Ladies and gentlemen,
It's a great pleasure to be in Denmark and to take part in today's discussion. I'm especially pleased to have had the chance to meet some of you earlier, and to hear your experiences of doing business both here in Denmark and across the European Union.
From here - at the heart of Copenhagen – in between your magnificent royal palace and the sleek waterfront development that's an inspiration the world over, it's impossible not to be impressed by both your history and your vitality today. From this harbour, Danes have set sail on commercial ventures for centuries. Indeed, it was the Vikings, not asset managers, who taught us the true meaning of an "aggressive trading strategy". Now, from inside the single market, a roaring trade continues with the rest of European Union, albeit with slightly less roaring than in the good old days of Viking longboats.
Growth is back, unemployment's low and falling, and Danish workers are among the most productive and best paid in Europe. Denmark is, in relative terms, one of the EU's largest net lenders to the rest of the world. And according to the World Bank, you're the easiest place in Europe to do business.
Other countries look to Denmark as one of the best examples of what an open European trading nation can achieve. The Danish Bankers Association's mission statement lives up to that reputation. Your goal of promoting free competition and the healthy liberalisation of the financial sector are goals I share.
As the European Commissioner responsible for financial services, I'm very conscious of the need to take account of the varied nature of different economies. In Denmark's case, I understand the importance of the covered bond market as a source of financing. I want to maintain diversity in our financial sector and build on it. That will shape my approach on whether, and how, we apply any new measures coming out of discussions at the Basel committee. And as part of our work to build a single market for capital, I want to see whether we can benefit from the expertise you've developed in covered bonds over the past two hundred years.
As a Commissioner from a non-euro area country, I'm also very aware of the need to balance the interests of euro-ins and euro-outs. Here I think that the agreement between the Mr Cameron and the other 27 European leaders helps clarify that relationship in the field of economic governance.
While recognising the need of the euro area to integrate further, it enshrines the principle of non-discrimination against businesses on the grounds of currency. And it confirms the integrity of the single market so that financial services outside the euro area continue to thrive as the euro area continues to integrate.
In a moment, I want to explain the work that I am doing to build a Capital Markets Union and the review we are carrying out of existing financial sector legislation.
But first, let me briefly say how all of this fits into the Commission’s agenda. From the outset, we set ourselves a clear priority of supporting growth. We want a Europe that's open for business and open to investment. A Europe that's more competitive, grows faster, and creates more jobs than it is today. So we're committed to legislating less and to legislating better. To giving businesses a period of greater stability so that they can plan ahead and invest. Internationally we’re pressing ahead with a whole series of free trade agreements. While at home, we’re deepening the single market.
The work I'm driving forward to build a single market for capital, what we call the Capital Markets Union, is central to this agenda. Our commitment to a single market for capital is longstanding: over fifty years old. But as we work to support growth and investment in Europe, we're making a major push to take it a step further.
We're all familiar with the analysis. America’s equity markets are twice the size of the EU’s although our economy is about the same size. US SMEs get about five times as much funding from capital markets as they do in Europe. American venture capital markets are five times bigger than ours. So there’s great scope for our financial markets to expand.
The goal of the CMU is to help money flow through the EU to where it can be most productive. To connect savings effectively to growth, to channel investment to projects that need financing, to give companies a greater choice of funding, and to increase the options for people saving for the long term. Bigger markets would complement bank lending, support growth and strengthen financial stability in Europe.
If that's the direction we are taking, my approach is to go step by step, from the bottom up. That's why we started by consulting widely to flush out all the issues we need to tackle. We published a CMU Action Plan last year and everything in it flows from that consultation. We've set out a wide range of steps we will take in the years ahead that are broad in sweep and ambitious in scope. Many of them will require a sustained effort, year in, year out. But let me focus on the immediate initiatives we've already taken and those we'll drive forward this year.
We’ve tabled a proposal to overhaul the Prospectus legislation to make it easier, cheaper and faster for all companies to tap public markets. We've acted to support insurers that invest in infrastructure projects by reducing the capital requirements that are associated with long term investments. To free up bank lending to the wider economy, we’ve taken forward a proposal to revive securitisation markets. We've defined simple, transparent and standardised securitisation and reduced capital requirement for products that qualify. And yes, we've launched a consultation on covered bonds to look for practical ways of breaking down barriers to investment in covered bonds across Europe, without disrupting markets that work well.
So we’re off to a good start, and this year we’re keeping up the pace. We’re working on measures to encourage venture capital. We’ll table a proposal to overcome the main differences between insolvency regimes. We’ll start work to improve the passport system for investment funds. We’ll prepare the ground to consider a European personal pensions market. And we’ll build on our Green Paper consultation and look for ways of deepening the single market for consumer financial services.
Alongside our work to build a single market for capital, I also want to check that the legislation we have passed is working as we had hoped.
