The European Parliament elections in May this year delivered a result that is set to fundamentally influence the way financial services legislation will be discussed in the European Parliament. Contrastingly, the incoming European Commission leadership – which is set to assume office on 1 November – represents a strong sense of continuity as far as EU financial services regulation is concerned, with Latvian former Prime Minister Valdis Dombrovskis nominated to remain in charge of the financial services portfolio.
The coming legislative cycle is likely going to be marked by this dichotomy of a more fractured and more politicised European Parliament on the one hand and a node of relative continuity and stability on the other hand in the European Commission. May’s parliamentary elections resulted in a distribution of seats that for the first time saw the big centre-right (EPP) and centre-left (S&D) political families no longer commanding a majority between each other. In the new Parliament, both groups saw their numbers diminished, chiefly to the benefit of the liberal (ALDE/Renew Europe) and Green groups. This in turn means that during the coming mandate, political trade-offs with both groups will become a much bigger staple of financial services policy-making than has historically been the case.
When it comes to some of the bigger items that are set to be on the agenda for the next legislative cycle – e.g. the next round of revisions of bank capital requirements to implement the Basel IV accord, a wide-spectrum of sustainable finance initiatives including on green bonds, eco-labelling for financial products, a sustainability taxonomy and integration of sustainability considerations in non-financial corporate disclosure rules, as well as renewed scrutiny over anti-money laundering standards – trade-offs that may need to be made in the interest of finding majorities in the European Parliament could result in a wider set of political views and priorities from across the spectrum coming through in financial services legislation.
With this said, the next legislative cycle will also see a bigger shift away from post-crisis regulation of financial services to regulation impacting corporate treasury being tied to bigger and overarching policy priorities that are being advanced at European level. Competition with China and the United States in the data and digital space as well as being at the forefront of climate change mitigation and adaption are only two of those priorities that are likely to significantly shape financial regulation in the coming five years. EU political leadership wanting to promote a more assertive global role for the EU vis-à-vis its international competitors will also see a strong focus on fair taxation and promoting European financial infrastructure and markets (and being more protective of non-EU influence), including autonomous European payments infrastructure with the ultimate objective of growing the role of the Euro as an international reserve currency.
For the time being, the legislative machinery has not yet gathered steam, but subject to a successful vetting process of nominees for posts as European Commissioners in the European Parliament, European policymakers will turn their attention to concrete initiatives of the next five years from November onwards.