As European, US and Asian bodies ramp up their regulatory initiatives, the pressure on stakeholders’ ability to write successful comment letters is increasing.
With often small windows to submit comments but swathes of the financial sector relying on well argued points, those responsible for drafting the letters need to know how best to do so.
But there is little information available on what regulators value most in comment letters. And many in the industry are uncertain.
“I have never had anyone tell me that they didn’t understand my response, so it’s hard for me to change my style,” said Ruari Ewing, director at the International Capital Market Association (ICMA).
Ewing writes comment letters extensively on primary markets and regulatory policy on behalf of ICMA’s members. “It might be that they haven’t read my response – though I doubt it. Or it could be fine, or good enough. I don’t know,” he says.
And Ewing is not alone: banks, law firms, accountancy firms and industry bodies are all seemingly writing into an abyss.
So having heard the drafters’ concerns we approached key European regulators to find out what they really wanted from submissions. The responses should give industry bodies and financial institutions a clearer idea of what regulators really value.
So here it is - the guide to the perfect comment letter.
1. Start with a clear executive summary
“This helps us understand what the main issues are,” said one major regulator. Support positions with evidence where possible.
“We often receive submissions relating to unintended consequences of proposals. It would be helpful to know something of the scale of these consequences, and whether they affect other stakeholders.
2. Answer the actual questions
“Clear and brief answers to the specific questions we pose are best,” said an Esma spokesperson. “They’re much more useful than statements.”
3. Don’t get philosophical
Especially when granularity is required. “Policy statements are in general not very helpful, even less so if they refer to Level 1 legislation in a response to a Level 2 initiative,” said Esma.
According to another major regulator, “if detailed questions are asked, it usually implies that the policy-making process is relatively advanced and that we’re in the phase of fine-tuning certain options. “
In such circumstances, present responses in as much granular detail (supported by evidence), they say.
4. Include evidence – even if it’s anecdotal.
Regulatory bodies, even the largest European ones, are poor relative to financial institutions. They need data. Banks can provide it. In a regulator’s own words:
“Often we just need any data, so we have to work with estimates, and rules of thumb. But that would be avoided if we could obtain more accurate data from industry or other regulators.”
Although most consultations do not specifically call for data, regulators IFLR contacted said that finding objective and reliable data is a huge challenge and makes process of estimating the real costs of legislative initiatives more difficult.
“Respondents may have some estimates in mind, and anecdotal evidence is also welcome,” said one.
Anecdotal evidence or data should be presented in an objective way. Where possible, the data provided should be put into a wider context to allow for the appreciation of the relative importance of a particular assertion. “It’s very important that data provided is verifiable, meaning that a clear reference to the source is always useful,” added one.
This was a recurring theme amongst respondents. Reference to data and figures on the estimated impact of proposals were welcomed throughout, regardless of whether they were indicative or qualitative.
5. Stay on topic
“New items and issues should only be added if they’re directly linked to the subject under consultation.
Put more theoretical background material in an annex. Supporting data should generally be put in the main text together with each question. More lengthy submissions of data could be put in an annex as well.
6. Include opposing stakeholders' views.
It’s disproportionately expensive for smaller financial institutions and retail investors to answer these consultations. So they rarely submit comment letters.
Because of this under representation, regulators value their contribution more than they do larger institutions. “We need them so much, we take their responses into account even more,” said a regulator.
So to prevent the rare submission of stakeholders’ views being given disproportionate weight, respondents should make suggestions with the needs or interests of other stakeholders in mind.
“”We know it’s not the usual practice, and it’s unlikely that we will see much of this, but we receive independent views which often completely oppose one another. What we would like instead is views on potential compromises which stakeholders would be willing to take,” said a major regulator.
“We want industry and consumer groups to take into account one another’s views. It’s always more valuable for answers to take into account other positions.”