Ladies and Gentlemen,
Thank you for the invitation to give today's keynote address. I have been asked to provide you with a blueprint for the development of European Financial Services. A tall order! European policy on financial services is the result of many different forces. The Commission; the European Parliament; the Council; markets; consumers; international forces; and of course events. Events like the recent market turbulence. But let me try today to provide you with an overview of our current direction, what we have achieved to date and what we see as the key challenges that lie ahead.
But first I would like to underline the relevance of your work to complementing our efforts towards creating an EU single market for financial services. Indeed one of the key components of our "better regulation" approach is to ensure a consistent application of rules in order to exploit all benefits of a harmonized legislative framework, both in the EU market and in the global market. Your profession plays a vital role in assisting businesses to comply with regulations and to develop a strong compliance culture. But I recognize your profession is a difficult one, especially when there is concentrated change like we have had in the EU in the last few years. My guess is you have been working very hard!
A single EU market for financial services: where are we?
The aim of the European Commission's policy in the financial services sector is to create an integrated, Europe-wide, single financial services market. This was our guiding principle when the Financial Services Action Plan was adopted back in 1999 - and it remains the same today. To reduce the cost of capital, strengthen pan-European innovation and competition; strengthen financial stability and provide globally competitive regulation of quality.
Looking back we have come a long way towards achieving this ambitious goal. We have seen some major developments over the past decade. Thanks to the almost complete implementation of the Financial Services Action Plan we have established an extensive framework to integrate Europe's markets.
The initiatives we have taken have made a major contribution towards fundamentally changing and improving the financial services landscape across Europe. Borders are more open as a result of which there is much more cross-border business and there has been almost complete integration in the unsecured interbank deposit and government bond markets. An important part of the political compromise on the MiFID required the Commission to report to the European Parliament and Council on pre and post trade transparency in the bond markets. Both the Committee of European Securities Regulators (CESR) and European Securities Markets Expert Group (ESME), in undertaking this task, concluded that there is little evidence of market failure in the wholesale business. To the extent that there is some evidence of sub-optimality or potential market failure for retail investors in terms of access to price information about bonds, the Committee of European Securities Regulators (CESR) and the European Securities Markets Expert Group (ESME) concluded that self-regulatory solutions could remedy the situation without imposing costs on industry and damaging liquidity. Such solutions have now been developed by the International Capital Markets Association along with the Securities Industry and Financial Markets Association. As far as I am concerned, the matter has been dealt with – no market failure, no regulation. And if I have to have this translated into 23 European languagues to have it understood, I will do so!
Implementation of the last elements of the FSAP regulatory framework, in particular the Markets in Financial Instruments Directive, will introduce more competition, remove further barriers to integration and provide incentives for innovation in the EU capital markets.
One of the stumbling blocks has been the persistent fragmentation of national securities clearing and settlement systems. With some help and prodding from the Commission, the providers of clearing and settlement established a Code of Conduct in 2006. This Code contains commitments on price transparency, access and interoperability, service unbundling and accounting separation.
This Code will not only help increase competition and efficiency. It is also a good example of how self-regulation can often be quicker and more effective than a legislative solution. The Commission is actively monitoring the implementation of the Code in order to ensure progress. The signs are that things are going well. I have no doubt that there will be creases to iron out as we progress, but things are moving in the right direction.
While a lot has been achieved in wholesale markets, retail markets on the other hand have made slower progress towards integration. Direct cross border transactions in financial services for retail consumers remains low. The prices of basic and key retail services, such as current accounts and consumer credit, still show significant price differences between one member state and another.
Given the characteristics of retail consumers, market integration in this sector will always be slower than in the wholesale market. Retail integration is not only hampered by differences in language and cultural preferences, but also by a long history of consumers comfortable in dealing with products that are distributed locally through traditional channels and understood with known disputes settlement procedures.
Encouragingly, convergence in several retail product markets, such as home loans, can be observed and there are indications that overall retail prices have been declining. Retail distribution channels have changed with an increase in the use of distance selling channels and an expansion in cross-border service providers. Any further initiatives in the retail area will have to stand the tests of proportionality and likely effectiveness.
