Ladies and gentlemen,
It's a great pleasure to be able to welcome you back to the afternoon session of our conference. I'm sorry to be doing things slightly back to front, and that I could not be here this morning. But I’m really excited to see how much interest there is in the Call for Evidence and the work we're doing to review the regulatory framework for financial services.
This Call for Evidence is part of a much broader Commission agenda, led by Franz Timmermans, for better regulation. As a Commission, we are committed to legislating less - 80% less this year compared to the last Commission - and legislating better. We want to work with businesses, supervisors and consumers to develop rules that are evidence-based. And we should have the self-confidence to check that our existing legislation is working as intended - and to be prepared to change it if it is not. That is how we can regulate in a way that commands respect.
I am enthusiastic about this approach in my own area of financial services. As a response to the financial crisis, we had to pass a whole range of legislation in recent years. It's made our financial system stronger. It's provided more protection for consumers. But now, as we work to support investment, as we work to support growth, it's time to take stock. Not to question the overall architecture, but to check whether the same regulatory objectives can be achieved in a more growth friendly way.
In launching our Call for Evidence, the Commission has not been acting in isolation. It is something that the European Parliament, and Burkhard Balz in particular, has called for. It is supported by governments across the EU. And it fits into the international regulatory agenda.
The G20, the Financial Stability Board and the Basel Committee, are all looking at the coherence of the reforms that have been undertaken in recent years. Mark Carney, as chairman of the FSB, agrees that "monitoring implementation of agreed reforms, analysing the effects of the measures, and making adjustments to address any identified material unintended consequences, represents good regulatory practice". But I'm glad to say that it's the Commission which is in the lead in undertaking such a comprehensive exercise. This gives us an opportunity to shape the global approach to regulation. And I hope it can serve as a model for similar reviews in other areas of EU legislation.
If that’s the bigger picture, let me come back to the Call for Evidence itself, and give you a snapshot of the feedback we’ve received.
Let me start with the banking sector. What are its main concerns? Well, smaller banks have been very clear that our banking legislation does not do enough to take their size properly into account. That’s a concern I understand and to which I'm sympathetic. We're already looking at this as part of our review of the Capital Requirements Regulation, CRR, and its sister directive CRD4. I want to see whether we can extend measures already built into the system to make it more proportionate.
For instance, some smaller banks and credit unions are exempt from the CRR. Up until now these exemptions have been decided on a case by case basis. I want to keep the exemptions that have already been granted, but I also want to speed up the process for applications, and set some objective criteria on which future exemptions can be decided. There must be a more efficient way of doing this than amending primary legislation every time.
I'd also like to see more proportionate reporting and disclosure requirements for the banking sector. Can we do more to simplify complex reporting and disclosure templates? Can we streamline what needs to be disclosed to make it more understandable, and therefore more meaningful? I’m sure we can, and we're working out how best to do it.
From banks of all sizes, there was a general acceptance of the fundamental architecture of our financial framework, and for the reforms that have shaped it. But they have also identified a number of areas where they believe the cumulative impact of legislation could be hampering their ability to finance the wider economy.
If true, it's a concern we can't ignore. We’ve already taken action to define simple, transparent and standardised securitisations and proposed lower capital requirements for banks that hold them. We will keep the supporting factor for lending to SMEs. In addition, I want us to look at the case for raising the threshold for loans that qualify. As part of the CRR review, we will consider concerns that our rules are making it harder for banks to play their role as market makers, reducing liquidity in some securities markets.
In the future, I'm clear that we need to be careful before implementing anything that could make the situation more difficult. That's why we've written to ESMA to ask for a more cautious approach on MiFID II liquidity calibrations. It's why we've asked the EBA to advise us on how to apply Basel measures - like the Net Stable Funding Ratio liquidity rules and the leverage ratio - in way that works for European businesses. And also to assess the impact that the Fundamental Review of the Trading Book would have on the European banking sector. I know there is a lot of concern about how these Basel measures will be implemented. So we'll shortly be launching targeted consultations on the NSFR and the Trading Book Review.
Investment firms also call for a more proportionate approach. They think we need to distinguish between the capital requirements imposed on large - bank-like - investment firms and those imposed on smaller ones. The EBA made a similar point in recent advice to us where it recommended that a prudential regime should be developed for smaller investment firms that pose no systemic threat. They will follow up with recommendations next year.
Asset managers, among others, said they're being asked to report the same data in different forms to comply with separate pieces of legislation. So I want to look at whether their reporting burden could be lowered without affecting the quality of what's reported. They shared the concern that constraints on banks' balance sheets are reducing liquidity, and stressed the importance of regulatory stability as AIFMD and the recent amendments to the UCITS framework continue to bed down.
