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Ladies and Gentlemen,
Thank you for inviting me to speak at your annual meeting. It is a privilege
for me to be here in Paris inside such an historical building.
I would like
to thank Michel Prada for all his major contributions to the process of European
financial integration. And I would like to underline how much we value the
excellent professional contributions of the AMF at all levels to our work.
In the area of securities market, the last few years have been extremely busy.
You have sweated a lot on transposition. Probably groaning at the Commission. You have encountered difficulties. You have faced opposition from vested interests. But, in the end, you have grasped these opportunities. You are helping to transform the financial landscape in France to create an open European market without barriers. An open market that leaves room for French talent to flourish at the forefront of financial innovation. An open market allowing French financial firms to thrive globally. Nothing would please me more to see La Place de Paris power ahead and become even stronger than it is today.
A prospering French and EU financial industry
The European Financial Services industry is in good shape. The French financial industry as well. Very good shape. The figures speak for themselves: €190 billion is not the budget of DG Internal Market. It is the market value of the top three quoted French banks. Some 23% of the CAC 40 index is made up of financial services companies – and this is growing.
I do not see national champions in this room. I see strong European banks, increasingly acting globally. Banks surfing the crest of the wave of globalisation. Fully harnessing the power of the surf. Not waiting for the water to crash on their heads.
I see banking executives filling planes to Moscow, Beijing, Delhi, Brasilia to open new business, to find new partnerships. Not over-crowding the Thalys train to Brussels to complain about regulation or defend protectionist courses.
I see stock exchange consolidation with the EU taking the lead. Could we have imagined in our wildest dreams 10 years ago that a French created stock exchange could be involved in a merger of equals with the New York Stock Exchange ?
I see a prosperous investment fund industry. An industry that has grown four-fold in the last decade and still growing by around 20% per year. 5500 billion € of assets, 50% of EU GDP.
I see private equity funds taking off: €11.5 billion was raised by French players in 2005, putting France at the top in continental Europe.
I see a great swathe of financial innovation coming from France from derivatives to complex swaps. The launching of your competitive financial industry cluster. This is the way to go forward, together. Driven by innovation. In search of excellence.
I also see supervisors that, at last, are taking a few more planes to London, Frankfurt, Moscow and Beijing. Bridges between European supervisory and regulatory agencies need to be deepened further still.
But I will come to the key issue of supervisory convergence a little later. Firstly, I would like to discuss our regulatory policy.
Commission regulation policy
Good regulation is necessary for goods, services, capital to flow throughout the European Union. But too much will freeze innovation, deter market participants, create red tape and excessive administrative cost. Too little will create instability and undermine the main asset of the financial industry: confidence. In terms of EU legislation, I want to maximize returns, your returns, within a sound but light framework. A modern regulatory apparatus. Light. Flexible. Adapted to our globalised economy.
This approach is the backbone of the Financial Services Action Plan launched in 1999 and extended in 2005 with our White Paper. Three key words: openness, comprehensiveness, competitiveness. One leitmotif "dynamism consolidation".
Open we are when we listen to everyone: companies, services providers, intermediaries, consumers, trade-unions, third-countries, international standards setting bodies. Open ears. And also open doors.
This has built transparency and predictability in our decision making process. Built confidence in our regulatory system. Today it is, reading US Treasury Secretary Paulsen's remarks, the US which is questioning its way of working. Not the EU.
Open when designing our passport system. No fortress Europe, no Hotel California for our markets. Establish your investment fund in Madrid and you can conduct financial business everywhere, from Porto to Riga, from Malta to Dublin.
Comprehensive we were when implementing 42 measures in 5 years on time – in line with the decisions of our Heads of State and Government in the European Council. 42 measures to integrate financial markets from wholesale to retail, from insurance to payments, from corporate governance to accounting, from banking to asset management.
Competitive as we strive hard to avoid overregulation and red tape. Acting on an EU-wide basis only if national regulations had failed or were clearly impracticable. Encouraging equivalency and mutual recognition over new sets of regulations. Endorsing supervisory cooperation and information sharing over centralised agencies.
Competitive we are as we aim to lower sustainably the cost of financing across the board. For everyone. From small businesses to corporate borrowers. From innovative entrepreneurs to national Treasuries. From consumers to private equity investors.
Competitive in the design of our best regulation agenda. Letting innovation flourish. Letting market forces play their role. Ensuring that economic impact assessments are conducted before every new regulation. Scrapping useless rules. Using new techniques – like the clearing and settlement code of conduct.
Supervisory convergence
Let me turn now to supervisory convergence. An important issue for you - but also at the heart of the competitiveness of our financial industry. Deep liquid markets are not enough; we need safe, efficient and cost effective supervision. We need to accommodate the growth of integrating, pan-European financial services. How can this be achieved?
I believe that at the moment, the only credible structure is the Lamfalussy structure - our hubs and spokes system. In my political judgement, our real aim must be to make all parts of the European system work well. That means good decision making at the centre – the hub. Strong cooperation in the spokes – i.e. the national regulators, to ensure consistent implementation and a level playing field.
