Ladies and Gentlemen,
I am very pleased to be here at the 6th Annual European Financial Services conference. It is becoming a very important event for the EU financial industry.
International financial markets don't get very good headlines at the moment. But let us consider the facts:
First, it may seem obvious, but let us not forget that globalisation is far from being confined to capital markets. Trade flows are freer than ever and growing much faster than global GDP. Citizens are more mobile than ever. People seek new experiences outside their home countries. In some ways, the financial services industry could be said to be less internationalized – behind the curve. Parts of the financial services industry are operating less on a global scale than the world's largest manufacturing companies. Outside the wholesale arena, it is often very domestic oriented. I am sure that even if some of you own a Japanese car, wear Chinese manufactured clothes and sip African coffee, you are not heavily invested in Asian or Latin American shares. Nor is your insurance company or your main bank from a third country.
Secondly, what we are experiencing with today's volatile markets can be partly explained by the beginning of financial globalisation. Some investors are just beginning to get used to invest their assets on a global basis. And the learning process is sometimes painful, especially for the most imprudent ones. But I am confident that all stakeholders will learn from the current turmoil. Out of crises, lie opportunities. Look at the internet bubble in 2000. Everyone was rushing to internet or dot-com companies fuelled by a booming venture capital industry. As the bubble burst, many had predicted the death of this start-up model funded by the venture capital. But, after the excesses have been wiped out, the venture capital industry is back again growing with the valuation of technology stocks more rational. The same will happen for the securitization process. There will be more transparency. More data and statistics. Investors will learn to effectively price these more complex securities. And not over rely on credit ratings. They will remember what ratings measures – defaults - and what they don't. They will improve their risks management processes. At the same time, we are also working with the Member States and the national regulators to strengthen financial stability. But I will come back to this later at the end of my speech.
Let me now say a few words on how we are dealing with the internationalisation of financial services markets. We are working hard on it. With the EU having the biggest capital markets in the world, we want to shape it, not be shaped.
This is how we have proceeded. First we had to put our house into order and design an open architecture for financial services - sufficiently harmonized - prudentially robust - consumer sound. The European financial house is large and complex; built with many styles; all beautiful; but different. With the constant support of the European Parliament and the Member States, we have largely delivered the pan European modernisation of financial services. And implemented it on time. The well known Financial Services Action Plan. With some flagship Directives such as MIFID -a pro-competitive horizontal regulation of investment services. The Capital Requirements Directive. A modern prudential framework for banking and soon investment funds. And our regulatory process is based on openness and transparency. Better regulation. Listening and learning. Calculating economic costs and benefits. Using the advices of the Level 3 committees. With no directives or regulations tabled without extensive consultation of all stakeholders.
To recap: the first step: build, transparently, a robust and safe regulatory platform. Basel II, embedded in our Capital Requirements Directive, is spreading quickly to many non-European countries, MIFID has inspired similar legislation in Japan. UCITS is the global standard for investment funds. IFRS is the world's accounting standards system. Our self regulatory experiment on post trading has also attracted attention from third countries. Even Solvency II, only a Commission proposal at this stage, has drawn considerable interest from Tokyo to Moscow. I hope this will be agreed soon.
Second, we have to ensure that rules are implemented efficiently and correctly within the EU. Enhanced convergence of supervisory practices is a priority: our rules require consistent implementation and enforcement. Even inside the EU, internationally active groups are subject to different sets of rules and multiple reporting formats. We must strengthen the existing EU supervisory framework. The EU committees of supervisors, so called Level 3, need both reinforced political accountability and enhanced internal decision-making procedures. Colleges of supervisors could be implemented for large banks. At the same time, national supervisors must have the powers they need to fulfil their tasks. Member States share these objectives. They have endorsed a roadmap identifying the necessary actions. We will need to implement them swiftly and make decisive progress this year.
Thirdly, we have an active international policy. Since 2003, we have started regulatory dialogues on financial services. First with the US of course. But also with Japan, China, Russia and India.
We are pragmatic, not negotiating lengthy treaties. Not bureaucratic wasting time on useless declarations of content and messy, complex procedures. We inform our European Parliament colleagues of what we are doing. We report regularly to all Member States. We want to solve problems. We try to involve the industry before and after our meetings, or even have joint meeting with them such as the Financial Services Round Table with China. To address real regulatory issues and barriers creating business problems. To fight legal nightmares. We believe in competition and a level playing field for companies.
One of the objectives of these dialogues is to promote our regulatory approach. We want to show the rest of world that the way we regulate in Europe is conducive to a dynamic, healthy and sound financial services sector. With the US, we patiently promoted the Basel II prudential framework and the IFRS accounting standards. It has worked: The US is on the way to authorize IFRS for foreign companies listed on a US exchange and has chosen to implement Basel II in banking. We have solved the delisting issue ("Hotel California") with the SEC – and since last June many European companies are using these possibilities. We are now starting to explore a more ambitious project: mutual recognition in the field of securities. If it is successful, both the EU and the US economy will reap huge benefits with even more integrated capital markets. Wider investor base. Deeper markets. Lower transaction costs.
The other objective of our dialogues is to strive for equal market access. I have always been very vocal – and active - with Member states and national regulators when protectionist tendencies spring up. It is the same for third countries. Indian and Chinese financial services markets should be open, offering a level playing field for all companies. Last year, we succeeded in having the Chinese banking retail market opened to foreign banks, but more is needed to ensure fair competition.
This is why we should keep our minds completely open to the benefits of Sovereign Wealth funds investments, 60 billions dollars of which has played such an important role in boosting liquidity and capital of the world's leading financial institutions in recent months. Of course, transparency, governance, accountability of these funds are important.
Finally, let me now briefly outline the work that we are conducting to respond to the current financial turmoil. With a clear mandate of EU Finance Ministers, we are working with national regulators and supervisors, with the European Central Banks and all stakeholders on improvements to transparency, valuation standards of complex instruments, treatment of off-balance sheet risks, prudential rules and risk management practices. We also want to make progress on the functioning of markets, including credit rating agencies. This work will come to fruition throughout 2008. One thing that is absolutely clear to me is that we must not be afraid to question the adequacy of our existing measures and if necessary change them.
Ladies and Gentlemen, it is in difficult times that international cooperation, commitment to open markets and resistance to protectionist temptations are of paramount importance. The illusory road of retreating inwards will lead nowhere, except to low growth and reduced living standards. I will support and implement any sensible and necessary adaptations to our regulatory framework. But let us reflect carefully – because rapid, careless, over hasty thrashing around responses to a swirling financial situation that has not yet fully played out, would not be the right approach. A strong Europe deserves good regulation. A strong Europe is an open one. Setting the pace, shaping the global financial markets of tomorrow.
Thank you for your attention.
