Put regulation in the hands of politicians and, well, it becomes politicised.

That, anyway, is what Europe's new kid on lobbying block, the Association for Financial Markets in Europe (AFME's), told the Reuters Regulation Summit about EU plans to crack down on opaque derivatives markets by insisting on central clearing of standardised contracts, trade reporting and even exchange trading.

The European Commission will propose its draft European Markets Infrastructure Legislation (EMIL) in June which should make for some pointy headed pool side reading during the summer consulation period.

EMIL implements the G20 pledge to shine a light on derivatives but there is one additional aspect that is already coming under pressure -- an idea to force clearing houses to link up with each other so that users are not limited in their choice of clearer -- and hence trading platform. It's part of wider efforts to create a cheaper bloc-wide securities market.

But there are already whispers that Germany and France feel this may be a step too far -- cynics would no doubt speak about shielding Clearnet in France and Eurex in Germany. Europe's exchanges may well soon call for the European Commission to ditch the interoperability idea from EMIL and make it part of the review of EU MiFID share trading rules.

With such background maneouvres, it's not surprising that AFME's acting CEO Mark Austen thinks the market can and should move ahead with creating an integrated pan-EU clearing and settlement system.

Legislation is too unpredictable.

"Decisions would be made on trade-offs between which member-states benefit, not whether it's in the interests of market participants in general," he added.

Trouble is, the approach Austen wants has already been tried and failed miserably.

On the settlement side, it spurred an unprecedented move by the European Central Bank to set up its own pan-European settlement system for shares, T2S which goes live in late 2014.

On the clearing side, a voluntary code of conduct has clocked up over 80 applications for "interoperability" between clearers and so far you only need two fingers to count how many have gone live.

T2S and EMIL are the result of the market's failure to sort itself out and probably represent progress of sorts after years of deadlock.

Impasse over model haunts raters again

Credit rating agencies are back in the spotlight and, just like a year or two ago, for all the wrong reasons.

Last week a U.S. Senate panel said the clout of Wall Street's big banks and the thirst for profits drove ratings agencies to inflate ratings on subprime mortage-related products, helping to fuel the worst financial crisis since the Great Depression. Making things worse for Moody's, S&P and Fitch, the Senators pointed to securities backed by subprime loans that Goldman offered in 2007 -- now the subject of an SEC fraud lawsuit -- as further evidence of questionable industry practices. Goldman has rejected the accusations.

The latest dose of self-inflicted misery for the raters is unlikely to prompt any fresh regulatory action.

The basic flaw in the whole business model is still unresolved -- that the issuer being rated pays the rater and no amount of blue sky thinking over the past three years since the crisis began has come up with a better idea that works.

Have the regulators signalled defeat on this long standing problem?

Greg Tanzer, secretary general of the International Organisation of Securities Commissions told the Reuters Regulation Summit this week that its key focus is on making sure IOSCO members across the world, such as the FSA in Britain and the SEC in the United States, apply its code of conduct for rating agencies -- a code the EU sniffily dismissed as ineffective and opted for a harder version in law last year.

For Tanzer, until the boffins come up with a practical alternative to the current ratings business model, the focus has to be on making sure agencies manage conflicts of interest, disclose them and improve the quality of ratings. Regulators have been criticised in the past for failing to follow through on principles adopted so IOSCO is keen to make sure its code takes effect on the ground before considering a further review.

Tanzer doubts the conflict of interest can ever be fully resolved and would simply be shifted elsewhere in some form.

Are regulators being pragmatic or defeatist? Perhaps neither -- the broader picture is one of slapping much heavier capital, liquidity charges and other safety belts on banks so that over time, policymakers hope ratings will become far less relevant and influential in the first place to matter.

Written by Huw Jones in London

Reuters set to spotlight financial regulation in DC

FINANCIAL-REGULATION/OBAMA
The fight over new rules that will dramatically change Wall Street and financial markets is approaching the finish line in Washington, with both lawmakers and the financial industry making last-ditch efforts to put their stamp on the reform effort. Reuters will be hearing from the key players in the debate on April 26-29 during the 2010 Reuters Global Financial Regulation Summit.

Top regulators, watchdogs, lawmakers and stakeholders will provide their perspectives on how this landmark legislation will impact banks, investors, traders and consumers. The talks will focus in on proposals for a strong new consumer agency, strict oversight of derivatives and attempts to end the perception that some financial firms are “too big to fail.”

Reuters set to spotlight financial regulation in DC

FINANCIAL-REGULATION/OBAMA
The fight over new rules that will dramatically change Wall Street and financial markets is approaching the finish line in Washington, with both lawmakers and the financial industry making last-ditch efforts to put their stamp on the reform effort. Reuters will be hearing from the key players in the debate on April 26-29 during the 2010 Reuters Global Financial Regulation Summit.

Top regulators, watchdogs, lawmakers and stakeholders will provide their perspectives on how this landmark legislation will impact banks, investors, traders and consumers. The talks will focus in on proposals for a strong new consumer agency, strict oversight of derivatives and attempts to end the perception that some financial firms are “too big to fail.”