What I want to concentrate on is making this architecture work better. With practical solutions. Alleviation of duplicative or excessive regulatory burdens. Streamlining of reporting formats. Eliminating any redundant reporting requirements. Building a true European supervisory culture with top class standards and mutual trust and confidence. I would like to see European regulators exchanging personnel. And having joint training programmes. The supervisory Committees, established by the Lamfalussy process, are still young and should be given some time to deliver. We will help them.
But "should" is not enough, it must be done. If not, investors and companies will go elsewhere; we must bear in mind the difficulties encountered by US markets in attracting IPOs since 2003. We cannot afford to get things wrong in Europe. Too much is at stake. If supervisory convergence and cooperation are insufficient, the Commission will not hesitate to act and to propose to strengthen the system. If there is one simple message here – it is this. Markets are integrating. Supervisory practice must as well. Cooperation must deepen.
White Paper on investment funds
Let us come now to investment funds. They are an important pillar of the European financial system. This business has grown four-fold over the last decade. And its importance is set to grow further. Investment funds have become a key investment tool for institutional investors. And many European investors use them as a means to save for a prosperous retirement.
The UCITS Directive has provided a focal point for the creation of a vibrant European fund industry. Hard work but impressive results.
A common regulatory concept and a single market passport. No tower of Babel any more. The UCITS model is the 'gold-standard' , not only inside but also outside the EU: UCITS represent 75% of the investment funds market in Europe and 69% in Hong Kong. Not bad.
But to continue to grow, we must maintain a sound and efficient regulatory environment. The current legislative framework is certainly robust. But is it flexible enough to cope with the fast-changing environment? Is it not leading to higher than necessary compliance costs? Translating into missed business and investment opportunities for industry and investors?
Certainly, financial innovation poses challenges for product rules. Regulation may need to concentrate less on portfolio construction. And more on the way that funds are managed, marketed and sold.
However, I do not believe that product regulation and UCITS legislation has passed its utility. I will keep them on the shelves. Sensible rules on the structuring, governance and management of funds will remain a staple of our regulatory system – particularly for products being fast-tracked to the retail market.
But the Commission is committed to modernising those rules. This month, we published the White paper on investments funds. You will see proposals for targeted legislative amendments in autumn 2007. They will simplify existing passporting mechanisms and expand the range of single market opportunities. They will give investors better tools to make informed decisions.
Not the twelve labours of Hercules. But six light, targeted and efficient amendments.
(1) We will simplify procedures for passporting UCITS funds.
(2) We will create an appropriate regulatory framework for cross-border mergers.
(3) We will pave the way for master-feeder funds and other forms of entity-pooling. And also look further at recognising virtual pooling.
(4) We will propose to allow investment fund managers to manage corporate and contractual funds in other Member States.
(5) We will try to salvage the Simplified Prospectus through better specification of its rationale and core principles. And by foreseeing detailed implementing legislation to given uniform concrete expression to these principles.
(6) We will strengthen provisions for supervisory cooperation and ensure effective supervision of cross-border operations and fund structures.
Alongside these legislative changes, the White Paper foresees a small number of non-legislative actions. Those are proportionate responses to regulatory and tax barriers.
Certain non-harmonised collective investments are, or are perceived, to be too complex and risky to be marketed to the retail public. A private placement regime is seen as a useful route for integrating the market for such products. We will review the remaining barriers and options for establishing an effective private placement regime. This would allow financial institutions to offer such investments to qualified investors across Europe.
We will also tackle more fundamental questions regarding the scope and regulatory architecture of the UCITS Directive. Prescriptive investment rules exclude some classes of fund which are available to retail investors at national level. Rather than premature and ill-prepared action, the White Paper proposes careful study as a basis for a better informed policy debate. A structured review of non-harmonised investment funds and the costs and benefits of possible EU-level action will be undertaken. We will report to the Council and European Parliament in 2008.
The White Paper lays much stress on proper information being given to investors. To ensure that they receive objective and impartial assistance from fund distributors. We are working in an open and transparent way on this – for example developing an effective, simplified prospectus. Or more transparency on the real costs of funds – taking into account that 50% of cost of funds is captured by the distribution system.
Clearing and settlement
Finally, allow me to say a few words on the post-trading markets. An important test of our better regulation agenda. As you know, this summer, I decided in favour of self-regulation: all the industry signed the Code of Conduct at the beginning of this month.
However the proof of the pudding is in the eating. Proper and timely implementation of the Code is now of paramount importance. The Commission will therefore closely monitor how the industry delivers on its commitments in practice. In time – I would like the code extended from cash equities to other products.
Work needs to continue on all other outstanding issues: removal of remaining Giovannini barriers; the ESCB-CESR standards and TARGET-2 Securities. This will require concerted action on a broad front – from the Commission, the Member States, the European Central Bank, the EU securities regulators, the infrastructure providers and users.
National authorities will have two important roles to play. First, to help monitor the implementation of the Code. And second, to put in place the necessary regulatory and supervisory framework to facilitate the integration of the post-trading market and insure proper mitigation of risks. And to chase and prohibit anti-competitive behaviour.
CONCLUSIONS
Financial markets are critical for the future economic performance of the EU. For our competitiveness and our place in a globalised world. My job at the Commission is to drive this process of integration forward. The EU financial industry can be the largest and the most competitive in the world. Our regulatory model in the EU can and should become a global model. I look forward to continuing working with you towards the goal.
