Jonathan Hill, the European Union's financial services chief,asked the industry for “empirical evidence and concretefeedback” on how laws put in place since the crisis are hinderingmarkets and growth. The lobbyists let him have it.

The U.S. Chamber of Commerce, which calls itself the world'slargest business federation, told Hill that financial rules areforcing companies to rethink their businesses and maybe even theirpresence in Europe. Bond traders said one regulation could shutdown some debt markets. Even the U.K. accounting regulator had amessage for Brussels: Write simpler rules and considerderegulation.

These pleas and grievances were contained in just some of thehundreds of pages of letters that piled up on Hill's desk inBrussels after he announced in September that he wanted to reviewthe vast array of financial regulations passed in response to thefinancial and debt crises. Letters poured in by the Jan. 31deadline, supporting the review and lobbying for scores of changesthat Hill already has said he might consider.

“The reforms were necessary; they have created morefinancial stability,” Johan Thijs, chief executive officer ofBelgian bank and insurer KBC Groep NV, said at a regulatoryconference on Jan. 28. “The question is, what is the optimal point?How far do you need to stretch regulation? Are we now pushing itover its optimal point?”

Hill's predecessor as EU financial-services commissioner, MichelBarnier, famously pushed through more than 40 laws that overhauledmarkets and industry. Hill took a different approach from theoutset. In his reply to lawmakers' questions before hisconfirmation hearing in the European Parliament, Hill saidregulation was entering a “new phase” focused on “implementation,enforcement, and evaluation,” not on rule making.

In part, this line was dictated by the emphasis on creating jobsand jump-starting economic growth laid down by Jean-Claude Juncker,president of the commission and Hill's boss. Juncker “has set me avery clear political objective,” Hill wrote to the lawmakersconsidering his nomination: “to play my part in contributing to ourcollective agenda of encouraging jobs and growth through thedevelopment of the capital markets union.”

“There is a price to be paid to have financial stability as apublic good,” Erik van der Plaats, a senior official on financialmatters at the European Commission, said at the same regulatoryconference in Brussels. “Have we gone too far? Well, you tellus.”

Are EU Regs 'Working as Intended'?

Hill's review sought feedback in four areas: the ability of theeconomy to finance growth, if there are unnecessary regulatoryburdens, inconsistencies and gaps in rules, and if rules are givingrise to unintended consequences.

The goal of the review is to see if legislation is “working asintended,” Hill said in a speech in Brussels on Feb. 1. “Our callfor evidence has just ended,” Hill said. “We'll now go through thehundreds of detailed pieces of evidence we have received.”

The U.S. Chamber of Commerce said in its letter to Hill that thereview “is extremely important” and that the EU should assess boththe impact of regulations already in place as well as those thatstill loom.

“It is clear from discussions with our members that the legal,business, and operational challenges resulting from theimplementation of these regulatory changes are forcing them toreconsider their activities, and even presence, in Europe,” theWashington-based Chamber said.

The Chamber and the Association for Financial Markets in Europe,which counts Barclays Plc and Societe Generale SA among itsmembers, called on the commission to reconsider the need for abill, currently mired in parliament, that could separate banks'retail operations from riskier investment banking arms. Thelobbying groups said the legislation would hurt the Europeaneconomy and the ability of banks to finance investment.

In a 116-page response and 45-page annex, AFME called onregulators to pause before imposing new capital requirements andfor Hill to conduct an economic estimate of pending regulations forbanks' trading books. The group asked Hill to use the results ofsuch a study to possibly push for changes in rules set by the BaselCommittee on Banking Supervision.

It's a Good Time for Europe to Revise BankingRegulations

The International Capital Markets Association (ICMA), whichrepresents banks, brokers, and investors in debt markets, said in aJan. 20 letter to Hill that one requirement buried in a 2014regulation could significantly increase trading costs in sovereignand corporate bonds and repurchase agreements. The regulationmandates that trading venues or debt buyers appoint a third partyto resolve failed deals in which sellers don't provide securitiesto buyers in a timely fashion.

The association said capital requirements and other regulationssince the crisis have discouraged banks from holding largeinventories of bonds, making it less likely sellers will have thespecific bonds investors seek when they place an order. Themandatory buy-in requirement would be triggered if the seller can'tquickly locate the security, which can be difficult in markets withlow volume or few traders.

The group concluded in a study last year that “for manyless-liquid bonds, including sovereign and public issues,market-makers will retrench from providing liquidity altogether,”the association said in the Jan. 20 letter. Markets for certaincorporate bonds “may effectively close,” according to ICMA.

On Monday, the European Securities and Markets Authorityproposed an exemption from the regulation for certain securitiesfinancing trades.

The European Banking Federation (EBF) decided to “focus” on 55different issues, “on which we sought to bring concrete andproactive solutions that would help to serve the real economy.”

“It is now a good time for the European Commission to operate arevision of the regulatory framework in the area of bankingregulation and supervision,” the EBF said.

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