Rumor had it already over the summer that Adam Farkas, Executive Director of the European Banking Authority (EBA), would switch back to the private sector by taking on the role of CEO of the Association of Financial Markets in Europe (AFME). AFME is a well-known European association, counting in its membership all major banks active in the European financial markets. Headquartered in London, with an office in Brussels, it has 67 staff and lobbying costs of just under 5 million euros, according to the European Transparency register, of which it has been a member since 2010. All this is key to understanding why Mr Farkas’ nomination has caused a bit of a discussion in the Brussels bubble and in the press. On Thursday it culminated in an oral question to the Commission in plenary of the European Parliament.
The story goes that a powerful and in-the-know head of a European Regulator switches to industry and takes with him a precious list of professional contact details and insider knowledge that would create an unfair advantage once is in the new job. During the plenary debate, some went as far as extrapolating that the EU regulators by nature would be leaning towards the industry.
Some of the above is undeniably true. In the precise case at hand, Mr Farkas has met a number of key people and got to know them professionally. It is also obvious that he acquired insider knowledge during his 8-year term at the EBA. Another fact is that he was previously a well-known bank manager and CEO, which made him valuable for his term at the EBA. He would most likely have met in an industry capacity a number of the same persons he is currently (still) working with.
Some people would like to end this so-called “revolving door” practice. Talented people should stay either their whole career in the public sector or in the private sector. This might be ethically and aesthetically appealing, but it would be a disservice to society. How can a regulator really understand and supervise a bank if he or she has never worked in a bank before, has never seen from the inside how such an entity functions? The same holds true for Commission or EBA officials: how can you devise efficient regulation if you don’t know how the industry ticks? It also works the other way around: a public official who has switched (back) to the industry will inevitably bring the way the regulator thinks with him or her into the new job and help staff and management understand the regulator’s concerns and perspective. Mutual understanding is key for pragmatic legislation and regulation.
This said, there needs to be a framework to avoid abuse. For a start, the European Commission has a Code of Conduct for Commissioners that excludes them for a year and a half from lobbying on issues they had been in charge of during their time in office. For senior officials across EU institutions, there is a cooling-off period of a year before lobbying on some topics. For some this is not enough, and rules are likely to evolve as sentiment shifts. It is nevertheless important that rules stay proportionate and clear. In particular if the rule dictates an 18- or 12-month cool-off period, that period should be truly considered enough in order to provide legal certitude to the former EU employee as well as to his future employer. If not, it is worthwhile discussing the issue in advance rather than keeping individuals to standards that are not spelled out, subjective and ultimately unpredictable. Clarity and predictability are the basis of good rule-making and a part of the rule of law we rightly cherish in our Western democracies.
By Antoine Kremer, ABBL & ALFI Representative Office in Brussels