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It is a great pleasure, and a challenge, to speak at the annual Europlace conference here in Paris – because it is one of the landmark events of financial Europe. It is an opportunity to look at what has been achieved. And identify the challenges for the years ahead.
In 2002, my predecessor concluded his intervention here with these words: “We have one single objective: a strong European capital market by 2005”.
Let me start mine with these words: “We have one single objective: an even stronger European capital market by 2010”.
Does this mean we have failed so far?
On the contrary.
Europe is meeting the challenge and, in many areas, is exceeding expectations.
Our priority, my responsibility, and yours is now to dynamically consolidate this success – and drive it forward.
When the Financial Services Action Plan was adopted in 1999, the haunting question was: how can Europe keep up with the US in financial markets. We were behind.
- In market size.
- Growth.
- Product development.
But today our markets are stronger.
- In bonds.
- Equities.
- Hedge funds.
- Investment funds.
I could go on.
Real progress has been possible because we had a common vision: that an integrated, modern and confident Europe is a necessity, an opportunity, our future – and vital for our long term economic development.
A vision is nothing without human will and determination to implement it. We have witnessed an unprecedented effort from all stakeholders – co-legislators, supervisors, business leaders and all representative bodies. The role, influence and leadership of key French personalities – some present here today – has been essential, as it has often been the case in the history of European construction.
France provided the push for the Euro.
It was France who was determined to move forward during its Presidency of the European Union in 2000 on financial services by setting up the Lamfalussy Committee – which has been instrumental in this acceleration of European integration.
And it has been France that has been open to find compromises with the UK, Germany and other Member States in order to strike deals in the negotiation of complex directives. This has been critical given the different regulatory philosophies that abound in the EU.
We need French drive.
French perfectionism and intellectual rigor to address the remaining challenges.
And French vision.
The new landscape of European securities markets
Look at MIFID. The result we have achieved has been tremendous.
A vote took place last week in the European Securities Committee on the implementing measures. 321 votes in favour – zero against – and zero abstentions. Unanimity.
And the European Parliament has strongly endorsed the measures. Europe's regulators are also on board. I take this opportunity to pay tribute to the major role played by CESR in this success.
It is a powerful signal to markets and the public at large. It shows that we all agree and are serious about making European financial integration work.
It proves that the "Lamfalussy process" is working well. Of course, the process has been used before. But MiFID was the big one. The real test. To use the old song "...if we can make it here, we can make it anywhere...". Let us once again thank Baron Lamfalussy for his extraordinary work.
The co-operation between the Commission and the Parliament on this file has also been exemplary. The ECON Committee has done a first class job, under the leadership of Mme Berès. She deserves great credit. The final texts include nearly 90% of the Parliament's suggested modifications.
And another good piece of news for the Lamfalussy process. It looks at last that we have found an agreement on comitology – so that the European Parliament has finally got its rightful democratic right to be able to block technical measures it feels are not appropriate. We welcome this. We trust, now, that this will lead to peace in the institutional valley.
Consolidation of stock exchanges
So we believe the MiFID deal is very important. It is clear that MiFID will act as a catalyst for significant market changes. Without doubt, the recent wave of possible stock exchange mergers is explained, to some extent at least, by preparation for the post-MiFID scenario – and by the attractive regulatory environment in the EU.
There are those who would like the Commission to intervene in some way and to somehow determine the future structure of exchanges in Europe.
To shape markets.
With a neo-euro-gosplan.
My answer to that is: NO
Policymakers’ role is not to "pick winners" or back particular horses – but to create the conditions which promote market efficiency, competition and investor protection. It is then up to the market to decide how it wants to react to these conditions – whilst respecting the framework rules of law and competition.
We will, of course, think carefully about any regulatory or competition implications which might result of current developments. In the event of a transatlantic merger, for example, we will insist that financial trading in Europe must continue to be regulated under European law and the European regulatory system.
Of course, we will be willing to work closely with the US authorities to sort out possible legal overspills. But the basic principle remains: European law will apply. In time there could be demands for greater transatlantic financial integration, with potentially significant rewards for end-investors in terms of market efficiency. Let's see. We are not there today.
Ladies and gentlemen, the rapid globalisation of financial markets is an opportunity for Europe, and for France. We are well placed to stay strong. As I said our financial markets are in good shape. They are growing strongly and are set to grow even faster in future as the Union enlarges further, our middle class expands and people increasingly take responsibility for their own pension provision.
For this purpose we are developing new regulatory dialogues with China, India and Russia in addition to those of the US and Japan – to show the benefits of our legal framework and anticipate future regulatory frictions.
Leaving politics aside, the potential stock exchange mergers represent a vote of confidence in Europe – in our stock exchanges, our technological prowess and our regulatory system. Yes, the regulatory system we have been implementing is one of the world’s most advanced ones, attractive to issuers, investors and financial services providers from all over the globe. Just one example. The Japanese told us the other day that their new investment services law has been inspired in part by MIFID. This is good news.
But we are not complacent. We are committed to continuous evaluation and improvement. On securities – we have just set up a top class experts group to tell us how to improve our rules further. Our aim, quite simply is to create the best framework in the world for financial firms to trade in and be successful. Nothing less is sufficient in the world we face today. If we can succeed – business will thrive; jobs can be created; and we can solve many of our problems.
