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Ladies and Gentlemen,
It’s a great pleasure to be here with you this evening. It’s been a particular pleasure to have had the chance to meet some of you over dinner and hear a little about the work that your different companies are doing, and the ways in which you work with the financial services sector.
I'm keen to see the link being established between financial services and the wider economy. And when I think about Capital Markets Union, I always try to keep in my mind's eye an image of the businesses we are trying to help get the funding they need. As some of the MEPs here know, Roberto Gualtieri recently sponsored an event at the European Parliament with the London Stock Exchange where we gathered together smaller businesses from all over Europe who were raising funding by listing on public markets. Tonight, it's the turn of bigger businesses and I’m very grateful to AFME, Danuta and the European Forum for Manufacturing for bringing us together.
What I thought I’d do is tell you how we're getting on with our work to build a single market for capital in Europe. Touch upon the cumulative impact assessment of all financial services legislation that's part of this work. And finish with a few words on my general approach to rule making in the financial sector.
But first, I want to slot all this into our broader Commission agenda. An agenda of more trade, more competition and more choice. An agenda shaped by the simple proposition that supporting growth in Europe should be our overriding priority, and that it should underpin everything that we do.
We're committed to legislating less and legislating better. This year, we’ll propose 80% fewer laws than was usual under the last Commission. And we’ll review two and a half times as much legislation to check it’s working as was initially envisaged. I'm also clear that businesses and entrepreneurs need a period of stability so that they can plan ahead and invest.
There’s no doubt that Europe still faces challenging times. We are growing again and should enjoy our fourth consecutive year of growth this year. But that growth is still not high enough. Forecasts for this year, and next, hover around 2%. Unemployment is still much too high – around 10% across the EU - and one in five young people are still out of work. Outside Europe, growth in emerging markets is slowing. Global trade is not as strong as was expected a year ago. Financial markets have had a difficult start to the year. And the instability on the EU’s southern borders, with the refugee crisis that flows from it, is another big challenge.
This backdrop makes the focus on growth as urgent as ever. In my own area of financial services, this means striking the right balance between managing risk and allowing the financial services industry to get on with the job of supporting investment in the wider economy. It's this focus that's driving me forward in my work to build a single market for capital.
At its most simple, its aim is to link savings with growth. To increase the flow of capital across borders to projects and businesses that need financing. And to improve the funding conveyor belt so that companies of all sizes can get the investment they need to grow and sell into bigger markets. For consumers, I also want to provide more options to those who want put money aside for the long term.
These are the goals. To make the fastest possible progress and to generate momentum, I have broken my work down into a series of separate but connected steps.
To free up bank lending in the wider economy we’ve made a proposal to revive Europe’s securitisation markets. In 2014, the securitisation market was worth 216 billion euros, about a third of its value in 2007. If we could revive that market to its pre-crisis average, this could provide an extra 100 billion euros of credit to the economy. So our proposal sets out criteria for simple, transparent and standardised securitisation, with reduced bank capital requirements for securitisations that qualify. This is not going back to the bad old days, but a cautious approach based on advice from the ECB and Bank of England. As Mario Draghi put it in the European Parliament on Monday, this is a strong proposal that would revive the securitisation market while maintaining high prudential standards. And as he also said, it's worth remembering that the default rate on securitised products was actually extremely low in Europe. Member States reached an agreement on our proposal in record time. I’m hoping the European Parliament can do the same and that we can get this proposal adopted to help support investment and growth.
To make it easier for companies of all sizes to tap public markets we’re overhauling the Prospectus directive to create a simpler, faster and cheaper prospectus regime. I want to streamline the process for companies which have already issued a prospectus and want to raise capital again: that's currently about 70% of all prospectuses. Once businesses have made key information available, they shouldn't need to provide the whole lot all over again. This would speed up the process, and we estimate it should save listed companies up to 100 million euros a year.
We have also acted to try to stimulate more long-term investment in infrastructure. At the moment, we’re in the situation where if an insurance company wants to invest in a motorway, it’s subject to the same capital requirements as if it were investing in a private company. So we plan to define infrastructure investment as an asset class under Solvency II legislation and for long-term investment funds: ELTIFs and bring with it lower capital requirements.
