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SPEECH/12/23

Michel BARNIER

Member of the European Commission, responsible for Internal Market and Services

"Financial regulation - a review of 2011 and a forward look to 2012"

City of London Event at the Guildhall

London, 23rd January 2012

Ladies and Gentlemen,

I am very pleased to be with you today. And I would like to thank you for inviting me.

2011 was a tough year.

Tough for the European economy.  There were early signs of a recovery. We hoped the worst was over. Instead, we had to cope with Europe’s worst debt crisis in living memory.

Tough for the institutions you represent: banks, insurance companies, asset managers. Falling trade revenue. Severe job cuts. Last week, Bloomberg estimated UK financial firms cut 58,000 jobs in 2011. 

Tough for European citizens. Many more lost their jobs in the real economy. Those who held onto them saw their salaries fall. Many have found it hard to make ends meet. Too many have lost their homes.

Understandably, this has led to loss of trust and confidence. In the financial system. In the economy.  In the fairness of society and in its capacity to provide for the most needy.

Trust in politicians, both at home and in Brussels, at low levels to start with, fell even further.

Faced with this situation, what did we do?

I believe history will show that European leaders, in the last 12 months, took unprecedented decisions.

It was not easy. It was a rollercoaster ride. It was at times messy and even painful. 

But we took the right decisions to tackle the crisis head on.

Let me mention four of them:

  • We committed ourselves to providing strong financial assistance to Greece. An exceptional situation requiring exceptional measures.

  • We agreed on a European financial stability fund, and permanent mechanism for the future, to help countries facing difficulties.

  • We agreed to further strengthen European banks. To restore their credibility.

  • Last but not least, 26 Member States agreed, in December last year, to build a stronger and more convergent economic area with a new fiscal compact. 

We can no longer have a monetary union without an economic union. It's a decision which should have been taken when the euro was launched. It's ten years late but it has been taken now.

What matters now is delivering on those decisions. Living up to the commitments made. That is the only way to restore credibility in the markets, in Europe's economy. To create the right conditions for a return to sustainable growth.

Let there be no doubt about it. 

2012 will be as challenging as 2011. If not more.

Ladies and Gentlemen

Let me return briefly to the last decision I mentioned. Taken in the middle of the night of 9th December.

A decision which has left its mark.

As you know, the British government decided not to take part in closer economic coordination. 

This is a sovereign decision. I obviously respect and accept it.

And I want to be clear that despite this decision, I still believe the UK's future is at the heart of Europe. 

The EU needs the UK. And the UK needs the EU.

But I also believe other European leaders were right to reject the so-called "safeguards" in financial services the UK asked for.

These "safeguards" would have reintroduced a dose of unanimity in decision-making in the single market.

And I believe this is neither necessary nor desirable.

Why is it not necessary?

Contrary to what I often read, there is no plot. No plot to undermine the City. No plot to boost Paris or Frankfurt at the expense of the City.

Look at the facts.

I have been the European Commissioner for financial services for 2 years now. 

We have managed to work together. And not once has the UK been outvoted on rules affecting the City.

It has not always been easy. There have been compromises on all sides. But we have managed.

A few examples: the rules on pay in the banking sector, new supervisory rules for credit rating agencies and rules on short-selling and Credit Default Swaps.
Other reforms are currently being discussed in the EU's Parliament and Council, including:     

  • the clearing and reporting of OTC derivatives - where we are inches from an agreement;           

  • implementation of Basel III;

  • and the revised rules on securities trading (MiFID) and market abuse.

On all these issues, I pay special attention to what the UK has to say.  Because the City is the biggest financial sector by far in Europe. And because what matters to the City matters to the rest of the EU.

Now, why is unanimity voting not desirable?

Because it would open the way to similar demands from other Member States. 

The financial sector is a matter of national importance to the UK. The chemical or the car industries are matters of national importance for Germany. The same goes for agriculture and the food sector in France.

