The EU's regulatory dialogue with United States regulators and supervisors is 14 years old this year. The global financial landscape has fundamentally changed since then and multilateral structures created in the post-crisis years to develop global financial stability standards have already altered the way the EU and the US work together. Last year the European Commission, along with its US partners, started to explore ways of achieving even better bilateral regulatory cooperation. The outcome of these discussions was reflected in the first Joint EU-US Financial Regulatory Forum in Washington on 18 July. Elena Peresso, policy expert at the European Commission, explains in more detail.

The 'Forum'

The way the EU and the US ensure financial stability today is very different from how it was in 2002, when the Financial Markets Regulatory Dialogue (FMRD) was established. The global financial crisis of 2008-2009 forced new structures, new rules and new relationships. Whereas the EU-US FMRD had started off as a bilateral channel of cooperation, it increasingly had to take into account a new multilateral dimension – the G20 Financial Reform agenda and work in the relevant standard-setting bodies.

Since the crisis, there have been many more opportunities to meet and understand each other's respective regulatory systems. Participation on the EU side has expanded to include European Supervisory Agencies and, since 2016, the Single Resolution Board and the Single Supervisory Mechanism. On the US side, new agencies joined following the entry into force of the Dodd Frank Wall Street Reform and Consumer Protection Act in 2010, which is the mainstay of US regulatory response to the financial crisis.

More recently, EU and US negotiations on a Transatlantic Trade and Investment Partnership (TTIP) have provided an additional stimulus to update regulatory cooperation. Since 2013, the Commission has been trying to negotiate binding provisions on regulatory cooperation in financial services in TTIP but the US is not in favour of pursuing regulatory cooperation in this sector through TTIP.

Former Commissioner for Financial Services, Financial Stability and Capital Markets Union Jonathan Hill, was open to exploring other ways of improving EU financial regulatory cooperation with the US. The Commission then followed up with the relevant US regulators building on the FMRD. The objective was to deepen the dialogue on financial regulation and identify potential problems at an earlier stage of the regulatory process. At the end of June 2016, senior-level officials on both sides agreed the substance of a draft exchange of letters signed by European Commission Vice President Valdis Dombrovskis and US Secretary of the Treasury, Jacob Lew. The letters set out a new way of working through the 'Joint EU-US Financial Regulatory Forum' (or 'Forum' for short).

Main changes

From now on, the Forum will be used to address – as soon as is feasibly possible – potential problems deriving from rules that are not perfectly aligned, or even result in discriminatory treatment. Both sides have agreed to consult each other as early as possible in their respective rule-making processes.

As jurisdictions, the EU and the US have different systems for accepting each other's standards. Most EU financial sector legislation contains provisions to allow the recognition of equivalence for non-EU country rules. In the US, the most common way of achieving the same result is through a system known as substituted compliance. Neither system applies automatically. Rules are screened on both sides. In the EU, one of the European Supervisory Agencies is often called upon to draw up a technical assessment. These are processes that can take some time and do not always lead to a satisfactory outcome. It is hoped that the Forum will make these processes easier.

Senior-level meetings involving EU and US regulators will continue to take place twice a year, alternately in Brussels and Washington D.C. However, there will now be more work done between meetings. For example, discussions involving experts on both sides have already begun in certain areas, such as 'total loss absorbing capacity', or TLAC. And in July, a workshop discussed ongoing international work on CCP (central clearing counterparties) recovery and resolution. Once a year, the Commissioner for Financial Stability, Financial Services and the CMU and the US Secretary for the Treasury will meet to review the functioning of the Forum and provide high-level direction for work going forward.

Importantly, the Forum should be used as a sort of clearing ground to solve bilateral issues before they become more serious problems. In this way, it is hoped that it will contribute considerably to improving future regulatory cooperation between the EU and the US.

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