The European Union financial services industry must act fast to avoid a regulatory backlash and mandatory change, the bloc's top market regulator said on Thursday.
EU Internal Market Commissioner Charlie McCreevy, responsible for shaping the 27-nation bloc's financial rules, said the global credit crisis highlighted flaws but ultimately markets must self-correct.
"If the industry wants to avoid a regulatory backlash, it must show itself capable of stepping up to the mark. Not with a grudging de minimis approach, but with real leadership and commitment," McCreevy said in a speech to the Royal Institute of International Affairs in London and made available to the media.
Turmoil began last August when problems in the US home loan sector began to unsettle global markets.
"Is it not surprising, indeed stupefying, that over six months into this crisis we still don't know the full extent of the problem. Such opaqueness has also prevented effective crisis management," McCreevy said.
"We must have appropriate data and disclosure that could help identify problems in the securitised market at an early stage. Market participants should deliver it and deliver it now," McCreevy said.
Banks showed signs of "failing standards", he said.
"Banks built up risk exposures but without any corresponding capital buffer. How could this be defendable? And how could top management allow this to happen? Or regulators, with some small banks clearly over-exposed by any measure of risk," he said.
Changes to Basel II rules that govern how much capital banks must set aside to cover risks on their books will be proposed this year, focusing on liquidity risk management, concentration risk and securitisation.
Credit rating agencies, which gave good ratings to securitised products that sank in value, also had to adapt.
"I do not think credit rating agencies can expect to emerge from this crisis without significant changes to the way they operate," McCreevy said.
"So the burden is on them to come up with real improvements. Otherwise we shall have to do this for them," McCreevy said.
Even regulators themselves needed to understand securitised products better. (Reuters)
Banks must act to avoid regulatory backlash: EU