Advocates of an exemption from mandatory central clearing requirements for foreign exchange swaps and forwards have won the support of the UK government, as a senior treasury official admits to the risks inherent in regulating FX in the same way as other over-the-counter derivatives. Financial markets are diverse and a one-size-fits-all approach to market regulation won't always work, warned Mark Hoban, financial secretary to the UK Treasury, in his keynote address at the European Market Liquidity conference in London on February 3, organised by the Association for Financial Markets in Europe. "I just think there is a big risk that we assume what might be appropriate in one market is appropriate in every market. When we look at financial regulation, whether it's at home or abroad, we should identify carefully the issues we are seeking to tackle and what is the proportionate response to those risks," said Hoban, answering an audience question on whether the European Union's draft derivatives regulation and the review of the Markets in Financial Instruments Directive are appropriate for the FX markets. Hoban also warned excessive regulation could damage London's standing as a financial centre, expressing concern that new EU rules could drive foreign investment away from the city and overseas. "There is a danger that Europe wants to be seen to be doing something but it must do the right thing. I'm acutely conscious of how much business that's here is from overseas, outside the EU's quarters," he said. Hoban said all new legislation must meet three key tests: firstly, all proposals should be grounded in conclusive evidence, demonstrating a need for intervention in the first place. Secondly, they should deepen and strengthen the single market in Europe, adhering to principles of open and fair competition, non-discrimination and transparency. Thirdly, new legislation must be good for Europe's global competitiveness. Hoban called on the industry to help the UK government fight for a more robust regulatory framework by engaging more, providing evidence and positive ideas for reform so that "any changes to the current rules are proportionate, not overbearing and look for stability, growth and competitiveness". For more conference news, read FX Week on February 7....
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