Acumulative impact assessment of existing financial sector legislation is now in full swing. During the crisis, regulators rightly brought forward measures to calm markets and safeguard financial stability. A whole raft of laws were passed. As a result, we’ve got a stronger, more resilient financial sector. But now it's time to check that taken together the rules are working as intended, and are as growth friendly as possible.
Our call for evidence has just ended, and we’ve received some three hundred responses from over two thirds of Member States. They’ve come from across the financial sector and from those that use its services: companies, consumer organisations and public authorities. We published the responses last week so that anyone who’s interested can have a look.
We’re now busy working through them one by one, before deciding on whether change is needed and how to go about it. Some of the concerns that have been raised are about rules getting in the way of the diversity of the EU financial sector; compliance burdens linked to the duplication of reporting requirements; and unintended consequences like the impact of the rules on lending and market liquidity. Many responses also call for a more proportionate approach to how we apply legislation in the financial sector.
I don’t want to pre-judge the outcome. We’ll complete our analysis and come forward with our thinking by the summer. And in parallel, we’ll of course finish our review of European Market Infrastructure Regulation (EMIR), including its reporting requirements for non-financial counterparties that I know some of you are concerned about, drawing on any further evidence that we receive as part of the cumulative impact assessment. We’ll also streamline and simplify technical standards in this area with the aim of reducing the administrative burden further.
These are some of the actions already underway. But this year, we’ll be proposing further measures to knock down barriers to the free flow of capital. Let me just mention a few.
First, by the end of the year we’ll bring forward proposals to try to reduce differences between national insolvency regimes. The aim is to make company restructuring easier, and to increase certainty for those wanting to invest across European borders. Our proposals will seek to address the most important barriers and build on national regimes that work well.
Second, we’ll look to see whether we can make cross border investments easier by simplifying the system to reclaim withholding tax when these are subject to double taxation. At the moment, cross border investments are penalised by double taxation on dividend income, interest payment and capital gains. The process for reclaiming these withheld taxes can be complicated and off-putting, and investors don't always reclaim the money to which they're entitled. This is estimated to cost investors more than 8 billion euros a year. We want to see whether we can make whole process simpler.
Third, I want to improve the passport system we have for investment funds. This year we’ll launch a consultation to identify the main barriers. I want a system where investors can get hold of enough information, where they’ve got more choice, and where investment funds can genuinely compete with each other across borders.
Fourth, we’ll bring forward a package of measures to try to strengthen our venture capital markets. At present, they are only a fifth of the size of those in the United States. So we’ll make a proposal to amend existing legislation governing venture capital funds, EuVECA and EuSEF, to build up scale, diversity and choice. And we’ll look at how we can further support venture capital and crowd in private investment with a European venture capital fund of funds.
Fifth, we’ll work to help inject more savings into capital markets by considering proposals for a European market for simple personal pensions. This could provide the economies of scale we need to reduce cost and increase choice for savers who are putting money aside for their retirement. So this year, we’ll work out exactly what steps might be needed to make this happen.
As I pursue all of these actions, I want to work with the financial sector and those who depend on its services. To check that whatever we propose is proportionate to the problem we’re trying to solve. That we're only reaching for the rule book when there's a rock solid case to do so. That we’re not imposing one size fits all solutions to businesses of different sizes and with different business models. And that we're always sensitive to the implications that legislation can have on the ground.
I am very conscious of the importance of your sector. You’re big employers, you’re responsible for the largest share of Europe’s exports, and you’re big funders of research and development. So we need companies like yours, companies with a global footprint, to want to develop their ideas and technologies here, in Europe.
For that, we need a business environment that works for you, but also for your supply chain. An environment where administrative burdens are as low as possible, and where capital markets are a financing option for many more companies than they are today.
I sense a great deal of support for both these objectives and for this approach. I sense it from the European Parliament, from Member States, from businesses, and tonight, from many of you. The momentum is there. I want to work with you to capitalise on it, to take the single market further and support businesses that create jobs in Europe.
