Decisions about regulatory policy and practice should be based on sound analysis. Impact assessment (“IA”) is a key tool in this regard. IA draws on economics and other social sciences to provide an analytical framework that ensures that policy proposals are justified in terms of a proper understanding of the nature of perceived problems. As a disciplined approach it helps to identify past or likely future effects of regulation and supervision on markets, ensures engagement with all affected parties, and helps policy makers and stakeholders alike develop an appreciation of the respective (dis)advantages of previous policy responses and proposed policy options. In these ways, it provides new information that can help policy makers to describe and explain the decision- making process and thereby improve the way in which the most effective policies are identified, chosen and implemented. Moreover, through its formal and informal consultation procedures, IA makes regulatory policy more transparent and thus can help to make the EU’s Lamfalussy Level-3 Committees more accountable. It is also a means of communication between the
Committees, the different national regulators involved, the regulated firms and other affected or interested parties. There is increasing recognition of the value of IA at EU level. For example, in an inter-institutional agreement of December 2003, the European institutions adopted the principle of better regulation for their legislative practice. In addition, the White Paper on financial services published at the beginning of 2006 mentions explicitly that IA will accompany any new Commission proposal.
Therefore, preparing an IA corresponds to good EU policy practice and is in line with the wider efforts made to develop better regulation. It is against this background that the L3 Committees adopted their Principles on Impact Assessment in late 2006. It was decided to develop more guidance for policymakers from this base. The 3L3 IA Guidelines published in April 2008 are the outcome of this project. They involved co-ordination amongst the EU Level-3 Committees and are designed for application to all financial regulatory and supervisory policy and practice.
Limits of IA
Within the EU policy making process, the main advantage of IA to the work which falls within the remit of the L3 Committees is the submission of policymaking to a systematic and structured approach, providing a credible evidential basis for the advice and proposals of these committees and thereby giving this work much more weight. The outcome of an IA is, however, not a substitute for decision making; it is merely a tool to assist decision makers. Therefore, the L3 Committees will give the results of IA exercises due consideration, but they will not be bound in their decisions by the outcome of an IA. In other words, IA - as a disciplined approach to policy making - will help inform the policymaking process, but not become a substitute for it. Nevertheless, there is an understanding that any decision that deviates markedly from the findings of an IA exercise would require explanation.
Use of IA by L3 Committees
Future work by the L3 Committees will mainly concern Level-3 and IA will have an important role to play in helping to clarify policy positions relating to supervisory convergence. However, IA will also be used at Level-2 in at least two cases: when there is a review of Level-2 policies - this would correspond to an ex-post IA - and when the EU Commission seeks further or additional Level-2 advice from a L3 Committee – the volume of this type of work would increase again should the Commission introduce another FSAP, for example. IA could also be used at Level 1 or for high level policy mandates given by the Commission to one of the Committees.
Proportionality and flexibility: Screening IAs and Full IAs
An IA needs to be proportionate to the significance, complexity and uncertainties of the problem or problems to be solved otherwise it risks consuming scarce resources inefficiently or being insufficiently robust. Both would be counter-productive. The principle of proportionality will allow the L3 Committees to keep the detail of IAs within reasonable limits. The principle of proportionality is also central to the European Commission’s guidelines on IA. For example, the measures analysed through an IA at Level-3 are likely to have significant structural and cost implications for consumers/investors and/or market participants. 71 Additional information on CeBS’s Consultative panel Members and observers can be traced under the following links: http://www.c-ebs.org/Aboutus/organisation/Consultative-panel/the-Charter.aspx and http://www.c-ebs.org/Aboutus/
organisation/Consultative-panel/Members.aspx
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This can be considered a precondition for the need to carry out an IA. But when there is a reasonable presumption that the impact will be insignificant there is no need for an IA. The time available for policy work by L3 Committees is usually very tight both for Level-2 and Level-3 work. Given these time constraints, the L3 Committees are committed to the use of Screening IAs, i.e. “light versions” of IA. These primarily qualitative exercises could be carried out before a mandate for a particular problem is formulated by the Committee Chairs in order to help ascertain the appropriate scale of the analysis to be pursued after the mandate is issued. In any event, the use of Screening IAs is intended to simplify matters and avoid procedural over-complication so their role and use must be clearly circumscribed.
In August 2008, CEBS published amendments to its Public Statement of Consultation Practices which specifies the procedures to be followed in cases of limited or drafting amendments to CEBS’s Guidelines, Standards and Recommendations. The revised Public Statement of Consultation Practices emphasizes the use of the impact assessment methodology in the amendments to the CEBS’s Guidelines, Standards and Recommendations. This amendment to the consultation practices limits the number of sets of changes to each Guideline, Standard and Recommendation to a maximum of one per year. This decision was taken in order to promote the stability of CEBS’s products for credit institutions and investment firms.
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