I understand this need for a period of legislative calm. So we’ll take a targeted approach. For example, as part of CMU, we're taking a range of steps to support the asset management sector to play its role in channelling finance to Europe's economy and businesses.
We're working to improve the EU passporting system for asset managers as it isn't working as well as it should today. Smaller fund managers tell us they still struggle to offer their products in different countries. That gold plating by national supervisors, additional fees, and different requirements for marketing material too often get in the way.
Where those barriers exist, we have to knock them down. So we’ll launch a consultation this month to identify the main barriers to funds operating in other countries. We'll use this evidence to improve passporting and build a system where investors have more choice and enjoy lower charges, and where investment funds can genuinely compete across borders.
We're also working on ideas to strengthen venture capital markets. We’ll begin this year by amending existing legislation governing venture capital funds to build up scale, diversity and choice. We’ll also look at how we can use public money to attract private investment with a pan-European venture capital fund of funds.
If we turn to insurance, it is clearly the case that insurers are operating in a difficult environment. A great deal of regulatory change has come on top of the challenge of low interest rates. We'll need to see that new legislation bedding-in. But the evidence that has been provided will help us to sharpen the focus of future reviews of legislation including Solvency II.
I'm looking carefully at claims that our rules do not distinguish sufficiently between long-term and short-term investments, and the different levels of risk associated with them. And that this makes long term investments disproportionately expensive.
For investments by insurers in infrastructure projects, evidence provided by EIOPA confirms that's true. To support infrastructure investment by insurers, one of the first things we did as part of the work to build a Capital Markets Union Action Plan was to amend Solvency II. We defined infrastructure as an asset class and reduced associated capital requirements for this type of investment, and investments in European Long-Term Investment Funds, by around a third.
That change has been in force since last month. It's the first CMU action to be delivered on the ground and I hope insurers are making good use of it. I was glad to see the French financial markets authority has just authorised the creation of two ELTIFs that definitely will. That's 1.2 billion euros in equity that can be invested in infrastructure across the EU.
Now the question is: can we go further? Can we extend this change to a broader range of investments? I want us to look at that. That's why we've asked EIOPA for advice, which I expect in June.
As well as these sector specific concerns, we have received many useful submissions on issues that cut right across the financial sector, and even beyond, on the way different pieces of legislation interact.
For example, financial services companies, pension funds and corporates all call for more proportionality in the European Market Infrastructure Regulation - EMIR, and point to the way it interacts with bank capital rules. They emphasise EMIR’s broad scope, and argue that the risk management benefits of central clearing can still be achieved with a more proportionate approach. In a way which lessens the burdens on smaller financial firms, corporates and pension funds; takes business size and business models more into account; and doesn’t discourage central clearing services being provided.
It’s vital we continue to make sure that our financial institutions can absorb losses across the financial sector. But we need to be clear about who and what is systemic and check that our requirements are being set accordingly. At the same time, we must make sure that the cumulative impact of bank capital rules such as the leverage ratio and EMIR are not overly burdensome, that they don't weigh too heavily on those that provide clearing services and don’t undermine sensible business planning and risk management.
It should be possible to make EMIR more proportionate and continue to mitigate systemic risk in our derivative markets. It should be possible to lower administrative reporting burdens. And all this while ensuring supervisors have enough information to monitor risks, and intervene if necessary. I want to use the EMIR review to do that.
Taken together, the responses we’ve received show that overall there is a lot of support for the reforms that have been put into place, but that across the whole of the financial sector there are concerns that legislation is not always proportionate. That in some areas it may be limiting the amount of financing available to the wider economy. And that there's too high a compliance burden, particularly on smaller businesses.
We’ll complete our analysis by the summer, by which time we should be clearer on what further actions are needed. Discussions today will help us do that. But the evidence you've already provided, and the picture that's emerging of how different pieces of legislation interact has already given us a lot of useful intelligence.
I want to use every single one of the 100 upcoming reviews already planned to make sure we have the best possible legislation and to address legitimate concerns. EMIR and CRR were two areas mentioned frequently and the reviews we are undertaking of them this year are going to be particularly important.
I want to be more proportionate in the way legislation's applied, more cautious before doing anything that might reduce liquidity, and more ambitious about reducing reporting and disclosure requirements where it's appropriate. That's the approach I'll also be taking to implementing measures flowing out of Basel. And that approach will shape the level 2 measures that we still need to bring forward.
Yes, financial stability is a prerequisite for growth. But at the moment the biggest threat to stability is the lack of growth itself. It's from a financial stability point of view that we need to look at the combined effort of our regulations and ask whether we are striking the right balance between micro and macro prudential considerations. Working with businesses, Member States and the European Parliament, there is a lot of support to do this. This isn't always glamorous or headline grabbing work. But it is work that is vitally important if we are to have a framework that supports competition, jobs and growth in Europe, and delivers rules that command respect.