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Let me begin by thanking Ed Balls for his invitation today to meet this prestigious group.
I want to raise two issues – first the state of European integration and then its place in global capital markets – both looking forward.
Our efforts to integrate European capital markets are beginning to pay off. Markets in every segment of European financial services are strong – growing fast – indeed faster than the US according to recent reports.
This is good news for the real economy in the EU – with financial markets, private equity, hedge funds etc, driving overall productivity improvement – along with the benefits for companies of a lower cost of capital. And very good news for the City – which is booming.
We have got to where we are today by a combination of factors; our determination to try to set the right balanced, legal framework; open, bottom up policy making; economic impact analyses; listening; shaping, consensually with strong involvement of market participants and regulators.
The real challenge we face now is to implement and enforce evenly what we have agreed, MiFID being key. Regarding MiFID, already a number of things have become absolutely clear:
- First, that some of the difficult issues were not faced up to at Level 1 in order to get Level 1 adopted.
- Second, some of the practical implications of the implementing compromises at Level 2 were not sufficiently thought through by Member States at Level 2 or were papered over until Level 3.
- Third, arising from some of the developments I have seen in recent weeks, I fear that there is a real risk that the dream of a single new rule book replacing 27 existing rule books could be turned into a real practical nightmare. This will certainly happen if we end up supplementing the single rule book with the handiwork of a dozen or more gold-platers, with manuals of interpretative guidelines, with a multiplicity of different types and numbers of reporting fields – demanded by 27 different regulators. I hope my fears prove ill-grounded. We all need to find pragmatic and workable solutions to ensure we maximise the benefits from MiFID.
We must also must finalize the remaining missing pieces of the EU framework – Solvency II; SEPA; retail; investments funds; driving cross border clearing and settlement costs radically down; strengthening European Supervisory consistency and cooperation – where I particularly want your ideas.
We have to garner and encourage market forces – and market solutions. The clearing and settlement code of conduct is a litmus test of whether the industry can deliver; our decision not to regulate hedge funds, investment analysts, credit rating agencies and to simplify our company law frameworks I hope are recognized as swallows of a new European regulatory spring. We are reducing the regulatory pressure post-FSAP and intend to stay there. But proper market behaviour will be critical.
The industry must help Neelie Kroes build more competition in some markets. The industry must also be far more active in supplying hard evidence to the Commission of anti competitive behaviour or deliberate/overt protectionism by Member States. In this context, too often the industry resembles a shrinking violet.
Europe, however, is not an island. As I said, we must strive to lead the emerging global financial market – commercially, politically, and in regulatory terms.
In one sense, I am encouraged today that it is the US that is nervously appraising its own regulatory system – post Sarbanes-Oxley. Their recent reports indicate that the EU is powering ahead. There is an alternative pool of capital outside the U.S today. What I want with the US is to work towards friction free transatlantic markets – 80% of the global total. We have no interest in a difficult U.S. market. On the contrary.
Now, subtly the debate is beginning to change. We see in the G7 10 days ago – fresh requests to work towards a securities free trade area. Green shoots from the SEC as well. That’s new. But if this is to progress globally – we must establish best of breed rules everywhere. And not, de facto or de jure, by the front or back doors, extraterritorial US regulatory tentacles in the EU.
But, like you, we must look wider than the US. To the emerging capital markets - there we are developing new dialogues with China, India, Brazil and Russia. Dialogues to find mutual areas of cooperation; to press for open markets.
Europe's outreach will depend on the quality of the rules we adopt inside the EU. I look forward to working with you closely in the future in this dynamic industry – where the growth potential is unbounded.
Where the EU is strengthening. Where the EU has a new, exciting opportunity to lead and shape the global market.
