European Parliament approved new rules Friday to better protect investors across the whole financial services industry, widely blamed for many of the ills besetting the world economy. The aim is to curb speculation and make trade fairer by regulating financial markets as a whole, rather than piecemeal by targetting specific types of investment, lawmakers said.
"This is the core of financial legislation: we regulate financial markets, rather than individual financial products, as we used to do in the past," said lead rapporteur Markus Ferber of the European People''s Party. "There is no risk-free financial market but where there is financial trade, it should take place on regulated markets and be connected to the real economy," Ferber added in a statement.
The new rules would require any investment firm "to act fairly, honestly and in the best interests of its clients" when designing and selling products and would have to ensure that they matched a real need. Crucially, investment firms should not pay, nor review their staff''s performance "in ways that might create conflicts between their interests and those of their clients."
Critics blame rampant and irresponsible speculation at the banks and investment houses for the global financial crisis of 2008-09, arguing that staff were paid to make money first for their firms ahead of clients. Lawmakers also tightened up rules on high-frequency trading - the massive computer systems which carry out millions of trades in the blink of an eye and which are blamed for making the markets even more dangerous for the unwary.
After some early success with tough new regulation, financial firms have recently fought back, saying over-regulation will kill their business and the much-needed services they offer to ensure economic growth. The proposals were passed by large majorities and now go forward to the European Commission and EU leaders before they can be adopted.