John Berrigan, Director-General for DG FISMA, on the energy crisis, sanctions against Russia, and the EU's digital agenda.

The big issue on everyone's lips is the energy crisis and how it is going to affect people. What role do you see for financial markets during these turbulent times?

This is indeed the main issue we are facing right now and we have to be honest – winter is going to be tough. There is a squeeze on our energy supply, primarily due to the actions of Russia but there are other factors – we have had a drought, no wind, issues with nuclear power and problems with shipping coal due to low water levels. So in a sense, we have met the perfect storm. The most important thing is that we do whatever we can to control and reduce demand for energy.

From FISMA’s point of view, there is a degree of stress in some financial markets – particularly in those linked to energy such as electricity futures. But what’s happening in financial markets is more a symptom than a cause. So we clearly need to treat the underlying causes. But we may also need to look at what we can do in terms of the operation of these markets that could alleviate some of this stress but without introducing unacceptable levels of risks into the system. In her State of the Union address on 14 September, President von der Leyen announced a first package of emergency energy measures to provide an EU-wide response to the difficulties that high energy prices are causing for consumers and businesses. In our area, she said that we will work with regulators on establishing a more representative benchmark, address the liquidity issues in electricity futures markets by amending the rules on collateral, and explore measures to limit intra-day price volatility in trading.

We have had six sanctions packages. What is FISMA doing to improve implementation and enforcement, which is increasingly the focus now? Are sanctions actually working? And how do we measure ‘success’?

Sanctions have, rather unexpectedly, become a central part of our work. We have done a lot and we are now moving more and more towards implementation, which remains primarily a national responsibility. But there are ways we can help Member States. One of the most important things is guidance, so they know how to implement the sanctions. We have issued 500-plus frequently-asked-questions, and the Member States have reacted very positively to this. We have also developed the whistle-blower tool, which allows people who see a breach of sanctions to report it anonymously. Thirdly, we are trying to coordinate further with Member States for exchange of information and views. We have our expert group and Commissioner McGuinness announced we will create a higher-level group of sanctions coordinators from the Member States. Regarding the ‘success’ of sanctions, it is important to remember that they take time to have their full effect. We should not assess the effectiveness of sanctions, based on the experience of a few months.

This has been a digital year: co-legislators agreed on DORA and then MiCA before the summer. How do you see the digital agenda going forward?

This is a sector that is growing, evolving and innovating very quickly. The EU is a global leader in regulating in the sector. DORA and MiCA are almost through the legislative process, which is a significant achievement of this Commission’s mandate. Still, there are things that are not covered by MiCA, like decentralised finance – not because we chose not to cover it but because it wasn’t on the radar when we made the proposal. So I think there will be further regulatory work needed in this field in the future. And we may have to think about the method of regulating in this digital space. Developments in digital finance seem to be so fast and so innovative. If you look around the world, other jurisdictions like the US and the UK, are thinking of models where there is greater reliance on the rulebook of the regulator in managing prudential risk in the digital sector. So we in the EU will probably need to think about how we regulate this sector.

On substance, we have followed our traditional approach up until now, including for DORA and MiCA – so we regulate the intermediary, that is the platform, the service provider etc.  One view is that the concept of a decentralised financial system challenges this traditional regulatory approach. Our problem may be that the intermediary in decentralised finance may not be something that you can regulate via behavioural incentives.  So it is a huge challenge and it will probably require some reflection – not just on the procedures for how we regulate, but on the essence of the regulations.

Turning to sustainable finance, could you walk us through the next steps we can expect in the coming months? In particular, when it comes to disclosures and investment tools.

There is a persistent view that our sustainable finance is very novel and very complicated. The approach is actually fairly traditional and straight forward – you have a taxonomy that provides definitions, you have a set of disclosures based on those definitions and then you have a set of tools that allows investors to make use of these definitions and disclosures easily. We have part of the disclosure regime – the part that covers intermediaries – already in place. We are now well advanced on the other parts. We have done a lot of work with the Corporate Sustainability Reporting Directive, which has now been agreed. The disclosure requirements for the corporate sector will provide the basic information required by intermediaries to disclose to investors. We have EFRAG preparing the reporting standards, which we will then introduce through delegated acts. New reporting requirements are inevitably burdensome for the financial system. But the system can live with that as long as the balance between inputs and outputs is right. On the toolbox: We are working on the Green Bond Standards. Here, we have to ensure we have a good standard that can be a market benchmark, but not one that is so demanding that nobody actually uses it. I think the proposal we put forward was good – now we have to see how the Member States maintain that balance. We are also working on ESG ratings.

Is progress on the banking union still a realistic possibility?

In spite of all efforts, Member States did not manage to agree on a roadmap in June as it would have meant too many sensitive political trade-offs. But I think that completing the banking union remains essential. At the moment, we are focusing on just one element of the possible roadmap where there is more consensus on moving forward: the crisis management and deposit insurance framework. Member States accept that we need to improve the current framework. But there is not necessarily consensus on how we need to amend it – so that will be a complicated negotiation. It again touches upon politically sensitive issues, like protecting the taxpayer, protecting the depositor. It also involves a degree of harmonisation of national frameworks. However, every Member State believes, understandably, that they have the best framework in place, because it is the one that has evolved to reflect national preferences.  We are pretty well advanced in our preparations. This will allow us to adopt a proposal early next year.

How do you see the progress made so far on the capital markets union (CMU), both on ongoing negotiations and upcoming proposals?

It has been difficult to get political momentum behind the CMU. Although you will frequently hear that the CMU is a great idea, it has been a project that has not fully captured the political imagination. It is a very technical file, not easy to understand. There is no ‘silver bullet’ –you have to work on a whole range of specific, inter-related files. So you can sell the macro-narrative – it’s very good for efficient allocation, for risk management, for private risk sharing. But when you get to the narrative one level down – how does the consolidated tape link to the listing act, or to the how can we promote Initial Public Offerings? – then it gets more difficult. Another problem we have had with the CMU is that there are two types of actions in the CMU. There are those that address frictions in the markets and there are also fundamental aspects of a single market. If you ask what determines a single market of any Member State, it is common laws – of accounting, taxation, supervision, insolvency etc.  These are fundamental and they impact Member States in ways that go beyond the financial sector. We are making steps, in insolvency and taxation. But, we have to be realistic – we are not going to introduce a European insolvency framework or an EU taxation framework for security markets tomorrow. On the other hand, we must discuss these more fundamental requirements of the CMU and the important thing is that Member States seem more willing to discuss them.

Finally, any comments going forward?

We are mid-point in the mandate, andhave been very effective in these first two and a half years. We have launched pretty much everything we said we would launch and delivering on the Commissioner’s mission letter, thanks to the team at DG FISMA, and I am very proud of that. But even though we now have to shift primarily to implementation, looking forward we still have a big agenda and a lot of proposals in the pipeline – on clearing, on the banking union and the CMU, on payments and open finance, on the digital euro etc. So the challenge will be to prioritise these new proposals, while at the same time moving forward with what has been agreed so far.