and created fears of contagion to other weak Eurozone countries.

This has resulted in turn in an uncertain future for the currency that has dominated the agenda in Europe both politically and economically.

The credit crunch of 2008, which exposed the weaknesses in the PIIGS economies, has also resulted in increased regulation for the financial services sector. The direct response from Brussels to this crisis was the Alternative Investment Fund Managers Directive and the level two implementation measures are currently being discussed.

However, the directive has effectively been put on the backburner by Eurocrats because it is a low priority in comparison to the potential global financial Armageddon that could ensue if the euro fails.

But the levels of regulation are set to increase. From Europe there are new regulations about OTC derivatives, investment funds, shadow banking, UCITS and a host of others in a veritable alphabet soup of new acronyms. The European financial services industry has also been affected by new laws from the US.

This has resulted in some experts describing the sheer volume of financial services regulation being consulted upon, discussed and reviewed as a 'regulatory tsunami'. Many have complained that the quality of new regulation could be compromised because of its sheer volume - and that the rush for quick responses and short consultation periods may result in weak legislation.

But the focus is still the euro. At this stage we do not know what countries will be part of the euro in the long or short term or the potential impact if any countries exit it.

While regulators rush to put out the fire of the euro currency crisis, another financial crisis could be created, by regulations that are made in haste, rushed and poorly thought through.

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ISSN: 2151-1845 / CDC10004H