Andrea Enria, Chairperson of the European Banking Authority, was speaking at the organisation’s fifth anniversary conference.
Addressing the audience in London, Andrea said the EBA would make its best efforts to incorporate the principle of proportionality into its regulations.
“I would acknowledge that the regulatory framework has become fiendishly complex, especially for banks with very simple business models,” said Andrea.
“Regulators have a duty to assess whether the increase in the compliance burden is always warranted, or there could be simpler ways to achieve the same prudential outcomes.”
Speaking at the same conference, Commissioner Jonathan Hill of the European Commission said he wanted to keep the rules simple as possible.
“The more complex they are, the more you risk opening up a regulatory arms race and can make it harder for managers to take responsibility which, to my mind, should be one of our ultimate policy goals,” said Jonathan.
“For me, part of good law making is that you have rules that command respect. That means they need to be proportionate, related to risk, and drawn up in way that reflects different business models and sizes.
“And in striving for financial stability, we also need to remember that lack of growth is one of the biggest threats we now face to financial stability.”
His comments mirror those of Andrew Tyrie, Chairman of the Treasury Committee, who recently questioned the Prudential Regulation Authority about barriers to entry faced by challenger banks.
Jonathan said: “I'd like to take a more proportionate approach to smaller banks and take a close look at whether it really makes sense to have the same compliance requirements for all banks and all business models.
“To encourage investment in infrastructure, I want to look at whether lower capital requirements - like the ones we apply to SME lending – and a better recognition of the risk associated with infrastructure projects, could play a part in improving long term investment.
“We've sought external advice and asked London Economics provide us with some analysis.
“And for lending to SMEs, I want to check that the thresholds under which loans can qualify for lower capital requirements are high enough.”
The British Banking Association (BBA), which has called on the EU to create a framework that works efficiently for both the industry and the consumer, welcomed Jonathan’s comments.
“This initiative from the European Commission is the first step to ensuring that European laws governing financial services work efficiently for both consumers and the industry,” said Anthony Browne, the BBA’s Chief Executive.
“There have been huge reforms put in place since the crisis.
“The industry is keen to assist the Commission in its efforts to identify whether some of these regulations are unintendedly stifling competition, hampering diversity and, ultimately, dampening economic growth.”
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