Clearing and Settlement
One area where we must make progress is clearing and settlement. We cannot go on with the current complex, costly fragmented arrangements for pan-European post-trading arrangements. This morning’s session is about challenges for users.
This is one: how to unlock the significant benefits within reach, by reducing the inefficiencies and excessive costs spread through the entire chain of trading to settlement and depositary.
I have spoken extensively to all stakeholders in the post-trading arena. There is wide agreement on both the problems and the objectives. The question now is what tools to reach those objectives most efficiently.
This is an incredibly complex space with strong, often divergent interests at stake. My services have been working hard on a regulatory impact assessment. Our colleagues at Competition have carried out an enquiry and published their findings – which give grounds for some concern. With full transparency – everything is on our website. All the possible options, and their impact, have been examined.
Industry, too, can take a lead. It should develop new and more efficient structures and agree to work constructively and openly – competing on fair terms.
In the end, what matters is that the users do get the full benefits of efficient pan-European securities markets, from trading to post-trading. Even in these last days before a decision, I am in contact with everyone to explore all possible options and find the best way to achieve this objective. Before we have our holidays this summer – our first policy lines will be announced.
Asset management
Let me now to turn to the area of asset management. The existing regulatory framework laid down solid foundations for the development of investment funds. However, product innovation continues in a rapidly changing environment.
New savings products are competing for investors' attention. Faced with this reality there is a need for further adjustment and improvements to enable the fund industry to serve European investors. As efficiently and effectively as possible. Remember, the investment fund industry alone is capitalized at over 6 trillion euro.
We are working to improve the existing law.
We are removing frictions that slowdown product passporting. We are clarifying eligible assets. We are trying to reduce unnecessary delays and uncertainties regarding marketing of UCITS. However, this repair work may no longer be enough to meet pressing need for rationalisation and reorganisation.
We need to develop solutions to help the fund sector consolidate and take full advantage of scale economies and specialisation benefits that a European market offers. On the customer side we need to ensure that adequate tools are provided which help the end investors make informed choices between best-available products.
Fine rhetoric: how do we turn these words into action? In the area of UCITS we now believe we have some core elements of a blueprint.
Yesterday, the final report of the Expert Group on Investment Fund Market Efficiency was published. The experts indicated possible ways to make better use of single market freedoms and enhance competitiveness of the industry. They have tabled proposals aimed at reducing costs to funds. Getting higher net returns for investors.
Fuelling the dynamism of the sector. Helping the fund industry to play its full part in providing secure and best performing solutions for European savers. These proposals deserve our careful consideration.
We also published reports on hedge funds and private equity funds. The hedge fund report highlights the growing demand among investors for access to hedge funds. The Group recommended a number of alternative approaches to make hedge funds available to different categories of investors. The steps to be taken to remove barriers to investment in hedge funds by institutional investors. Their concerns about the legal patchwork on fund administration, custody, and prime brokerage. These are big issues. More reflection is required.
The expert group also concluded that the private equity industry could make a greater contribution if the regulatory and tax environment took better account of the specificities of this business.
So how do we move forward?
We are proceeding with impact assessment work on possible steps to improve the regulatory environment for the European fund industry and investors. The findings of expert groups will be subject to validation and discussions with representatives of industry, investors and regulatory authorities. We have a conference in Brussels on 19 July to discuss them. Come and join us.
The expert group reports and reactions to them are an important input to our thinking on the Commission White Paper, planned for early November. The White Paper will be followed by quick delivery of all key initiatives.
Conclusion
Ladies and Gentlemen,
This morning I have expanded on some examples of what “dynamic consolidation“ means.
Of course it also means making Basel II work in the EU. A more efficient payment system. And opening up retail financial services to European citizens. In this field in particular, I count on your active support. In this context I very much welcome that the AMF has set up a new consumer financial education capacity under the chairmanship of Philippe Herzog.
Integrating retail markets may prove to be even more challenging than creating a single Capital Market. This is notably due to diverging consumer protection rules. The difficulties we have in striking a deal on the Consumer Credit Directive is a good illustration. I am afraid that we could end up with a text that preserves national specificities but does not facilitate the provision of consumer credit products across the Union. This would be the fault of Member States seeking to maintain their own rules. But the banking industry also has its responsibility: if it does not speak with one voice in favour of a directive which improves the functioning of the single market, I don’t see how we could make tangible progress.
Another challenge for the months and years ahead will be to look at how we can reduce regulatory and supervisory costs. A lot is being done already in the Committees of Supervisors, notably on the basis of the “Francq Report” on supervisory cooperation. I am now reflecting on what else could be done to improve the efficiency and cost effectiveness of our regulatory and supervisory system.
Général de Gaulle once wrote: “Nations are great when they are determined to be so”.
Today, we need that determination in Europe. I feel it coming.
Thanks to France, we do have a shared vision, and ambitious goals.
Our goals are ambitious.
So we must drive forward, unlock and deliver the benefits of an integrated financial European marketplace to all our citizens.
To companies large and small.
Encourage innovation, young people and their ideas to develop in the EU.
We need France to continue to be right at the front of the driving pack.
Thank you.