Opening the door to unanimity on financial services would mean similar  demands in other sectors from other member states. And that would spell the end of the single market. 

It would lead to renewed obstacles to trade, those same obstacles we have spent nearly 30 years getting rid of. To the benefit of growth and jobs.

That is what Margaret Thatcher understood well when she supported the move to qualified majority voting in 1986. And the Single European Act finally allowed the EU to create a real single market and General de Gaulle did the same thing for agriculture in 1962.

Let me respond in more detail to some of the concerns raised in December.

1. Concerns about the European supervisory authorities

There simply cannot be two single markets. One for financial services and one for the rest of the economy. 

There is only one single market. And this single market needs a single rule book.

The UK traditionally supported the single rule book. Because it knew it was in the interest of both its citizens and the City of London.

In its citizens' interest to have a safer financial system because there are good standards everywhere in Europe, as well as a greater choice of products.

And it is in the City's interest to have the same rules for banks and financial institutions everywhere in Europe. It makes it easier for financial institutions to operate across the EU. And to benefit from the size and scale of the single market. 500 million consumers, 22 million companies.

But a single rule book doesn't mean that one size fits all.

I understand why the UK government is concerned about tailoring legislation to the specificities of the UK's financial sector. Because of its weight in the economy. 

We need to implement basic banking rules for all. And I know City institutions support this. But we also need to allow considerable flexibility for national supervisors.

The three European Supervisory Authorities – including the European Banking Authority here in London – have been working for a year now. Their powers are tightly framed in European law.

They do not replace national supervisors, which still do the day-to-day supervisory work. Cross-border banks, insurance companies, hedge funds: all are still supervised nationally. But with colleges of supervisors where appropriate. And with coordination from the European Supervisory Authorities. 

Such EU level coordination and supervision is essential. Because many financial institutions operate cross-border. And because the reach and impact of financial institutions operating in the UK does not stop at the Channel Tunnel crossing.

The new Authorities deserve our full support and trust.

I am convinced that we have got the balance right there. In keeping with the principle of subsidiarity. 

2. Concerns around capital requirements

The same applies for the implementation of Basel 3 rules on capital requirements. I won't repeat what I have said many times before. 

But I believe our proposals strike the right balance between common standards for all, in the interest of both consumers and banks, and flexibility to adapt to national specific requirements.

Once again, I believe Vickers can be implemented in a way that is compatible with European rules.

3. Concerns around location policies

I know that you are also concerned about location policies and discrimination between the Eurozone and Non-Eurozone. 

So am I. The principle of non-discrimination is one of the core values in the EU Treaties. That is why I will continue to work for one single market. With cross-border opportunities. Without discrimination.

4. The financial transaction tax

Finally a word on the financial transaction tax: Many of you see it as an attack on the City. And the ultimate proof that Brussels has missed the point.

The FTT is not part of my financial regulatory agenda. But I believe it to be feasible. And above all just. It is right the financial sector - massively bailed out by taxpayers - pays a fair contribution to help us face up to global challenges.

In the same way, and I fully endorse the comments made by Prime Minister Cameron last week,  I don't think it's right that such high bonuses are paid out in the financial sector when it has just been bailed out by the taxpayer, and so many in society are still suffering.  

Back to the FTT, its nominal amount would be negligible. And it would be levied on the parties to the transaction, at their domicile. Regardless of whether the transaction is carried out in London, Paris, Frankfurt, Amsterdam or anywhere else. No discrimination.

But at the end of the day, the FTT won't be imposed on the UK against its will. 

Ladies and Gentlemen,

Let me briefly return to our regulatory agenda for financial services. Our internationally agreed G20 agenda.

The European Commission has now made all its proposals, bar one, to implement commitments made at the G20.

The last building block of this agenda is an important one: a European framework for the prevention and management of bank failures.  The goal of this framework, which we will present shortly, is clear.