The way forward
The Review of the Single Market, published by the Commission last week, singles out retail financial services as one of the Commission's priority areas for the coming years.
Key objectives of these initiatives are to improve customer choice and mobility, to help retail insurance markets work better, to try to move towards adequate and consistent rules for the distribution of retail investment products and, finally, to promote financial education, financial inclusion and adequate redress for consumers. Here I would appeal to you to go beyond legal compliance and to ensure consumers really understand your products. MIFID requires this in the selling process through the suitability and appropriateness provisions.
On mortgage credit specifically we will set out our policy orientations in a White Paper that will be published in coming weeks and in early 2008 we will make public our proposals to improve the legal framework for investment funds (UCITS).
Another major step forward is the planned introduction of the Single Euro Payments Area (SEPA) which will progressively make cashless payments in euros as easy, efficient and safe as it is today within a single country. Through increased competition and the greater efficiency made possible through the economies of scale on an integrated payments market, we forecast that the SEPA could generate savings of over 25 billion euros per year for businesses, SMEs and consumers.
Better regulation
All these current and future initiatives have to comply with our better regulation policy. For me, this is not just another catchphrase or lip-service to the latest policy fashion.
As you all know the role of the regulator is to get the legislative framework right. Creating and maintaining an efficient and competitive single market in financial services requires taking the right action, when and where it is needed. To this end we must ensure that we help to create efficient markets rather than hinder them.
To my mind better regulation should mean not only fewer, and where they do exist, better targeted rules, but also that the design of these rules is based on open consultation and detailed economic impact analysis. This is vital. We must change our mindset in the EU from a presumption of rule making to deal with problems to a presumption of no rule making unless a vigorous set of tests are passed. Starting with: is there a market failure? Indeed the success, or failure, of any measure - be it legislative or non-legislative – largely depends on the input received from regulators, supervisors and market participants.
Moreover, and just as important is the need to ensure that we have effective implementation and enforcement of those rules across all member states.
The consistent application of rules is vital if we are to see the benefits of an integrated single financial services market. And that means also Member States NOT goldplating agreed community rules.
In summary we need fewer, better quality rules and then to devote our energy to making sure that they are properly enforced.
We are currently doing some additional work on the credit rating agencies : In this regard the Committee of European Securities Regulators (CESR) will be reporting to me next April and I am currently finalising a mandate for the European Securities Markets Expert Group (ESME) to look at a wide range of issues in relation to them and on which I will be asking them to report to me before the middle of next year.
The International dimension
I began my talk by discussing integration across the wholesale and retail financial service markets - globalisation and market integration also mean that our rules can no longer be considered on a purely 'domestic' basis. When markets go global, then regulators and rules should do the same. International regulatory cooperation and convergence is of paramount importance today. Not to create a new, global super-rulebook – but to ensure that markets are open, reliable and well governed around the world.
To make sure that we find the right answers to the challenges, we have established regulatory dialogues on financial services with the US, Japan, China and started talks with Russia and India. In these dialogues we take a pragmatic approach. We do not seek to negotiate complex and lengthy treaties. Rather these dialogues are there to address real regulatory issues that are creating problems for business. Here and Now! And we are seeking solutions that work here and now.
Take our dialogue with the U.S. We have quite a list of success to show now: US deregistration reformed which makes it easier to enter and leave the US stock markets; implementation of Basel II coordinated which ensures that EU and US rules do not deviate too much. Only 10 days ago SEC Chairman Chris Cox announced the end of reconciliation from IFRS to US GAAP. A huge relief for EU issuers listed in the US and another step forward to a truly global set of accounting standards.
Next in line are our cooperation in auditing and I am now seeking to advance the drive towards mutual recognition of securities regulation.
Conclusion
I believe that we have come a long way towards creating an integrated, Europe-wide, single financial services market. We face many challenges ahead. The current financial turbulence is an example. I say 'we' as this is a joint effort. The EU, national regulators and governments need to be disciplined and work together. If we do this we will be stronger domestically and globally, and serve our citizens properly.
Thank you very much.