Interview with Vice-President Dombrovskis
How does the Commission's work on financial services fit into the broader economic strategy?
We are in a period of uncertainty: the UK referendum; the result of the American election; as well as the general outlook for the global economy, which is subdued. But such an environment makes the need for predictable, level-headed policy more important than ever. In the area of financial services, it underscores the need for stability; for the certainty that businesses require to thrive; and for a solid framework in which a safe banking sector can play its full part in building a more prosperous Europe.
Across the board, we will continue to push for coherent supervision and regulation. The 'call for evidence' – a consultation on financial services legislation we launched just over a year ago - is part of that push. The replies have helped us identify where there is still scope to refine our legislation. We have published an analysis of the responses. It shows that overall the rules we put in place following the crisis are sound, but points to areas where they could be improved. Broadly speaking, the call for evidence has shown us that we need to consider how we can remove unnecessary regulatory constraints to increase funding to the wider economy without jeopardising regulatory objectives. We also have to look at how we can make legislation more proportionate. And we must try to reduce the compliance burden on businesses and make rules more consistent and forward-looking.
The Commission has recently published a big package of measures to strengthen the banking sector. What are the main goals of this proposal?
As you say, in November we proposed a revision of Europe's banking regulatory framework: the capital requirement regulation and its sister directive. Our aim with this is legislation that reduces risk, but allows banks to lend and support investment in the wider economy. For instance, to tackle risks linked to global and systemically important banks, we have proposed these banks have a minimum amount of Total Loss-Absorbing Capacity. This is so they are ready to absorb losses better and can be resolved if necessary. We have drawn on Call for Evidence responses to propose adjustments to make our legislation more growth friendly. For smaller banks, our proposals would make our legislation more proportionate by reducing their reporting burden. They would also support lending to SMEs and encourage infrastructure investment.
In addition, we put forward a proposal to ensure that Central Counterparties, or CCPs, can be recovered or resolved should they fail or fall into difficulty. This proposal, which is focused on prevention and preparation, complements the risk-reduction measures of the banking reform package. As with the EU's already existing rules on how to resolve a failing bank, the aim is to ensure that taxpayers are not the first in line to foot the bill if things go wrong.
Overall, I would say that Europe's banking sector is stronger and better capitalised than before the financial crisis although some weaknesses remain to be addressed. This has been confirmed by regular stress tests. But Europe's weak recovery, the low interest rate environment and a high level of non-performing loans in some member states make for a challenging environment.
It's been just over a year since the Commission published its Capital Markets Union action plan. What do you see as the main priorities to take this forward?
The Capital Markets Union is an ambitious project. Overall, I think we have built up good momentum. Our first wave of measures is well underway. Council and the European Parliament have reached an agreement on our proposal to reform the Prospectus regime. An agreement is in sight on our proposals to overhaul legislation governing European Venture Capital and European Social Entrepreneurship Funds. And the European Parliament has agreed its position on our proposal on simple, transparent and standardised securitisation. All this work is designed to increase investment and improve access to funding for EU businesses, especially SMEs. Now, we need to accelerate progress. We continue to closely monitor developments and are planning to produce a mid-term review by summer 2017, with concrete proposals on how to take the Capital Markets Union forward. One of the areas in which we would like to be bolder is sustainable finance. We are working to increase the availability of green funds through the European Fund for Strategic Investment and we will be setting up an expert group to develop a comprehensive European strategy on green finance.
The Capital Markets Union is also about giving consumers more investment opportunities. Tell us a bit about what the EU is doing for retail investors.
That is absolutely right. The Capital Markets Union is also about providing more options for retail investors, whose investments in insurance, pension and investment funds provide the pools of capital our markets need to grow. So we are working to deliver a genuine single market for retail financial services. Because, despite living in an era of digitalisation, only a small minority of retail financial service purchases take place across European borders. Some of the barriers we face are already clear. It is often difficult for consumers to know what products are available in different countries, for instance. Credit information is not always easy for companies to get hold of. And it's not always clear how to sell at a distance while complying with the security requirements we need. We want to tackle the problems consumers are faced with when they move abroad to work, or for retirement. And we want to put an end to transaction costs for money transfers between the euro area and other EU countries. So these are some of the areas where we would like to have a clearer picture of what needs to be done. And we plan to put forward an action plan on this next year.
We are also focusing increasingly on Financial Technology, or 'FinTech', which will be central to this work. The development of online and digital distribution models could lead to a complete change in the way retail investment products are distributed. In order to keep on top of digital transformation across all sectors and keep our existing rules fit for purpose, we have set up a special task force. It will include experts on financial services regulation, as well as specialists in technology, data and competition policies.