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Ladies and Gentlemen,
Thank you for inviting me to speak at your Annual Supervision Conference. Today I would like to share with you my views on how the industry can best play its role in the emerging European financial sector regulatory framework. In other words, how I see our relationship becoming even more fruitful and mutually beneficial.
I hope my ideas will not be news to you. I have been sharing them with everyone and everywhere since I first started my job on the Berlaymont’s ninth floor. But I think the spin doctors, PR merchants and advertising gurus would all agree – part of effective communication is repetition.
My message can be summarised in three words:
participate –
implement – protest.
First – participate. The Commission needs your involvement in the process of legislation and policy making. This is a crucial cornerstone of the Better Regulation agenda that we are pursuing. The industry’s voice is now heard at each stage. We are open for all views. Indeed, I believe that the more open we are – the better the quality of European regulation will be.
We need your input at the early stage, when the Commission Services investigate problems and consider what, if any, action should be taken at the Community level.
For example, in 2004, when the Financial Services Action Plan was coming towards its conclusion, the Commission set up four expert groups to look into banking, insurance, securities markets and asset management. Their conclusions provided the Commission with some initial impressions of what the priorities of the post-FSAP Financial Services Policy should be. Further insight into the matter was gained before the Commission made its preliminary proposals available to open consultations. And we tested our ideas further with conferences, with Member States, with the European Parliament and our regulators, so we were very familiar with the opinions of our key stakeholders.
In the same vein, we are preparing to carry out a detailed evaluation of the economic impact of the FSAP. Before drafting the Terms of Reference for the Evaluation, which will be an external study, we want to listen to the advice of experts representing the financial services industry and users, supervisory authorities and academic world. To facilitate this, we are organising a Workshop on Methodology on 25 October in Brussels, and I urge you not to miss this event, either in person or through the online webcast.
Our commitment to openness and transparency is also evident in our preparation of policy texts. In every case, we have been able to make significant improvements to the drafts once input had been received.
Our policy of producing Green Papers is another example of our open-door approach. We prepared a Green Paper on the new Financial Services Policy. We also had one on Asset Management, where the final policy line should be published next month. Last year, we published a Green Paper on Mortgage Credit, and are now engaged in the final reflections on the direction of our policy. There were many rounds of consultation on Basle II, and the same is true now with Solvency II. This represents a real culture shift, and it is a permanent one. The BBA and other UK bodies and companies have participated actively in helping us to fulfil our Better Regulation commitments. We very much welcome this.
Next – implement. The purpose of regulation is to create an environment that encourages a thriving, secure financial sector – both for the benefit of firms and consumers. In order to reach those goals, the adopted laws need to be implemented in a timely and correct manner. The implementation of EU laws is a major task for national governments. For the Commission to monitor– as Guardian of the Treaties. For regulators to apply day by day. And for you to ensure the rules are being applied fairly to your business – and to tell us where this is not the case. All too often, that does not happen.
This is a particularly challenging time for you in this regard. The Capital Requirements Directive and the Markets in Financial Instruments Directive are extremely important pieces of legislation which will have to be implemented in the coming years.
The Capital Requirements Directive, which was formally adopted in June, will modernise capital requirements for banks and investment firms. It will make capital requirements more risk sensitive and rely more on banks’ own assessments of risk. It will also make the capital requirements more comprehensive – by covering operational risks along with credit risks. The CRD is also based on the ‘evolutionary’ approach – it is suitable for banks of different size and complexity.
Nearly all EU Member States are on track to implement the Capital Requirements Directive by the deadline of the end of this year. I am sure this is also the case for the companies that you represent. The problem that we are likely to face concerning transposition is the delay in implementation of Basel II on the other side of Atlantic. This raises issues for EU banks with operations in the US, and for US banks with operations in the EU. We are working closely with our US counterparts to try to avoid the costs and complexity linked with running the new and the old system in parallel for banks operating in both jurisdictions.