We want to avoid that taxpayers shoulder yet again the costs of a banking crisis. Therefore, our framework will give supervisory authorities the right tools to prevent and when needed, mitigate the effects of banking crises.  

I welcome the UK’s support on this essential proposal.

In the coming weeks, the Commission will also publish a cumulative impact assessment assessing the costs and benefits of all proposals linked to the G20 regulation agenda.

I am well aware of the importance both the UK authorities and financial institutions rightly attach to better regulation and evidence-based legislation.

This public document will be a powerful tool to demonstrate the effective contribution of our financial regulation proposals to building a sound and healthy financial system. 

There are of course costs associated with our agenda, sometimes considerable. But I believe our impact assessment will demonstrate these short-term costs are worth it compared to the longer term benefits of greater financial stability for future generations.

Ladies and Gentlemen,

Finally, let me say a word about what I will be focusing on, within my portfolio, in 2012.

 1. First, we will look at possible structural measures for the banking sector.

As you know, we are setting up a high level group of experts to consider this issue in-depth. The group will be headed by Erkki LIIKANEN, Governor of Finland’s national bank. The Group will look at the work carried out in the EU and elsewhere. It can be seen as a tribute to the influence of the Vickers Commission in the UK.

But – and this is an important but – do not assume that the conclusion of this thinking means reproducing the UK approach to the EU as a whole. I have a very open mind. No one should prejudge the outcome of the Group’s work.

2. Second issue for 2012: shadow banking.

I mentioned earlier how important we consider the implementation of new capital requirement rules. 

But we must be careful. We don't want Basel III to drive banking and other financial activities into "shadow banks", or unregulated entities which lend funds like banks.

This issue is now being discussed at international level. The EU is actively contributing to this work.

The Commission will publish a consultation document on shadow banking later this spring. It will be the first step of a process that could – eventually - lead to legislative proposals. In the consultation, we will outline the steps we have already taken. And invite stakeholders to provide their views.

We will also organise a conference on shadow banking on April 27th in Brussels.

3. Third point: I want 2012 to be focused on consumers.

We hope to see a swift agreement on our proposed new rules on bank deposit guarantees – guaranteeing up to 85,000 pounds per account – and on Investor Compensation schemes.

And we intend to propose during the first half of 2012 a consumer/retail investor package, which will focus on three strands:

  • Disclosure rules for retail investment products (so-called "PRIPS"). To make sure that consumers have access to clear and comparable information about investment opportunities;

  • A review of the UCITS directive which will, among other things, strengthen depositaries' liability;

  • And we will review the insurance mediation directive to improve consumer protection standards for insurance products.

4. Last point: I want to use financial regulation to stimulate growth.

We need financial regulation to promote financial stability. And we need to sort out the problems facing the euro zone.

But these actions alone won't be enough to exit the crisis.

We need to relaunch growth. On this, President Barroso and I fully agree with the British Government which has made growth its top priority. And it is right that growth is the main theme of the European leaders' summit in a few days.

I welcome the UK's strong support for the recently launched Single Market Act, based on Mario Monti's excellent analysis. A set of concrete measures to help all businesses and consumers take full advantage of the single market. For example by making it easier to work abroad, or by finally creating one European patent applicable everywhere in the EU.

Financial regulation can also contribute to growth in a proactive way.

As part of the Single Market Act, we have tabled proposals to boost the financing of social entrepreneurship and venture capital for SMEs. And we have proposed rules that will drastically simplify the accounting and transparency regimes for SMEs. These rules can make a real difference on the ground and need to be agreed and applied quickly. 

Ladies and Gentlemen,

Let’s try to make 2012 the year when we finally get the debt crisis under control and put Europe back on the path to recovery.

To do that, we need the strong input of the City. One of Europe's key assets on the global stage.

The EU must not hinder the City's energy. But I am sure it is in the City's interest, and the wider British interest, to play the European game.

Thank you for your attention. I look forward to your questions.


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