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Ladies and gentlemen,
I'm delighted to be back at Eurofi. At one of your previous conferences in Riga, I spoke of the financial sector's unique role in supporting growth in Europe. Today, I'd like to set out my approach to the financial services portfolio President Juncker asked me to take over. An approach which will in part be shaped by the UK referendum result.
Britain's decision to leave is a political challenge for the EU. It created immediate uncertainty that many of you experienced firsthand. Europe has weathered that initial storm. European markets have recovered. And the banking sector has shown itself to be more resilient than before the crisis.
Yet the impact of UK vote could still be significant.Our preliminary assessment is that UK’s GDP could be cut by 1 to 2.75 percentage points by 2017. In the other 27 Member States, the impact could be between 0.2 and 0.4 percentage points. The longer the uncertainty lasts, the more likely it is to weigh on growth prospects. That's why the Commission has called for article 50 to be triggered without unnecessary delay. Once the UK has set out its ambition, we can begin to answer questions about its future relationship with the EU.
Against this backdrop, my focus will be to give predictability and continuity to the EU's financial sector. To continue building a Capital Markets Union. To complete a reliable framework for Europe's banking sector. And to stick to evidenced based rulemaking by following through on the Call for Evidence.
The arguments for creating a single market for capital in Europe are strong. Europe needs deeper capital markets to increase financing in the wider economy. Our businesses need a broader range of funding options to grow and create jobs. And deeper capital markets are crucial if we're to support long term investment and remain globally competitive. The possibility of Britain exiting the single market just makes the case for CMU stronger and more urgent.
I will therefore continue to drive forward the CMU Action Plan. We moved fast with the first wave of measures. We've proposed an overhaul to the Prospectus regime. A balanced proposal to restart securitization markets by defining Simple, Transparent and Standardisedsecuritisation is on the table. We've published proposals to strengthen Europe's venture capital markets and support socially minded investment. The onus is now on the co-legislators. Let's get these agreed. Let's get these done by the end of the year.
Now, we're ready for the second wave of CMU actions: ambitious measures which will take longer to deliver but on which we need to accelerate progress. Let me mention just a few.
We know that the different approaches to insolvency in the EU are a barrier to integrated capital markets. Inefficient procedures also hamper the restructuring of debt of viable borrowers. They reduce the capacity of creditors to retrieve non-performing loans. Next month, the Commission will present a proposal to encourage more effective arrangements for the restructuring of viable business debt in all Member States.
To inject savings into capital markets, we need to create the right conditions for a European personal pensions market. This could provide economies of scale, reduce costs and increase choice for savers. This summer, we launched a public consultation. I want to use it to quickly determine how to support the creation of a competitive personal pensions market.
To support investment in infrastructure projects, we have already amended Solvency II to reduce capital requirements for insurers investing in infrastructure projects. Now, the Commission will adopt a further amendment to reduce capital charges for insurers' investments in infrastructure companies.
To strengthen cross border investment, we'll drive forward work to improve the distribution of investment funds. A consultation to map the barriers of cross border provision will close next month. We can then start work to increase competition and choice, and reduce costs for investors. And take action to remove remaining barriers in the asset management sector, through legislative changes if necessary.
To help European companies diversify their funding sources, we need to tackle the preferential treatment our tax systems give to debt. We will come forward with a proposal to address the debt equity bias. And work with Member States to see whether we can simplify the system to reclaim withholding tax when these are subject to double taxation.
The importance of sustainable finance is also central to CMU. We've made a start by supporting market initiatives like green bonds. We've looked for ways to encourage institutional investors to have more sustainable investment policies. I want to see what more can be done to support the transition to a low carbon economy in the financial sector. The Commission is establishing an expert group to develop a comprehensive European strategy on sustainable finance.
This makes up a weighty agenda. There will be mid-term review of all CMU actions in 2017and you will be hearing more from us even before then. We will use the review to assess the progress we have made since the Action Plan was published. And where necessary, make adjustments and speed things up.
While pressing ahead with CMU, strengthening the framework for the banking sector remains a key priority.
This is an important time for the European banking sector. Recent EBA stress tests have confirmed that our banking sector is more resilient than before the crisis. But the stress tests have also made clear that pockets of weakness remain. And there is also a broader challenge for banks to develop sustainable business models in a difficult economic context and faced with the disrupting force of technological change - such as in the Fintech sector.
