November 9, 2012 / 4:26 PM / in 5 years

EU markets watchdog warns on complex product growth

LISBON (Reuters) - Financial institutions around the world are repeating and even doing more potentially perilous deals like those that led to the world financial crisis in 2007, the deputy chief of the EU markets watchdog warned on Friday.

Carlos Tavares of the European Securities and Markets Authority said complex financial products, over-the-counter trading and so-called shadow-banking which lack transparency have grown, while regulators’ access to information on dealings with toxic assets has diminished since the crisis.

“Where regulators had no access, today they still don’t have it, and where they had some, they now have less,” he told a conference in Lisbon. Tavares is also head of Portugal’s markets watchdog, the CMVM.

He said that although new rules were in the works, they would not start changing the situation for the better before 2015 onwards when the EU Markets and Financial Instruments Directive, designed to bring about greater transparency to protect investors, comes into effect.

“Today we find repetitions and in some cases amplifications of situations that we saw five years back ... In the last five years, complex financial products have grown significantly,” Tavares said citing data that 900,000 products were launched last year in the European Union, up from 200,000 in 2007.

“What we see today is that the share of over-the-counter deals in shares and, within the organized markets, the non-transparent part has grown,” Tavares added. In global share trading, less than half of the deals qualified as transparent.

Citing potentially dangerous instruments and vehicles that promise high returns, Tavares mentioned some types of repurchase agreements or dealings by exchange-traded funds that sell their products to retail investors.

In another worrying sign, leveraging of financial institutions and economies has increased globally, with financial assets-to-GDP ratios reaching new peaks in the leading economies such as the United States, Japan and Germany, he said. (Reporting By Sergio Goncalves and Daniel Alvarenga; writing by Andrei Khalip; editing by Keiron Henderson)

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