Vice President Valdis Dombrovskis
Speech at the European Business Conference
"Challenges for EU financial services policy"
Bruges, 25 April 2017
It is a pleasure to be here in Bruges for the 8th Bruges European Business Conference.
The European economy is recovering. For the first time since the beginning of the Bruges European Business Conferences in 2010, the economies of all EU Member States are expected to grow this year and also the next. In the euro area, real GDP has been growing for 15 consecutive quarters. We are gradually reducing public debt and deficit levels. And Europe's banks are stronger and better capitalised. These encouraging developments tend to prove that our policy mix of investment, structural reforms and responsible fiscal policies is working. It is important to stay the course.
However, this positive outlook remains surrounded by uncertainty. Progress is uneven across EU Member States. We still see high levels of public and private debt. Many Europeans do not yet feel the economic recovery in their pockets, and perceive increased inequalities in our societies. And Europe is facing new geopolitical challenges, from migration to conflicts and instability in our neighbourhood.
And for the first-time, a Member State is actually leaving the EU. This is a defining and challenging moment for our Union, with the potential to cause disruption, in particular in the UK but also in other Member States. During the negotiations, the European Union will act as one to preserve its interest. Our first priority will be to minimise the uncertainty caused by the United Kingdom's decision to leave for our citizens, businesses and Member States.
The remaining 27 Member States are determined to stand together. The challenges that confront us invite a broader reflection, that is why the President of the European Commission Mr Juncker has launched this with the White Paper on the Future of the EU.
In the short term, it is important to keep reducing uncertainty and strengthening the recovery. We need to:
- firstly, accelerate our capital markets union to unlock additional financing for growth, while acting in full cooperation with our international partners and
- secondly, develop our regulatory and supervisory framework to address new challenges.
Allow me to elaborate on these two points.
First, on the need to accelerate the completion of our capital markets union.
We have made a good start in our work to build a single market for capital. The European Commission has already delivered on 19 out of the 33 measures announced in our blueprint, the Capital Markets Union Action Plan.
Our proposal to overhaul the Prospectus regime was agreed late last year. It will make it easier, faster and cheaper to issue public equity and debt in the EU. And our proposal to strengthen Europe's venture capital markets is being discussed by the European Parliament. Together with our recently launched pan-European venture capital fund of funds programme, this proposal will help make access to finance easier for start-ups and scale-ups.
Our proposal to restart securitisation markets by defining simple, transparent and standardised securitisations is a flagship of the CMU Action Plan. If agreed, it could unlock up to 150 billion euros of additional capital. Member States were quick to reach an agreement, but it has since been delayed in the European Parliament. We hope that the ongoing trilogues can resolve this impasse.
New challenges should also focus our mind. The prospect of Europe's largest financial centre leaving the Single Market makes completing the Capital Markets Union more challenging, yet more important and more urgent.
London has traditionally pooled and managed liquidity from across Europe, and provided a significant share of financial risk-management for the rest of the continent.
For financial markets in Europe, and in particular for the 27 remaining Member States, integration is now an existential question. Only together we have the depth and liquidity for markets to function efficiently, and the strength to finance our economies. Only as a single market do we have the scope for innovative finance to develop and scale up.
Amongst the EU27, I also see that there is a growing sense of urgency for developing a Capital Markets Union.
It is now time to build on this and accelerate CMU. Our consultation on the CMU mid-term review has just closed. It is showing strong support for the objective of a stronger capital markets system. This will help us launch a CMU mid-term review in the summer.
We will stay firmly focussed on the core policy themes of the CMU action plan, such as: removing remaining barriers to cross-border investment, improving access to risk finance for SMEs, and more effective and rewarding retail investor engagement with capital markets
However, in the second phase of the project we also want to be more ambitious in areas such as Fintech, and sustainable or green finance. We will also propose new rules on pan-European private pensions, and we will streamline our rules on EU passporting of investment funds. We need to ensure companies of all sizes can get the funding they need, and help deliver financing for long term investment projects, particularly in infrastructure. By refreshing our strategy, we will be sure to deliver on our objectives, and establish Capital Markets Union by 2019.
Ladies and Gentlemen,
As we are boosting the capital markets of the European Union, we will have to maintain and further deepen our ties with financial markets in other parts of the globe, in the US, in Asia, or elsewhere. The free flow of capital and financial innovation are essential for well-functioning and well-developed capital markets.
The EU believes in the need for a common approach to financial governance. Our financial system is inherently international, and financial stability cannot be achieved within national borders. This recognition propelled Europe and its international partners to work together in the G20, to further a common agenda for international financial governance.
Last week I had discussions with many different stakeholders in Washington DC. I am hopeful that our main international partners including in the US still broadly share these perceptions on the benefits of international cooperation.
Close international cooperation is also key to our equivalence process. The EU pursues an open, outward-looking approach to recognise and rely on effective regulation and supervision in third countries. Internationally, the EU equivalence framework is regarded as one of the most advanced and most used frameworks to defer to the systems and rules of other jurisdictions. We will continue to make active use of this successful model.
But let me also be clear: equivalence is not a right for all third countries, and it is not a blank check whereby the EU would give up control over key systemic risks to its financial stability.
Every market, every third country, every sector presents different types of financial stability issues for the EU. So we need to consider every case on its own merit, based on the principle of proportionality, and decide if and under which conditions equivalence can be granted.
Circumstances of third country operators can change, either because of new laws, different supervisory practice or changing market circumstances. So we need to continuously monitor the adequacy of a third country's rulebook and supervision to the EU standards. In this context, I would like to also highlight the role of the European Supervisory Authorities.
This brings me to my second point, the need to ensure that we have the right supervisory framework for our integrated financial markets.
As many firms reconsider how to structure their business across Europe to prepare for the UK's departure from the internal market, we are reminded once again about the risks of a race to the bottom among supervisors to win over business, at the expense of financial stability. We must confront any such allegations. Different supervisors within the internal market must work together, converge their supervisory practices, and establish strong mutual trust.
Since their establishment, the European Supervisory Authorities have contributed significantly to developing the EU's single rule book for financial services and to applying it in practice. However, we need to make further progress in supervisory convergence to improve integration within the single market and safeguard financial stability. Our objective is clear: Firms should be subject to consistent supervision and enforcement of our common rules, no matter where in the EU they operate.
The European Supervisory Authorities have started to shift more attention to analyse risks to consumers and investors and undertake more work to increase supervisory convergence. But the work in this area must be accelerated.
The European Supervisory Authorities also have a major role to play when it comes to developments such as Fintech. The EU needs to capture the growing benefits of such technological developments, while addressing risks arising in this context. State-of-the art supervisory capabilities are key to this.
The Commission has recently launched a public consultation of ESAs to see what possible legislative changes are needed to enable them to fully deliver on their mandates. It focuses on issues related to the ESAs' tasks and powers, governance, supervisory architecture, and funding.
Our aim is simple: to identify areas where we can improve the effectiveness and efficiency of the ESAs.
Ladies and gentlemen,
The UK's decision to leave the EU is a momentous choice, which will profoundly influence Europe's financial markets. The EU stands ready to launch negotiations quickly and make sure we have an orderly exit, in the interest of our citizens, businesses, and Member States.
To make sure that the EU can withstand the challenging times to come, we will accelerate our work to support investment, growth and jobs, and redouble our efforts to complete the Capital Markets Union. Now more than ever, we need to deepen and integrate European capital markets to unlock access to financing for the EU economy.
Thank you for your attention.