European investment firms unite in Basel protest

European investment firms unite in Basel protest

Financial trade associations from eight EU countries have united behind calls for the European Commission to rethink plans to increase the amount of regulatory capital held by investment firms.

Commission representatives met yesterday in Brussels with trade associations from Belgium, France, Germany, Greece, Italy, Portugal, Spain and the UK. They are lobbying for changes to the proposed Risk-Based Capital Directive (formerly the Capital Adequacy Directive), which seeks to apply the so-called Basel rules devised for large international banks to Europe's financial services industry.

Angela Knight, chief executive of the UK's association of private client investment managers and stockbrokers (Apcims) argues that the Basel Accord is fundamentally flawed as it assumes that all firms are banks or bank look-alikes and need to hold capital reserves accordingly.

She says: "The fundamental problem is simple: the Basel formula is designed for at most a few hundred huge banks, yet the EU is proposing to apply the rules to many thousands of firms. An investment firm is not a bank. Unless the proposals are changed then non-banks will have big increases to their operating costs and the investor will suffer."

The Basel Accord, which is scheduled for introduction in 2007, is coming under increasing pressure from banking and investment trade groups worldwide amid anecdotal evidence that the regulatory resolve to push through the proposals in their current form may be weakening. Central bank heads hoped to have reached a final agreement by the end of the year, but that is growing less likely as criticisms of the proposals swell.

Says Knight: "It shows the seriousness of the problem when the representative bodies from so many countries come together with the same concerns."

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