Jerry Lampen/ReutersSteven Maijoor, the chairman of the new European Securities and Markets Authority
PARIS — Steven Maijoor, the chairman of Europe’s new securities regulator, has been piling up the frequent flier miles.
On a recent three-day trip, Mr. Maijoor, a former college professor, met fellow regulators in Frankfurt, spoke to institutional investors in Tallinn, Estonia, and held meetings with European politicians in Brussels.
“I knew this would be a hard job,” Mr. Maijoor said in his newly furnished office in central Paris with views of local landmarks, including the Sacré-Coeur Basilica and the Louvre. “Sometimes I tend to leave the office late, and I’m certainly still not the last one out of the door.”
As chairman of the new European Securities and Markets Authority, Mr. Maijoor faces a big task ahead. The organization, which started work at the beginning of 2011, is trying to create one set of securities rules for all 27 members of the European Union.
The streamlined regulation is long overdue. While much of Europe’s financial services industry has been integrated over the last decade, the Continent’s regulation is still largely carried out at a domestic level. During the sovereign debt crisis, for example, investors in some European Union countries were able to bet against banking stocks, while such short-selling activity was banned in other jurisdictions.
The lack of coordination has proved problematic. As markets struggled in the aftermath of the financial crisis, European authorities did not have a clear picture about the performance of complicated financial instruments, like credit-default swaps.
“There’s a likelihood that the impact on the financial system could have been smaller if we had access to more information,” Mr. Maijoor said. “Now, we’re in a much better position than before the credit crisis.”
Mr. Maijoor, previously managing director at the Dutch financial markets regulator, has spent much of his first year in charge getting national regulators to share more information. Along with constant trips across the Continent to meet local authorities, he also heads the organization’s board of supervisors, comprising representatives from the European Union’s 27 national regulators, which meets regularly to decide on new regulation.
Mr. Maijoor, the former dean of Maastricht University’s School of Business in the Netherlands, has also consulted with international counterparts, including the Securities and Exchange Commission, as part of a global effort to increase transparency in the financial markets. That includes weekly discussions with authorities to iron out differences that could potentially lead to regulatory arbitrage between the United States and Europe.
“We already have a pan-European financial market, so it’s crucial there’s an institution that can coordinate all the regulation,” said Diego Valiante, a research fellow at the Center for European Policy Studies in Brussels. “It’s highly dangerous to have fragmented supervisory mechanisms.”
But Mr. Maijoor’s efforts could to be hampered by limited resources. The regulator’s 2011 budget is 16.9 million euros, or $22.1 million, compared with $1.1 billion the S.E.C. receives. It has a permanent staff of 60, which will rise to 200 over the next three years. Its counterpart in the United States employs more than 4,000.
Bureaucratic challenges also may take their toll. The European agency’s legal structure gives all 27 of the European Union’s national regulators a vote in rulemaking. Disagreements could delay reforms or force stand-offs between countries that differ on new legislation.
Market participants also are concerned about the agency’s close ties to European politicians, many of whom vocally criticize the financial services sector’s role in the Continent’s debt crisis. The regulator is overseen by the European Commission, the nonelected executive branch of the European Union that is appointed by national governments.
“People are worried that decisions critical to the future of Europe’s economic union are being taken in a nontransparent forum,” said Etay Katz, a banking regulatory partner at the law firm Allen Overy in London. The securities agency “faces a steep change in European financial regulation. There’s a big question whether it has the capacity to stand on its own.”
Despite the lingering concerns, Mr. Maijoor and his team are moving ahead. Two months ago, the organization, whose staff is drawn from more than 15 European nationalities, started supervising credit ratings agencies in Europe.
It has been an especially thorny issue. European politicians have been critical of the big American players like Moody’s Investors Service and Standard Poor’s for failing to catch problems with subprime securities before they started to implode during the financial crisis.
Now, companies offering ratings on financial products to European investors must register with the new authority. It will carry out inspections on their internal governance and risk mitigation practices. If inspectors find problems, the regulator has the right to fine, sanction or even withdraw a firm’s license. The initial checks are expected to start in early 2012.
This is the first time ratings agencies in Europe have been regulated. The regulator will soon get similar powers to supervise the Continent’s trade repositories, institutions that collect data on opaque over-the-counter derivatives contracts.
“We’re going to be knocking on rating agencies’ doors to see what’s been going on,” Mr. Maijoor said.
The major ratings agencies declined to comment. A market participant familiar with the regulator’s new role said the pan-European approach would help improve regulatory consistency, but expressed concerns that it could be subject to political influence.
“Right now, E.S.M.A. doesn’t have direct regulatory responsibility for anything else, so the ratings agencies are being treated like guinea pigs,” the person said.
Mr. Maijoor’s agenda for next year is packed. As part of the push to increase oversight of the financial markets, the new organization has been charged by the European Commission with writing dozens of new regulations. It is the first time a pan-European institution has been given specific powers to draft rules that affect all of the Continent’s markets.
The authority “has taken on a special role because of its powers to set rules,” said Bert Van Roosebeke, head of the financial services division at the Center for European Policy, a policy research organization based in Freiburg, Germany. “In the future, they will want to flex their muscle to show that they’re in charge.”
The organization is in the process of writing new standards for short-selling practices across Europe. The regulator has the power to ban financial products that it believes are a threat to European investors or market stability. This year, Mr. Maijoor helped to coordinate a temporary ban of short-selling in some euro zone countries.
Standards are also expected on the expanded role for clearinghouses — financial intermediaries that guarantee trades if one side defaults — and trade repositories in the over-the-counter derivatives markets. Under current proposals, derivatives contracts traded over the counter will be moved to exchanges and forced to use clearinghouses, as regulators try to increase oversight of the market.
“The flow of regulation that E.S.M.A. has to draft is a huge amount for such a small number of people,” said Mr. Valiante of the Center for European Policy Studies. “It’s going to be very busy during 2012.”
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