Ladies and Gentlemen,
It is a great pleasure for me to be here today and I very much welcome the opportunity to talk to you about the regulatory system in Brussels and how this is linked to the key objective of ensuring a competitive economy. I can understand why for some amongst you the natural instinct is to receive Brussels initiatives with a degree of hesitation – or downright scepticism. For that reason, I think it might be helpful if I set things in context.
As you all know, the Commission has the exclusive right of initiative in the Single Market area. That is how the institutional structure is. With that exclusive privilege follows the obligation to do a proper job. The Commission has become much more serious about this in recent years.
Under the Better Regulation Agenda, the Commission has developed concrete tools and mechanisms which provide the foundation for better regulation. But only when applied systematically, consistently and with an open approach.
I believe that we are now more advanced in becoming fully compliant with this Better Regulation approach to policy making.
But a good outcome is dependant on productive dialogues and constructive input from stakeholders. Not least from those that stand to be directly affected by the initiatives we propose. From each of the many consultations we carry out we receive valuable insights to how markets function across Europe. And we receive useful input for our further preparatory work.
This brings me to the use of impact assessments which has become a mainstream practice in the Commission in its preparation of initiatives. Legislative as well as non-legislative. Applying a ‘learning by doing’-approach has resulted in steady progress in the quality of impact assessments.
That said we are well aware that the current system is far from perfect. That's why the Commission launched an external evaluation of its Impact Assessment system which was recently published.
I was pleased to learn that Impact assessments on Single Market topics were acclaimed for being of high quality. But I also took note of the recommendations which should help us improve the system further. We will act swiftly and I am pleased to announce that there will be changes to our impact assessment system beginning this autumn.
In addition the recently established Impact Assessment Board (IAB) has already demonstrated that it is very serious about its role. We see that very clearly from the quite ambitious recommendations to draft impact assessments. These are made publicly available once the Commission has adopted the accompanying proposals. I am certain that this way of spreading good – as well as less good – practices by the IAB will make a considerable contribution to the on-going culture change in the Commission in favour of evidence and impact based policies.
Without wanting to impose the Commission's methodology and approach on Member States I do think it is worth saying that there are many good lessons to be learned from this system. The Commission is very keen to exchange views and contribute to dissemination of good practices in this area.
Application of community rules
It should not be necessary for me today to say much about how a country can prosper from the Single Market. Ireland's recent economic success owes quite a bit to that market. But I believe it can be useful from time to time to remind ourselves that the proper functioning of the Single Market depends on Member States implementing community legislation correctly and pursuing tough enforcement of the rules that are in place.
And by correct implementation I certainly do not mean complementing Community rules with layers of additional requirements and red tape. Such so-called gold-plating is generally detriment to the single market and undermines our efforts to ensure high quality Community legislation. Member States who continue to apply this mal-practice are in effect standing in the way of enabling their businesses and consumers from enjoying the full benefits of the Single Market. Ireland can do better than it has recently been doing on the transportation of directives – in terms of backlog it is currently in 18th place.
We have stepped up our efforts to ensure that transposition deadlines are met and that our citizens and businesses can rely on rules being properly enforced. In concrete terms this means enforced cooperation with Member States building on the partnership approach that helped us set up instruments like SOLVIT. It also means organising more transposition workshops with implementing authorities.
Better regulation applied in Financial Services area
I now want to turn to specifics. Let me give you some concrete examples from the financial services area to illustrate how we apply the general principles of better regulation.
After the launching of the Euro, in 1999, we realized that the financial services industry had to be integrated. The regulatory framework had to be deeply modernized to reap the full benefits of our single currency, to withstand the powerful wind of globalisation, to lower cost of capital and cost of financing, to foster innovation, and to unleash strong competition. We had to shake up banking, insurance and financial market regulations. 42 legislative measures were tabled between 1999 and 2005 - the Financial Services Action Plan, a careful crafted package to put the European financial services industry at the forefront of globalisation.