I am confident that the European banking sector has the expertise and diversity to address these challenges. As the Commission, we want to provide the right environment for this to happen. And work towards completing a European a supervisory and regulatory framework for banks that is coherent and predictable.
Work on the European Deposit Insurance Scheme (EDIS) is now in the hands of the co-legislators. The Commission has made a clear legislative proposal to gradually mutualise national deposit guarantee schemes. To pool contributions and build the fire power we need. Now, I hope we can build on the on the Council Roadmap to get this agreed.
On the risk reduction side, all Member States except one have transposed the BRRD and DGS into national law. We should be over the line in the comings weeks. This will allow the technical work to begin on a common backstop for the Single Resolution Fund: essential for a credible Banking Union.
This autumn, we will come forward with a revision of the Capital Requirement Regulation and its sister directive CRD4. The aim: legislation that supports financial stability, but allows banks to lend and support investment in the wider economy.
The Commission is also working to encourage the clean-up NPLs across the EU. We know high NPLs constrain lending. They are bad for growth. So a priority of the European Semester process will be to encourage clean up measures at national level. We will continue to do everything we can to support meaningful and coordinated action in this area.
Across the board, we will continue to push for coherent supervision and regulation. The Call for Evidence on financial services legislation is part of this push. We launched it to check whether legislation passed during the crisis works as intended. And to see whether it’s as growth friendly as possible. We are committed to acting on our analysis of Call for Evidence responses.
We'll set out our way forward on this by the end of the year. The main thrust of it is already clear. We need to consider adjustments to increase funding to the wider economy. We need to look at whether we can make legislation more proportionate. And whether the compliance burden can be reduced for businesses.
To increase funding to the wider economy we'll be working our Call for Evidence analysis into upcoming reviews. We are looking at the impact of the Basel measures and TLAC on trade finance, market liquidity and access to clearing services. We're working closely with the EBA and ESRB these issues to get the calibrations right as part of both EMIR and CRR reviews. We will also make sure that TLAC fits intelligently with existing MREL requirements.
We'll continue to do everything we can to support lending to SMEs. We will keep the supporting factor. And we'll propose to extend the supporting factors loans to SMEs above the existing threshold of 1.5 million euros. There would be no upper limit and a capital charge reduction of 15% above 1.5 million euros.
It's clear that reporting and disclosure obligations need to take account of companies' size, risk profiles and business models. There's a case for prudential requirements to do so too - particularly in the Banking Sector. We're looking at this as part of the CRR review. And although not part of the current review - the way investment firms are treated by the CRR also needs to change. We need to distinguish between large bank-like investment firms and smaller firms, and set capital requirements accordingly. We will work with the EBA to see how best to do this.
We are also looking at whether we can reduce the quantity of reporting obligations. If we can reduce that burden and achieve the same prudential objectives, we should. The EMIR review will look at how to safely reduce burdens from the 'dual reporting' obligation – particularly for non-financial firms. We are also taking forward a project on data standardisation to improve reporting with new technology.
None of this work will reduce our focus on strengthening consumer protection and addressing the remaining risks in the financial system.
We are working to give consumers more choice through our Green Paper on consumer financial services. Follow up actions will be announced in autumn. They will focus on how to build a genuine single market for consumer financial services like insurance, pensions, loans, and current and savings accounts. In this area innovation in fin tech offers great opportunities. Europe must be part of this innovation and make sure it works for consumers.
By the end of the year we'll close a gap in our framework and come forward with a proposal on Central Counterparty (CCP) recovery and resolution. We have required more clearing to go through central counter parties. That's good for transparency and will reduce risk. But if we are going to rely more on CCPs, we need to have a clear system in place to resolve them if things go wrong.
Ladies and gentlemen,
These priorities for the financial sector fit into the Commission's broader agenda focused on re-launching investment and reforming our economies – underpinned by responsible fiscal policy. They have the full backing of the College. In the weeks and months ahead, I want to work with industry, supervisors, the European Parliament, and Members States to meet them. To find practical solutions to resolve differences and increase certainty. And to ensure financial services can play their full part in supporting sustainable growth in Europe.