Another implementation challenge will be the MiFID, which establishes a harmonised regime for the provision of investment services in the EU. MiFID was unanimously agreed by the Member States and the European Parliament and is widely supported by industry. In the "MiFID World" financial services firms will be able to deal in a wide variety of financial instruments and undertake investment services right across the EU. This will be possible on the basis of a single passport and under the control of a single regulator – that of their "home" Member State. In the MiFID World there will be no more monopolies of exchanges for trading of securities. This will lead to significant increase in competition, both across borders and domestically – between the exchanges and other trading venues. Finally, in the MiFID World, investors will enjoy high levels of protection– according to very stringent standards.
MiFID is close. But not close enough. Governments, regulators and companies have to implement it. It is true the costs of implementation will be front-loaded, while the benefits will take time to emerge. But we believe the scope for competition and innovation that the MiFID will generate will be significant and lasting. We are already seeing consolidation moves by exchanges, and new transaction platforms for market players. I look forward to seeing even more creative developments in the wake of the MiFID revolution.
The critical thing is to make implementation work. We are organising transposition workshops with the Member States to try to even out some issues of interpretation, and are working closely with CESR.
Self regulation and soft law have an important role under the Better Regulation agenda. The industry is usually best placed to recognise new needs and challenges in the market and to offer solutions. One example is our policy on Clearing and Settlement. In April 2004, the Commission announced that it was launching an investigation into barriers in this area. It was clear that the lack of common technical standards and the insufficient level of competition between post-trading services providers constitute a serious obstacle to functioning of the Single Market. A directive was one of the solutions considered to tackle this problem. But after two years of impact assessment, studies and extensive consultation, I decided to opt for a voluntary Code of Conduct, working with industry for the benefit of all stakeholders. The Code of Conduct will contain measures to address issues such as transparency of prices and services, interoperability and access, unbundling of services and accounting separation. Currently we are finalising our consultations with infrastructure providers, users and national authorities. We are working on a tight timetable, but I expect the Code to be adopted by the end of this month.
The Code of Conduct aims to make these markets far more transparent and ensure a level playing field for the various post-trading service providers. We want basic economic disciplines to apply – it is about time. In general terms there is broad support for the Code – although we are not finished yet. The implementation of the Code will be accompanied by strict enforcement of competition rules. And we will monitor its implementation very closely. If progress is not made as swiftly and as broadly as I expect, I will not hesitate to come forward with further measures.
Another example of working with a voluntary industry initiative is the SEPA – the Single Euro Payments Area. The Commission's aim has always been to establish the Single Market – including in payments. But this time it was the banking industry's initiative to establish a genuine harmonised framework for cross-border payments in the EU by 2010.
The creation of a Single Euro Payments Area (SEPA) will make all electronic payments in the euro zone as easy as cash payments, ensure fast and secure transfers between bank accounts anywhere in the euro zone and facilitate the use of debit cards throughout the EU. It will also mean better banking services for everyone: transparent pricing, guarantees that payments will be received promptly and in full. The banks promised that SEPA would be reality by the end of 2010.
The Commission fully supports this idea. The first pillar of SEPA is the elimination of legal barriers. To ensure this we have proposed the Payment Services Directive. Its main objectives are:
- to generate more competition in payment markets by removing market entry barriers and guaranteeing fair market access;
- to provide a simple, harmonised set of rules on the information requirements as well as the rights and obligations linked to the provision and use of payment services;
- and to ensure a high level of consumer protection.
The proposal is now being negotiated in the Council and in the European Parliament. All parties are committed to an adoption in a single reading by the end of the year.
The second pillar of SEPA is the elimination of technical and commercial barriers. This aspect is being treated by banks through self-regulation. We appreciate the work of banks in the European Payments Council, which has drawn up rule books on credit transfers and direct debits to allow inter-operability of the national payment systems.
