New Wave of Financial Regulations, Threats, or Opportunities Behind?

No one can dispute that we have entered a phase of new or revised financial regulations. EACT has identified 15 that will have a major potential impact on the life of corporate treasurers. It covers 5 main areas: (1) financing and issuance, (2) compliance and taxes, (3) hedging, (4) liquidity management and finally (5) payments in the broadest sense. We need to ask ourselves whether there are opportunities beyond the risks and impacts. Beyond all these barbaric acronyms (the inventiveness of the EU is limitless), there are essential rules or directives that will or should soon be familiar to us.

Regulations, the never-ending story…

We must ask ourselves if beyond the risks and impacts, there are opportunities. Beyond all these barbaric acronyms (the inventiveness of the EU is limitless), there are essential regulations or Directives that will or should soon be familiar to us. Indeed, EACT tries to positively influence the standards being developed or reviewed. It is a chance for treasurers across Europe to have such a dynamic association working for them and defending their business. But it is often a kind of prophet who preaches the good word and works on rules that will often only apply in one, two or three years. On that day, be sure that some treasurers will wake up and cry foul. They often arrive at the end of the road, when it is too late, and the die is cast. Indeed, and logically, when the discussion and advocacy game was being played, they had better things to do. This fully justifies the role of associations as guardians of the temple. The great difficulty with regulations is that they take time and when the time comes to try to influence unfavorable measures and defend one's interests, many have other things to do. Yet, the current period, post COVID crisis and at the time of a war in Europe, is the perfect time for a new wave of financial regulations supposed to correct the problems of the past and make the system less risky.

5 main axis, 15 regulations

There are many regulations ongoing or reviews at the moment. However, we wanted to identify the most relevant for CFO’s and Treasurers. We could differentiate the main axis as following:

1. Funding / issuing: CRR/CRD review on banking rule book (Basel 3); loosening of requirements for secondary issuances – EU Listing act; EU GBS proposal; ESAP proposal on creation of a database of company public disclosures.
2. Hedging: review of EU central clearing and margining rules for derivatives – including future of NFC exemption and pension funds exemption – EMIR review.
3. Liquidity Management: EU Money Market Funds reform with potential removal of LVNAV funds; possibility for NFC to trade on an electronic venue without a MIFID license – Mifir/R review
4. Payments: review of EU payments market regulatory framework (PSD2); creation of a digital euro CBDC and digital EUR proposal; possible broadening of the use of instant payments in the EU.
5. Compliance & Taxation: harmonization of EU’s AML/KYC requirements AMLR review; implementation of the OECD global tax agreement in the EU; DEBRA proposal; SCG proposal on new sustainable corporate governance and due diligence.

As we can see there is a long list (not comprehensive I am afraid) of coming regulations or amendments to existing ones. All these changes could have major impacts on treasury if not properly monitored and controlled. There are many consultations now and they require responses in case treasurers want to defend their function. The better the monitoring and the most proactive it will be, the more chances we will have to influence the regulations and to avoid provisions which could impact our day-to-day activities.

Threats or opportunities?

It is obvious that the treasurer generally sees the regulations or their amendments as a threat and a financial and administrative risk. For example, more expensive financing, more expensive coverage, more and faster documents to produce, prohibitions, tax restrictions, tedious reading pages, new reports to produce, etc... It is always easy to see the glass as half empty. However, I remain convinced that beyond these real risks and impacts, there are opportunities: reviewing and revisiting its procedures and policies, automating its organization further, taking advantage of notional interest, diversifying its financing methods within the framework of DEBRA or CMU, getting closer to its affiliates by opening the way to open banking and new payment methods, becoming more "ESG compliant" and therefore more virtuous and eco-friendly, reviewing its transfer pricing strategy and optimizing it, etc... As we can see, regulation, even if it is restrictive, can have benefits, notably that of making markets more transparent, efficient, competitive, accessible, resilient, and less subject to systemic risks. These are positive effects that are often overlooked and yet are essential. Who wouldn't want a more resilient financial system that is less subject to systemic risks? We believe that any regulation can be an opportunity to revisit its procedures and processes and consequently strengthen its internal controls. To avoid the threats, let's get involved and to reap the benefits, let's support the right measures.

As a conclusion, we could agree that financial regulations are like weeds, they keep coming back. It is a risk factor for treasurers to consider and address. Yet no recent treasury survey has identified this as a major risk. I can only be surprised, as there are so many measures in the European pipeline, with some which could have a significant weight and extra costs on our daily activities.

François Masquelier, CEO of Simply Treasury, July 2022 – Luxembourg

Disclaimer: This article was prepared by François Masquelier in his personal capacity. The opinion expressed in this article are the author’s own and do not necessarily reflect the view of the European Association of Corporate Treasurers (i.e., EACT).