EU financial supervision still has a bumpy road ahead

BaFin CEO Mark Branson has been a passionate advocate for cutting red tape. For the first time, we will likely find that banks are open to his message. Its aim is to reduce complexity, sort out rules that have not worked, and have the same requirements for all market participants in Europe.

Some regulatory designs are so complex that they are seen as truly dysfunctional, and Branson cited EU regulation of sustainable financial products as an example. The regulations were intended to stimulate demand, but their implementation was so complicated that this effect was not achieved. Regarding the Markets in Crypto Assets (MiCA) regulation, he acknowledged that it was necessary, but also asked whether “do we really need 52 different pieces of legislation to transpose the EU regulation into national law?”

How right he is. Europe could be so simple if only member states were willing to give up some of their national areas of responsibility. This is an idea as old as the idea of ​​EU unity itself. Ultimately, national bodies such as BaFin would be largely redundant.

How this relates to proportionality, the need for which Branson also emphasizes, remains a mystery. The minimal level of compromise recently reached on the European Deposit Insurance Scheme (EDIS) has sparked huge outrage from two of the three pillars of the German banking sector. Savings banks and credit cooperatives are understandably concerned that their protection systems will fall victim to harmonization in the medium term.

Branson’s vision of centralized authority in some new areas that merely sets the framework and refrains from bureaucratically rewriting details is also unconvincing. This may somehow work for BaFin at the national level, but it paves the way for arbitrariness.

Given the current shape of the European Union, no centralized institution should receive such a sharp weapon. The path for a federation of sovereign states to a single regulated financial market remains difficult, and unfortunately Branson’s terse messages do little to change this reality.