Vice President Valdis Dombrovskis
Keynote speech "Capital Markets Union – Time for Renewed Efforts to Deliver"
at the NASDAQ Nordic Financial Ecosystems Conference
Brussels, 28 November 2018
Ladies and Gentlemen,
It is a pleasure to be here to discuss the future of EU financial services, with experts from all over the Nordics and Europe. Many Nordic companies that are large today first began their journey by listing on Nasdaq First North. And this is only one of Nasdaq's contributions to capital markets. So I would like to thank Nasdaq, EQT, and Invest Week for the invitation.
Today is a special day for the Capital Markets Union, because the European Commission just presented its report on the progress we have made towards completing it. With the current political mandate soon drawing to a close, now is the time to do a final push to build a genuine Capital Markets Union, a genuine single market in capital.
So today I would like to start by going through some of the conclusions of this report. But I also want to look more broadly at the future of finance and of the Capital Markets Union, namely sustainable finance and Fintech. We have already done a lot in those areas, but they will continue gaining in importance, also during the mandate of the next Commission.
In today's uncertain global economic climate, Europe needs a more resilient Economic and Monetary Union, and the Capital Markets Union contributes to this goal. We saw during the crisis that loans to companies plummeted, while funding through shares and bonds remained stable. With deeper and more integrated financial markets, we can improve the economy’s shock-absorption capacity, and also increase private-risk sharing across borders.
In addition, a successful Capital Markets Union will:
allow savings to flow, where they are most productive.
diversify access to funding for smaller businesses.
and help companies to seek funding from across the Union, for instance by listing on a stock exchange in another Member State.
When it comes to CMU, we already have some achievements, such as simplifying the prospectus to make it easier for companies to raise capital on public markets. And we have new rules for EU Venture Capital Funds, to boost investment in small and innovative companies.
Local capital markets also need to be developed and connected. For example, we already have several examples of successful regional cooperation among stock exchanges, including Nasdaq Baltic. And the Commission has been providing technical support to many local capital markets initiatives on the request of Member States.
Also, we will soon adopt amendments to Solvency II to facilitate investment by insurers in private equity and long-term listed equity.
But out of the 13 CMU legislative proposals, which we have proposed, 10 are still sitting on the desks of EU co-legislators.
If adopted, the CMU proposals would bring great benefits to European companies, savers, and investors:
For example, with our proposal on a pan-European Personal Pensions Product, the resulting economies of scale could give savers access to better products at lower costs. Today, only 27% of Union citizens have a personal pension product. So we want to give more opportunities for citizens to prepare for their retirement, and help channel savings towards long-term investments.
With our proposal on simplifying the rules for listing on SME Growth markets, we can cut red tape for small and medium companies that want to list and issue securities.
And to give a final example: with our proposal on the cross-border distribution of investment funds, an investor would be able to easily buy shares in funds from all over the EU. Today, just over a third of retail investment funds are sold in more than three Member States due to regulatory barriers.
Given all these benefits, the Communication we published today urged the European Parliament and Member States to accelerate their work on these proposals.
Brexit only makes it more urgent, as many EU companies currently depend on funding and financial services from the City of London.
So the aim is to lay the building blocks of the Capital Markets Union before the next European elections.
With the right regulation, capital markets can also be a formidable asset in the fight against climate change. This brings me to sustainable finance. Europe is committed to leading the global effort against climate change, and to implement the Paris agreement target of "well-below 2 degrees".
Just today, the Commission published its long-term strategy for a climate-neutral economy. It shows that actions against climate change can also be beneficial for the EU economy.
But we are faced with a massive investment challenge. I have said before that in Europe alone, we need about €180bn in additional yearly investment to meet our Paris goals. And after that, we would need somewhere between 175 and 290 billion euro in additional yearly investments to reach a net-zero greenhouse gas economy by 2050. This is why sustainable finance is one of the missing links in the fight against climate change.
And I am pleased to see that many Nordic providers already understand this. For example, 5 out of 10 global pension funds with the best approach on climate risks are based in the Nordic countries, according to the Asset Owners Disclosure Project.
This sets an example for the entire European financial sector. It needs to be fully engaged in tackling climate change.
And that is why In March, we put forward an Action Plan on Sustainable Finance, to incentivise more money to flow into decarbonising our economy. And we have presented three legislative proposals:
First, we have proposed a draft regulation to agree on EU-wide definitions on what is green and what is not.
This sustainable finance taxonomy will provide clarity for investors and companies that want to invest in green and climate-friendly projects.
Our second proposal will require investment managers to disclose how they integrate sustainability considerations into their investment and advisory processes.
And the third proposal will set standards for climate-friendly benchmarks, to help investors steer capital towards low-carbon portfolios.
Once again, we call on the European Parliament and EU Member States to make rapid progress on these proposals. And we hope that the Nordic countries can continue setting the example for the rest of Europe in this area.
One other field where the Nordics are setting the example is financial technology. So let me finally turn to our vision for Fintech. Fintech is still in its early days, with plenty of unrealised potential for ground-breaking innovation. But things are evolving rapidly.
This raises the question of how fit and ready the EU regulatory and supervisory frameworks are to accommodate this innovation. This was one of the reasons why we adopted – in March this year– our EU Fintech Action Plan.
Its first priority is to make sure that innovative companies can benefit from the full scale of the EU single market. Especially in Fintech, it is important to reach new customers and build economies of scale quickly.
One example is in crowdfunding, where we presented this spring a proposal to allow EU platforms to operate across the EU based on a single authorisation. We will seek to finalize discussions in the Council and the Parliament still within this mandate.
Our Action Plan also looks more broadly at how to enable new technologies in the financial sector: We are currently expecting advice from the European supervisory Authorities on a number of important topics, such as crypto-assets, licensing & authorisations or cybersecurity.
In particular, Distributed Ledger Technology and blockchain hold a lot of promise for capital market infrastructures such as trading venues, clearing houses or trade repositories. We have robust and highly performing infrastructures already, but they need to evolve along with technological innovation to stay relevant.
As these technologies develop, we also need to make sure that our regulatory system can accommodate and support their introduction, rather than hold them back. For example, we will carefully review the regulatory mapping of crypto assets that the European Supervisory Authorities will soon deliver to the Commission. But it will probably be then for the next Commission to propose any necessary amendments for the existing European legal framework.
We need a good understanding of the impact of new technologies before further adapting our regulatory frameworks and supervisory practices.Finally, stronger coordination is also required at international level, since these new technologies can be borderless or pose broader ethical or societal issues.
Ladies and Gentlemen,
Finance is changing rapidly, so all actors need to keep up, including regulators. On our side, we are working for a financial sector with that will be greener, innovative, and with deeper and more liquid capital markets. This is how to give innovative companies the ability to start up in Europe, scale up in Europe, and compete across the world from Europe. I hope for your support in delivering on this agenda.
Thank you very much!