Welsh Conservatives in the European Parliament
Dr Kay Swinburne MEP

Never Waste a Good Crisis, Aberystwyth University School of Management and Business, 01.11.10

Diolch am y gwahoddiad i siarad yma heddiw - Thank you for the invitation to speak to you here today.

As many of you will already know I am one of the four Welsh MEPs and although we all work collectively for Wales on Welsh issues despite our political differences, we also all sit on different European Parliament committees. My primary committee is that of the Economics and Monetary Affairs Committee and given the depth and breadth of the financial crisis and its aftermath, I also sit on a special temporary committee know as the Committee on the Economic, Financial and Social Crisis.

When I became an MEP, my political group in Europe, the European Conservatives and Reformists Group, asked me, along with all my colleagues, to rank my preference for committee membership. Given my constituency, I chose Agriculture and Regional Development, but as you've probably all worked out by now, my preferences were not granted as the new Parliament began in July 2009, at a time when the Parliament was discussing the role of legislation in preventing a future crisis in the financial services.

Given that prior to becoming an MEP I had worked in corporate finance internationally for an investment bank for most of my career and more latterly ran an investment fund management company, my colleagues felt my skills were better placed as the Group's Co-ordinator for the ECON and CRIS committees. What they didn't tell me was that this committee was dealing with more legislative proposals in the first year than all the legislation in the previous Parliament session of 5 years.

The ongoing financial crisis has taught regulators, supervisors, central bankers and politicians a number of substantial lessons and as a result, numerous policies are emerging, on a national, regional and global basis. The emergence of the G20 as a co-ordinating decision-making body is an unexpected result of the financial crisis. The challenge globally will be to translate the decisions made by this group of 19 countries and the EU taking the 20th seat into real, co-ordinated actions which minimise the opportunity for regulatory arbitrage across the global financial centres.

The G20 group has identified a number of issues that legislators needed to tackle globally and have a common objective to ensure that no player, market or product participates in the financial sector unregulated. In Europe, supervision across the Member States was identified as a weakness, particularly as financial service companies are typically operating cross-border and so the Commission asked Mr de Larosière to gather a group of wise men to devise a new supervisory architecture for European Financial Services. By the 1st January 2011, 3 new authorities will be formed, the ESRB.

The three main lessons to be learned so far seem to be:

1) Regulatory gaps need to be closed by extending regulation and supervision to all markets, financial products and financial entities - encompasses Derivatives and Alternative Investment Fund Manager Directives, two proposals I will return to in depth.
2) To ensure transparency in all products and markets to give investors and regulators full information risk as well as potential rewards.
3) Systematic risk is not restricted to banks and therefore any assessment of measures to mitigate risk such as capital should be extended to any systematically important financial institutions, SIFIs.

So, when I try to consider the thread that guides the many pieces of financial reform legislation in both the EU and the US this is often the expression I am left with - "Never waste a good crisis". Many new rules and principles are needed but some we are working on are of dubious value as I will discuss.

In the EU we are currently working on a number of legislative proposals, and aiming to complete them in the next 18 months! In the US, the Dodd-Frank bill runs to 2300 number of pages, with the SEC, the Federal Reserve and the CFTC given the mandate to write hundreds of rules, in a similar time frame.

How many of them, had they been in place before 2008, would have prevented the financial crisis? How many of them would have prevented the euro zone sovereign debt crisis?

Personally, I am not convinced many of them would have.

However, in the emotive world of politics, we bow to public opinion and the will of the people - or often the will of the media. So the very first piece of legislation to come across my desk 18 months ago - and also my first EU acronym - was the AIFMD - the Alternative Investment Fund Managers directive - rules for hedge funds.

Or the swarm of locusts that is bleeding the real economy dry!

This directive was prioritised as the very first thing the EU should do as a result of the crisis - no matter that hedge funds received no tax payer bail out, no matter that precisely the reason so many are based in the EU - or rather London - is because investors trust that regulation is strong here and will protect them - even if they could get a better tax break by going to a sunny Cayman island tax haven. These hedge funds, according to many French and German MEPs, were unregulated entities roaming loose in the EU markets, preying on small investors and companies.

And so the AIFMD was born. For good luck, the powers that be also threw in Private Equity and Venture Capital funds. Never mind that only 6 months before the European Parliament had passed a resolution decrying the fact that there was not enough risk capital in the EU to allow innovative companies to grow - particularly in comparison to the US - now we apparently need to clamp down on "asset stripping".

