5th February 2014

TTIP & coordination of financial services policy: lessons from the IMF

Written by Adam Cull, the BBA’s Senior Director (Financial Policy and Operations)

The EU and US announced this week that the next round of negotiations to agree the Transatlantic Trade and Investment Partnership (‘TTIP’) will be held in early March. TTIP could be an important contributor to the economic recovery on both sides of the Atlantic.

Indeed, UK research shows that an ambitious and comprehensive deal on TTIP could result in US bound EU exports increasing by 28 per cent or €187 billion annually.

The announcement follows a call by the European Commission for financial services regulation to be reinstated to the discussion. The Commission has recognised that TTIP is a golden opportunity to address one of the most important lessons of the financial crisis: the need to coordinate regulation that governs global activities.

Under the model proposed by the Commission, TTIP would be used to establish a framework for the EU and US to work together to strengthen financial stability by enhancing regulatory coordination. Mirroring recommendations made by the BBA last summer, the EC is calling for TTIP to establish a permanent mechanism for:

  • Joint work to promote the timely and consistent implementation of international standards.
  • Mutual consultation before new rules are proposed to avoid any unintended extra-territorial effects.
  • Examining existing rules to assess whether they create new barriers to trade
  • Basing assessments of the equivalence of rules on outcomes – opening the way for mutual reliance on each other’s rules.

So the proposal is about improving coordination in the interests of both sides – and the users of financial services – rather than unpicking positions agreed in EU or US law.

Interestingly, the European proposal is supported by new research into international policy coordination published by the IMF. This finds that the gains from international coordination are “measurable and worth pursuing” but notes that coordination is often held back by the failure of policymakers. A key recommendation of the IMF report is that neutral assessors should be used to help bring parties together.

Whilst what is imagined for TTIP does not go this far, it is clear that the Commission’s proposal of a forum for peer-to-peer discussions could provide a neutral ground to help policymakers discuss mutual objectives and identify and resolve wrinkles in domestic regulation which hinder the achievement of regulatory coherence.

In doing so, it could make TTIP not only an important element of the recovery from the crisis but also something which helps reduce the likelihood that crises will emerge in future.