To get the financial crisis under control, we had to legislate at speed. We introduced forty separate pieces of legislation and we succeeded in strengthening the financial sector’s legislative framework. That basic architecture is not in question. But when you’re firefighting, it’s difficult to get everything completely right, or to predict exactly how rules are going to interact. That’s why we’ve launched a comprehensive assessment of this existing legislation to check that taken together, these rules haven't had any unintended consequences.
Our Call for Evidence has now ended. We’ve had three hundred responses, more than 600 documents of supporting evidence, from twenty member states, and also from outside the EU. They’ve come in both from the financial sector and from the wider economy. Thirty-one public authorities have sent us their thoughts, as well as think tanks, academia, consumer organisations and trade unions.
We’re now busy reviewing these responses, working through the individual pieces of evidence that our legislation may not always be working as originally intended. Forty percent of them are about the interaction and combined effect of rules. And they touch upon all areas of the financial services legislation that we’ve enacted in recent years.
The sheer volume of responses and supporting evidence means there's still more work to do before we can complete our analysis and come forward with recommendations. But, three themes are emerging from the responses. Respondents argue that in places our legislation is not sufficiently proportionate; that it could be weighing negatively on the amount of financing available to the wider economy; and that the compliance burden is too high, due to unexpected interactions, duplications and inconsistencies.
Let me say a bit more about these three areas.
There’s a recurring concern that our rules could be getting in the way of the diversity of Europe's financial sector. Respondents call for rules that take greater account of companies' size, business models and risk profiles. A number argue that the capital requirements are too onerous for smaller banks. But Call for Evidence responses show this is a concern that goes beyond the banking sector.
Investment firms are a good example. They think we need to distinguish between the capital requirements imposed on large - bank-like - investment firms, and those imposed on smaller firms. The European Banking Authority 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.
Outside the financial sector, an area where companies call for a more proportionate approach is the European Market Infrastructure Regulation, EMIR. EMIR's reporting requirements are often considered burdensome and costly, and questions have been raised about whether the increased costs of hedging coming from new prudential requirements are proportionate. The evidence we've received will feed into the review of EMIR that's underway and we’ll assess whether any requirements could be safely amended to lower the burden for non-financial companies.
While a number of respondents emphasise the positive impact of the rules on investor confidence, many others argue that prudential rules are reducing the amount of funding available for investment in the wider economy. They focus on the Capital Requirements Regulation, CRR, and its sister directive CRD IV, which we’re already reviewing as part of a separate exercise.
My challenge is to ensure that the CRR and CRD IV legislation achieves its prudential objectives but that its requirements for lending to companies are not excessively high.
Where banks already qualify for lower capital requirements, I want to check whether this has led to more bank lending to SMEs and whether the threshold under which loans can qualify is high enough. To encourage more investment in infrastructure, I want to look at whether lower capital requirements would be appropriate for lower risk, long-term investments.
Many respondents have raised concerns about declining market liquidity, particularly in corporate bond markets, and question whether regulation has had a hand in this decline. I know there's a lively debate on this issue. So to get a clearer picture, we're undertaking a comprehensive review of liquidity in corporate bond markets. We’ll also need to assess the impact of any future rules in area and in the face of uncertainty, proceed with caution.
And I will make sure that upcoming measures like the net stable funding ratio and the leverage ratio are applied in a way that makes sense for Europe, and that we take account of their implications for liquidity and European businesses. This is a concern of many respondents and we’ve already asked the EBA for advice. I’ll be taking a similar approach when we bring forward legislation to implement the Total Loss Absorbing Capacity requirement later this year, and in the longer term, when we assess whether to apply Basel floors for mortgage credit institutions - an issue that I know is of great concern in Denmark.
The burden imposed by the quantity and duplication of reporting requirements is another frequent complaint. Businesses complain they're reporting and disclosing the same information in different ways to comply with different pieces of legislation. That basic definitions differ across pieces of legislation. And that the volume of information they're being asked to provide is not always proportionate to risk.
Excessive and inconsistent reporting requirements cloud the overall picture and can be off-putting for consumers faced with many different disclosures for similar products. So I’ll consider very carefully the calls to streamline reporting requirements, to standardise definitions, templates and reporting formats and for common IT tools to be used to lighten the compliance burden.
This is just a snapshot of the responses we’ve had so far. Many other areas have been covered by respondents, including possible gaps in our legislative framework. We'll give careful consideration to all responses and weigh up the quality of the evidence that support the claims.
We'll hold a public hearing in May for all the interested parties. We'll complete our analysis this summer and come forward with our thinking on how to follow up. We’ll publish a summary of the responses in April and feed the evidence into the reviews of individual pieces of legislation.
Working with businesses, Member States and the European Parliament, I sense a great opportunity for change. This is what propels me in my work. And I look forward to working with you to drive things on. To unlock the single market's full potential. To check we have a framework that keeps the financial sector safe. To make sure that framework also supports competition, jobs and growth in Europe.