Following 18 months of intense lobbying by the sector, 1669 amendments by the parliament, 3 successive European Council Presidencies; who each rewrote the directive at least twice, and 75 hours of trialogue and negotiation, last week a deal was reached.

There will now be European rules on leverage, depository arrangements, passive and active marketing and access to EU markets by third countries.

Thankfully, I think most of the new legislation will simply extend what was already required by the UK to the rest of the EU - and will give the added bonus of an EU "passport" which will mean that instead of having to comply with 27 member state's rules, hedge funds will ultimately only have to comply with one unified set of rules - ultimately meaning less regulatory burden in the long run.

One of the things that kept the AIFMD in the media spotlight for 18 months was the international dimension to the debate. As always, certain member states - naming no names - will do anything to "protect their markets" - as they see it protecting them from a swarm of American locusts was therefore high on their agenda.

As such, Tim Geithner, US Treasury Secretary, began a long letter writing campaign to the EU internal Markets Commissioner, Monsieur Barnier, the President of the European Parliament, Jerzy Buzek, the Chair of the Economics committee, Sharon Bowles, the President of the European Council - Spanish, Swedish and finally Belgian, even the Financial Times - anyone who might be able to influence the process and allow US hedge funds to continue investing in the EU.

Again, ultimately, a deal was reached - but I think it taught the EU institutions a valuable lesson that is being carried over into other pieces of legislation - finance is a global business that requires global regulation and global coordination. Statements from the G20 are all well and good, but they have to be backed up by real dialogue to come up with a proper framework for action.

I'm happy to say that this sense of cooperation comes through loud and clear on yet another emotive topic - derivatives. The so called Weapons of Mass Destruction that were so complex they  apparently torpedoed the entre financial system!

Unlike the approach to hedge funds, prior to draft legislation going onto the table, derivatives have been subject to intense consultation with industry, intense consultation with the EU member states and their financial supervisory authorities, and intense consultation with US regulators.

I think the fact that the regulation itself is motivated by the feeling that even those creating and using the products didn't understand the interconnectedness of risk has allowed law makers the freedom to admit they don't know, and go out and discover precisely what the problem is and what solution will suit the market and actually work.

Perhaps this is why when the regulation came out there were so few surprises in it. Unlike the hedge funds directive, the lobbyists that have been pouring through my doors start their pitch with "It's a good regulation but we have this tiny problem with it" as opposed to "its terrible", "this will destroy my business model" "if they go ahead with this I am moving my business to Switzerland".

"EMIR" as the derivatives legislation is known in Brussels, will mandate central clearing for certain derivative products, set rules for standardising certain products and require all trades to be reported to trade repositories.

Transparency is the key.

As with Saddam Husain's fabled Weapons of Mass Destruction, once the proper authorities are able to fully investigate, the threat is likely to fade away.

The hope is, that once derivative products are reported, cleared and traded on exchange, the sting will be taken out of them.

Thanks to the commitment made at the G20 in Pittsburgh, the international cooperation on derivatives legislation is very positive. Gary Gensler, one of the Commissioners at the CFTC has used a very different approach to Tim Geithner. In approaching European legislators he has looked to use his discretion as a regulator to make US rules fit European rules - he even went so far as to say he would write the rules to suit us! Not a statement made by many Americans abroad!

However, this does bring up a very important point on the different methods the US and the EU are using to reform financial regulation.

The Dodd-Frank bill, that I don't think anyone could have missed the dramatic passing of last year, is a very political process, where senators and congressmen set high level principles and then assign rule making powers to other bodies - like the SEC or the CFTC - so the experts work on the details.

In the EU, the politicians decide on the detail. Although we have just set up European equivalents of the FSA in banking, securities and markets and insurance, as the Member States (any myself) do not wish to endow unelected EU institutions with too much power - they are given very tight parameters within which to operate. Between the representatives of the Member State's governments in the European Council, and the European parliament, we decide on the detail of the legislation although the Commission initiates it.

For example the Dodd-Frank bill states that eligible derivatives should be centrally cleared - we have a 20 page document that is its equivalent that will state what it is to be an "eligible" product, what criterion will be used to decide, how a clearing house will function, even down to a figure on how much capital it will be required to hold and of course, where it will be located. All decided by the politicians.

I have to tell you, while I have a background of 15 years in the financial services sector, most MEPs do not!

I don't know which system "works" better - setting principles then sending the experts off to do their work behind closed doors, or using non-experts in a transparent and more accountable way, taking advice from experts and industry along the way, one hopes.

