Financial industry shapes EU regulation

The new ALTER-EU report 'A captive Commission - the role of the financial industry in shaping EU regulation' can be found at: http://www.alter-eu.org/en/system/files/publications/CaptiveCommission.pdf Brussels, November 5, 2009 - The vast majority of financial ‘experts’ advising the European Commission represent the banks and investors responsible for the global economic crisis, according to a new report published today by the Alliance for Lobbying Transparency and Ethics Regulation (ALTER EU) [1]. The Commission must break free from these advisors on financial issues if it is serious about reforming the failed financial system, say the authors. A captive Commission - the role of the financial industry in shaping EU regulation examines how before, during and in the wake of the worst financial crisis for a generation, the Commission chose to listen almost exclusively to the finance industry. Expert Groups – bodies set up to advise the Commission – which gave, or still give, advice on financial issues are overwhelmingly dominated by representatives from the financial industry, with scarcely any representatives from academia, consumer groups or unions. Case studies on key issues such as banking regulation, hedge funds, credit rating agencies, accountancy rules and tax havens show how the financial sector has been actively involved in designing the policies which contributed to recent financial instability. The European Union is now consulting the same experts on its plans to tackle the crisis. Paul de Clerck member of ALTER-EU’s steering committee, said: “The Commission only seems to be interested in listening to the advice of the finance industry, rather than acting in the interests of society. Light touch regulation may have made it easier to do business, but it has not protected our savings and our pensions from being gambled away. Now the Commission tells us they are tightening the rules but in reality their proposals still leave many loopholes. If the Commission wants to restore confidence in our financial systems, it must break free of this stranglehold of partial advice.” Poul Nyrup Rasmussen, President of the Party of European Socialists and leading campaigner of the Europeans for Financial Reform coalition, said: "I want a strong, transparent and competitive financial industry. The crisis showed that the financial industry was short-termist, overleveraged and disengaged with the needs of the real economy. "The danger we now have is the financial industry investing massive resources into capturing regulation for its private benefit to the detriment of the end-beneficiaries: the individual citizens and businesses in Europe and across the world who've suffered the consequences of this crisis." Expert Groups dominated by large private banks, insurance giants and a range of financial enterprises wield significant power within the EU legislative process – from the drafting of EU strategies and laws to their implementation. Today, there are19 expert groups advising the Commission on financial issues. Of these 19 groups, seven consist mainly of representatives from member states. Of the remaining twelve groups, eight are dominated by industry, one has equal non-government and industry membership; and three cannot be assessed as their full membership is not disclosed. [2] Within the 19 groups, industry experts outnumber representatives from academia, consumer groups and trade unions by a ratio of four to one [3]. Industry experts even outnumber civil servants responsible for financial policy-making [4]. This imbalance in the membership of Expert Groups is putting the Commission in breach of its own regulations. Commission guidelines on the use of expertise state that a diversity of views must be sought. The European Parliament should not approve the budgets for these Expert Groups as long as they remain so unbalanced. [5] ALTER-EU is calling on the Commission to:  Disclose membership (names and organisations) and documents (reports and minutes) of all groups that have been or still are advising the Commission on financial regulation since it set about creating a single market for financial services.  Dissolve groups that are controlled by industry interests or take steps to ensure balanced representation.  Not set up any new Expert Groups advising on financial issues unless transparent and fair mechanisms that guarantee equitable consultation of all stakeholders are implemented. ALTER-EU also urges the Commission to reform the way in which it gathers expert advice by ensuring a more transparent process and a genuine commitment to seeking a diversity of views. NOTES: [1] A captive Commission - the role of the financial industry in shaping EU regulation can be found here: http://www.alter-eu.org/en/system/files/publications/CaptiveCommission.pdf [2] See full report chapter 3.4 [3] There are 229 industry representatives, compared to 58 representatives from all academia, unions and consumer groups combined. [4] 229 corporate advisors compared to around 150 Commission civil servants charged with policy making in the financial sector. [5] Commission’s guidelines on the use of expert advice, COM (2002) 713 final, http://eur-lex.europa.eu/LexUriServ/site/en/com/2002/com2002_0713en01.pdf