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2 - The legacy effects of the financial crisis on regulatory design in the EU

Published online by Cambridge University Press:  05 December 2012

Eilís Ferran ,
Niamh Moloney ,
Jennifer G. Hill  and
John C. Coffee, Jr
By
Niamh Moloney
Eilís Ferran
Affiliation:
University of Cambridge
Niamh Moloney
Affiliation:
London School of Economics and Political Science
Jennifer G. Hill
Affiliation:
University of Sydney
John C. Coffee, Jr
Affiliation:
Columbia Law School, New York
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Summary

Examining regulatory change

Introduction

This chapter examines the European Union (EU)'s crisis-era reform program from a regulatory design perspective. In particular, it considers the legacy effects of the financial crisis on financial system regulation.

Financial system regulation is traditionally regarded as concerned with three objectives: financial stability; market efficiency, transparency and integrity; and consumer protection. In order to consider the legacy effects of the crisis on regulatory design, this chapter addresses the impact of the financial crisis on the latter two regulatory spheres: market (or securities) regulation – which addresses market efficiency, transparency and integrity, and the conduct of business regulation of market intermediaries – and consumer protection regulation. The chapter questions whether the initial crisis-era, financial stability-driven reform movement has led to regulatory innovation in these two cognate fields, the extent of the innovations and whether innovations have been productive.

Market regulation and consumer protection regulation were not part of the EU’s initial regulatory response to the crisis. Concerned with financial stability, the “first generation” response focused on prudential regulation and so on institutional and systemic stability. Bank capital, bank supervision and bank rescue and resolution proposals were the centerpieces of the initial EU reform agenda, reflecting the international agenda. But market regulation and consumer protection regulation have recently been caught up in the backwash of the financial stability-led reform agenda as a “second-generation” effect, as the EU has moved from shoring up financial stability to becoming the self-styled “architect[s] of a new financial system.” In particular, legacy effects related to the dominant financial stability agenda are reshaping the policy goals and the nature of market and consumer protection regulation more generally.

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The Regulatory Aftermath of the Global Financial Crisis , pp. 111 - 202
Publisher: Cambridge University Press
Print publication year: 2012

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