In the end I think on most things we will all end up in the same place, even if we get there by different means. And that is the most important thing; as if there is one thing banks and the entire financial services sector are good at it is arbitrage. If they can play the rules of one jurisdiction off against the rules of another jurisdiction - and make a greater profit in the process - they will.

This brings me to the next evil player that politicians and regulators feel the need to clamp down on as a result of the crisis - The Speculators!

Did you know that apparently motivated Speculators attacked the euro zone last year as they clearly conspired to destabilise the entire currency and certain individual countries - like Greece for example?

Precisely who these speculators are is beyond me - I certainly haven't met any lately!

There are investors and market participants who looked at the amount of debt that Greece was taking on, the huge weight of their welfare system, their lack of ability to collect taxes - and the fact that they had been feeding dubious statistics to the EU - and made the legitimate assumption that problems were going to follow.

While at its height, the sovereign debt crisis in Europe attracted no less hyperbole in the media than derivatives or hedge funds, it has taken a lot more time to find a solution.

In the short term, the euro zone member states, and a few extras, banded together to create yet another acronym - the EFSF - the European Financial Stabilisation Fund - comprised of 750 billion euros, to convince the markets that they should regain confidence in the Euro.  But in the long term they are looking at a new system of "economic governance", to prevent it happening again.

The basic idea behind this principle is simple - make the rules that all euro zone member states signed up to when they joined the euro binding, and if you break the rules, you get punished.

Naturally there are lots of details still to be decided regarding the precise levels Member States deficits should be, just how early sanctions should be applied to avoid the build up of bubbles or unsustainable government spending as well as more obviously political questions like:
How automatic the sanctions need to be?
Would this be giving too much power to the commission to impose things on Member states?
Some MEPs would certainly like these rules and measures to be applied to the entire EU and not just the euro zone - I hope they stay in the minority on that one - but it is of course open to democratic debate.

Thankfully there is plenty of time for that as very few of the euro zone member states are anywhere near the deficit levels they are supposed to maintain as part of the stability and growth pact!

I think there is a lot of logic in the debate over whether countries with a common monetary policy also need to have a common fiscal policy - it is one of the reasons the UK cited for not joining the euro zone - Why should prudent Germans who have been strict on public spending to keep their deficit low, fund profligate Greeks who retire at 50 and have let their deficits run away with themselves?

The obvious answer to this is that they shouldn't. When you sign up to join the euro, you know the rules of the game and should stick to them. Full stop.

But I am from one of only two member states that has not pledged to join the euro as part of the Lisbon Treaty - only Denmark and the UK have a derogation from this. But for countries like France, even though they are in favour of the euro and more European integration, they still want to keep sovereign control over their fiscal policy - no matter what pledges they have made and broken in the past.

I think it is a political debate that still has a lot of arguing and wrangling to go through - especially as some of the suggestions on the table will require a treaty change - and we know how long the last one took!

I have focussed on some of the more high profile pieces of financial regulation being worked on at the moment - what the media thought caused the financial crisis - what I haven't talked about is what I actually think  needs to be changed in order to prevent another crisis.

Fundamentally, all of the products and entities are not what is at fault - it is the people behind them - Guns don't kill people, People kill people.

The people who developed the risky strategies and products are some of the most intelligent and innovative people in the world - I know more PhDs who work in finance than I care to admit! But these are people who no matter what rules we put in place, they will devise a way around them - half the reason the products were so complicated in the first place was to get around rules on banks capital requirements that were supposed to make the system safer - and that was pre-crisis!

So for me, we need to look at how the banks are run.
What is the ethos in the institution?
Are there proper checks on the CEO and the Board of Directors?
Are the non-executive directors adequately knowledgeable about the strategies the institution is taking?
Does the Chief Risk Officer have enough clout to call time when he isn't comfortable with something?

All of this can be summed up as Corporate Governance. I am not suggesting we go in, all guns blazing, and shake up the boards of banks and dictate to them how to run their businesses.

I do believe in the free market.

However, i think it is the culture that has to change. Non-executive directors should not be able to sit on many different boards of many different types of companies that they don't understand while taking home large salaries for one hours work a month. They need to be accountable for the actions of the companies they scrutinise so as to encourage them to get involved and do their job for the shareholders and employees of their institutions.

All of this can and is being done through methods like the Walker review in the UK, as well as codes of practice followed up by proper enforcement by the FSA.