We must make SEPA a success. The Commission is planning to launch a wide-ranging information campaign. We are also examining how we can encourage early use of SEPA products. Member States should also become more actively involved with SEPA. However, we have to remember that SEPA is a market-driven process. It is crucial that banks develop competitive payment products so users switch spontaneously from the existing payment instruments.
SEPA will involve stress and strain for the banking industry. But we believe that the economic benefits will be substantial. The benefits of an integrated payments market are estimated to exceed 20 billion euros. In the longer term, SEPA could provide an opportunity to build an IT platform for automating business processes linked to the payment chain. Electronic invoicing, which is already being developed successfully in some countries is an example of how SEPA can drive new business opportunities. Here, the potential benefits could exceed 100 billion euro per year.
So much for participation and implementation. I would finally call on you to protest. Protest each time anyone or anything prevents you from reaping the benefits designed for you in the EU law. With placards, banners, megaphones and sirens outside the Berlaymont if necessary.
Protest when the laws are not transposed correctly into national legislation or when they are breached.
Protest when the supervisors apply inconsistent practices in different Member States or provide abusive interpretations of the EU Directives.
Protest when any government hampers functioning of the EU legal framework by adding redundant provisions or excessive requirements at the national level.
Make your views known. To the Commission. To DG Internal Market. To DG Competition. Give them the evidence of anti-competitive monkey business as soon as it occurs. The Commission is on your side here.
Let me mention our actions at the cross-roads of competition and prudential supervision. I'm sure you are familiar with the recent cases in Europe where national supervisory authorities attempted to prevent market-driven industry consolidations by abusing the EU legal framework. I have decided to strengthen this framework in order to prevent similar situations in the future. This is another area where the Commission would be helpless without cooperation of the industry. When the companies concerned protested, it was much easier for us to take action. And one or two mighty heads have rolled since!
Consolidation in European financial markets is picking up but is still lagging behind other sectors. The Commission's role is to make sure that no undue obstacles stand in the way of market operators seeking commercial opportunities. Undue interference by regulators, national or supra-national authorities could prevent the proper functioning of the market.
Until now, EU rules have allowed supervisory authorities to block proposed mergers and acquisitions in the financial sector on the rather vague grounds of 'suitability of the proposed acquirer'. But these rules did not provide any clarity on what an assessment for 'suitability' should entail. They did not provide specific criteria and therefore gave considerable latitude to the relevant authorities to accept, discourage or even reject a proposed acquisition. Furthermore, the current Directives did not set out in detail the procedure by which acquisitions should be assessed.
On September 12th, the Commission made a proposal to readdress the shortcomings of the current legal framework by way of amendments to the various Directives covering the banking, insurance and securities sectors.
These new rules mean that supervisory authorities will have to be clear, transparent and consistent when assessing mergers and acquisitions in the financial sector. They leave no room for political interference or protectionism. The proposed amending Directive introduces clear procedural rules and a closed list of criteria for the conduct of supervisory assessments of proposed acquisitions. It also introduces specific deadlines and formal communications ensuring both efficiency and transparency throughout the assessment process. The Council and EP are looking for an agreement in a single reading by the end of the year.
I think this is good news for you, the participants of this conference. And it is certainly good news for the future of the EU Single Financial Market.
Ladies and Gentlemen, I believe that we share the same objective: to ensure a thriving and competitive financial services sector in Europe. State-of-the-art financial regulation is the means to achieve it. Getting there depends to a large extent on successful cooperation of all stakeholders. You – the industry – have a major role to play.
Let me conclude by repeating the key points:
- Respond constructively to our consultations, participate in hearings and workshops.
- Help us implement the EU law properly and make use of it. Go beyond it in striving to create a Single Financial Market.
- Bring infringements to the notice of the Commission.
- Insist on convergent practices by supervisors.• Fight against "goldplating" by some national governments.• Inform us immediately of any anti-competitive behaviour – with clear and precise evidence.
Thank you for your attention.