And we have seen impressive results. Banking mergers and acquisitions are booming in Europe. The Eurobond market is huge and liquid. The European hedge fund industry is on the same footing as the American one. Numerous structured products, complex derivatives and sophisticated swaps are just the emerging part of European financial innovation. The cost of financing has been lowered for consumers, companies and national treasuries. Initial public offerings in Europe have surged. With a single prospectus, issuers raise capital throughout the European Union. With one set of accounting rules. And we have an investment funds industry growing by around 15% per year.
Our new regulatory approach is now aimed at simplification and should reduce the burden on the financial services sector. Let me give you three examples in the area of : insurance, investment funds and our international dialogues to show how regulating smarter rather than regulating more can deliver real benefits to industry and investors alike.
Insurance / Solvency II
The proposals I announced earlier this month – Solvency II – for the insurance industry – are perhaps the best example of a better regulation approach that will significantly rationalize the legislative framework for the insurance industry. It will reduce 16 EU Directives that currently apply to the industry to one. The new framework will strengthen the role of the group supervisor who will have specific responsibilities to be exercised in close co-operation with the solo supervisors. This will mean that the same economic risk-based approach will be applied to insurance groups. This will enable them to be more efficiently managed as a single economic entity. The new rules will also ensure a uniform and enhanced level of policy holder protection across the EU, and will facilitate the more efficient use of capital across each insurance group. In the competitive market for insurance in which we now live, this, in turn, should see the benefits being passed on to consumers in the form of lower premiums.
Investment funds
On the much publicized subject of hedge funds, we could have designed a complex and ill-prepared regulatory framework. They were many – and are still - some pressures and drumbeats for such an approach. However, we talked extensively to everyone: market professionals, governments, central banks, regulators, investors. We examined thoroughly financial stability issues. And we decided to rely on an indirect approach. In other words, to supervise and monitor upstream the prime brokers and the investment banks dealing with the hedge funds in particular where the real prudential risks lie. This approach is working well. Allowing financial innovation to prosper. A hedge fund industry is now developing in Europe at a remarkable pace. Without impeding the sound functioning of Financial Markets.
International dialogues
With integrating markets and globalisation, the world financial system has become huge, global and complex. We, the regulators, and the supervisors have big challenges ahead. To properly assess the risks, to cooperate at a global level, to understand a fast changing landscape. All of this without impeding innovation and the sound growth of capital markets.
One of our tools is the regulatory dialogues on financial services. With the US, Japan, China, Russia and India.
We are pragmatic; we want to solve problems – not to discuss endlessly with our counterparts with inflexible procedures. To address real regulatory issues creating business problems. To consult the industry. To fight legal nightmares. We believe in competition and a level playing field for companies, but not in spillover regulation nor in over regulation.
We have therefore had three main objectives in our dialogues.
First, demonstrating that the European approach to regulation works. Merging 27 rule books into one is a good experience. Finding agreements with 27 Member states and the European Parliament demands patience and courage. But this generally leads to carefully crafted legislation. We want to show the rest of the world this and why we think it works.
Second, striving for a level playing field for all companies. International competition and open markets are driving modernisation. They foster growth and innovation. I have always been very vocal with Member States and national regulators when protectionist tendencies spring up. It is the same for third countries. Protectionism is not for 21st century regulators.
Third, convergence towards international standards. Carefully crafted, they are a powerful tool to extract the best from globalisation. Take, for example, IFRS accounting standards. Soon we hope that they will be accepted in every significant financial centre: the EU, US, China and Japan. One set of accounting rules for being listed in the world's best financial markets. Look also at Basel II. This risk based approach is also on the way to becoming a global standard. And, as I have already mentioned, we have tabled our Solvency II proposals for the insurance industry. We hope they will have the same success.
Ladies & Gentlemen, to conclude: The EU and Member States both have a role to play in ensuring that the regulatory framework we have in Europe is light touch, efficient, and effective. Principles based, not rules based. National regulators and governments must be disciplined when it comes to transposing directives – to avoid doubling up through gold plating, which adds cost and complexity and undermines the huge benefits that a single European rule book can bring.
It is a real challenge to get everyone singing and acting from the same hymn sheet. But we are, I believe, making steady, perceptible progress. I hope and believe we can make more during the remaining term of this Commission. It is critical that we do for Europe, for our competitiveness, and for our future prosperity.
Thank you very much.