It may not be as sexy and headline grabbing as derivatives and WMDS or hedge funds and swarms of locusts - but i think it will make a lot more of a difference to the financial services sector and ultimately the tax payer if it is done correctly.

To summarise, much of the regulatory action being proposed is needed, however care needs to be taken to implement strategies globally as finance is extremely mobile and we need to be careful not to only regulate for yesterday's crisis. Sometimes principles really are better than rules.

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Welsh Conservatives

The European Commission has today designated European Protected Geographical Indication (PGI) status to the well-known Pembrokeshire Early Potato from West Wales.
The Pembrokeshire Early Potato was one of only three quality farm products whose applications for PGI status were approved today.
The EU PGI schemes protect product names against misuse and under these schemes more than 1200 products are already protected.
Commenting on this announcement from the European Commission today Dr Kay Swinburne MEP – who is from West Wales - said:
"I am delighted to see that this application to have "Pembrokeshire Earlies" added to the register of PGI products has been approved by the European Commission today."

"Achieving this prestigious status is a clear acknowledgment of the high-quality and distinctive produce we continue to deliver in Wales. Pembrokeshire Early Potatoes thoroughly deserve their place alongside the well-known food and drink products from right across the EU which already feature on the PGI register."


Kay was delighted to host an event to celebrate Higher Education, Science and Innovation in Wales last night in the European Parliament.  The event builds on the British Council’s “Strategic Analysis of the Welsh Higher Education Sector, Distinctive Assets”.  A number of experts spoke to share their views of Welsh HE at the event and how it can develop in the future.

In advance of the 'Fox-Hafner Report' vote on the single seat for the European Parliament, Kay and the other UK Conservative MEPs feel it is right to draw attention to the fact that the seven-year cost of the dual-seat arrangement comes to £928,000,000. Since her election to the European Parliament in 2009, Kay has strongly supported bringing the monthly Parliamentary meetings in Strasbourg to an end and therefore saving taxpayers a considerable sum of money.


Kay was delighted to meet Malala Yousafzai, who was awarded the EU's Sakharov Human Rights Prize at the European Parliament today.

Following Malala’s speech to the European Parliament, Kay said, “What an inspirational speech Malala gave to the Members of the European Parliament today. As a mother of young children myself, I hope that they can also aspire to achieve like her. Malala is an exceptional young lady who has overcome adversity by tremendous force of character and a passionate belief in the right of everybody to enjoy and benefit from education.”   


Kay was very pleased to meet with members of the Advanced Manufacturing Research Group at the European Parliament in Brussels, one of four groups set up in key Welsh research strengths to engage with EU research funds. The delegation visiting Brussels included representatives from Cardiff University, Bangor University, Swansea University and Trinity St.Davids University.

In advance of tomorrow's European Council meeting of leaders, Dr Swinburne has echoed the recommendations made in a recent report published by a number of business leaders, which highlights the importance of removing barriers to business competitiveness in Europe and getting rid of burdensome legislation by cutting EU red tape.

Last year Dr Swinburne encouraged businesses in Wales to highlight to the European Commission which over-burdensome regulations they would like to see slashed, by writing to small businesses all over Wales and asking them to tell her their red-tape problems.

Electronic cigarettes no longer face being taken off the shelves by the EU after Conservative MEPs were successful today in amending EU legislation on tobacco labelling.

Conservative MEP's led the amendment to defeat proposals that would have classified e-cigarettes as medicinal products, meaning they would have to undergo an overly burdensome and costly authorisation procedure, which would go beyond the procedures for traditional tobacco products... (Read more under 'Articles')



Welsh Conservative MEP Kay Swinburne has been sitting down with leaders in Europe's biotech field to choose the top five candidates to compete in this year's EuropaBio Most Innovative EU Biotech SME Award.

As a member of this year's judging committee, Kay is once again supporting the EuropaBio award, which has attracted applications from all three sectors of biotechnology - healthcare, industrial and agricultural, from across the EU... (Read more under 'Articles')


WELSH Conservative MEP Dr Kay Swinburne today hailed a vote in the European Parliament as a "wake-up call" in the battle to save Europe's endangered languages.

MEPs meeting in Strasbourg backed a report which calls on governments across the EU to develop action plans to encourage continued linguistic diversity.

The report, written by Corsican MEP François Alfonsi, also says governments should be "more attentive" to threats which may lead to languages becoming extinct.

Dr Swinburne, who was a shadow rapporteur for the report, has argued that Welsh can be seen as a positive example of language revitalisation which communities across the EU should follow... (Read more under 'Articles')

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