The European Union’s financial services policy is often misrepresented in the United Kingdom – and indeed that is sometimes deliberately so....The theme of this year’s City Week – “financing a sustainable global recovery” – is very appropriate.
So this is a real opportunity, which I thank you for, as I am able to speak to you directly.
For me it’s a clear sign that, despite Brexit, the European Union and the United Kingdom continue to share many common goals.
Sustainability is at the heart of all of our policy discussions. And I
was very glad to hear part of your previous very important debate on
nature and biodiversity. And these are shared concerns, shared
challenges, and also issues that we need to work together on and
globally as well.
In the green agenda and beyond that, the European Union remains an open financial market.
We want to build up our own capacities for the sake of our own strength and resilience.
And this will also help us better participate at a global level, as a
market that is attractive for outside investors. And it will also allow
EU companies to be competitive beyond our borders.
And the European Union remains committed to international cooperation.
If you look to what the European Union is, in my view, it is a
successful example of countries working together on a daily basis – and
we reflect that commitment to multilateralism at a global level,
including on sustainable finance.
But of course the EU-UK relationship has been impact, as we all know. We have been through a fragmenting event this year.
It is interesting that I speak to you on the eve of tomorrow’s fifth
anniversary of the United Kingdom referendum to leave the European
Union.
Before that, over nearly 50 years of integration, the United Kingdom
joined European partners in dismantling barriers to trade, brick by
brick.
The United Kingdom decided to build those walls back up again.
But I emphasise that despite Brexit, the EU wants a good relationship with the UK as a close neighbour and partner.
We spent the last few years negotiating the United Kingdom withdrawal
from the European Union and establishing our new relationship.
It was a difficult journey leading to hard-fought agreement.
Our relationship must be built on trust. And I would stress that without trust, we are nowhere.
And full implementation of the TCA and the Withdrawal Agreement,
including the Northern Ireland Protocol, are prerequisites for that
trust.
We negotiated the deals together – we agreed them together – we
signed them together – and with the ink barely dry, it is both parties’
responsibility to implement what was agreed in good faith.
When I look to financial services, there was a significant regime
change on January 1st of this year. EU passports ceased to be valid out
of London. The EU regulatory ecosystem no longer applies in the United
Kingdom.
The United Kingdom wanted to be outside the European Union; and that
means losing the benefits that European Union membership offered and
offers.
The choice to “take back control” has consequences.
The City of London is now outside the EU, and no longer accountable to EU supervisors and regulators.
Financial markets were ready for this change and we didn’t see any
volatility or disruption on Brexit day of January 1st or indeed
subsequently.
A Memorandum of Understanding on financial services regulatory
cooperation between the EU and the UK was agreed at a technical level.
The intention is to set up a joint EU-UK Forum on financial services
regulatory dialogue.
This Forum, once established, will be a place to talk about issues in the financial sector.
It will provide an opportunity to talk about our common goals, not least the sustainability agenda and the post-COVID recovery.
Of course both sides will maintain regulatory autonomy and independence.
But financial services are not isolated from the wider political relationship between the European Union and the United Kingdom.
For now, we are waiting for the United Kingdom to choose between the
two paths that my colleague Vice-President Maroš Šefčovič described in
detail last week.
So the first path is deciding to work together, with the United Kingdom abiding by its obligations and engaging in good faith.
The second path - if the United Kingdom continues to act on a unilateral basis.
Now of course we hope that the United Kingdom will choose the first,
more appropriate and sustainable path. And that will help us cooperate
across sectors, including in financial services.
Once the MoU is formally concluded, we will have to consider whether
we can resume our financial services equivalence assessments.
When we do resume our assessments, we would do so gradually, and on a
case-by-case basis, taking into account the UK’s regulatory intentions
and of course the EU’s interest.
Again, trust will be paramount here, as it is across all aspects of the EU’s relationship with the UK.
I want to talk a little now about the open strategic autonomy agenda of the European Union.
The EU remains committed to an open global economy, international financial markets, and the rules-based multilateral order.
And that’s the message that we have consistently passed on to our
global partners – recently, as you know, in the G7 as well as in the
EU-Canada Summit and the EU-US Brussels Summit.
Our view is that the EU and the world are best served by an
international economic and financial system based on openness and fair
competition.
But we should not be naïve.
Brexit has led to fragmentation and it has laid bare some of the
vulnerabilities in our financial system linked to the dependence on
market infrastructures outside the European Union.
The EU needs to reinforce its capacity to deal with new risks and
responsibilities that follow from the UK’s exit from the EU. And that’s
important to safeguard economic and financial stability in the European
Union and across the globe.
Where possible, we want to limit the concentration of critical infrastructures located outside of the EU.
Disruption or divergence elsewhere can have systemic effects in the
European Union with potential spill-overs to the wider economy. So this
is a question of financial stability, and financial stability is at the
heart of my role as Commissioner.
Our goal is not to move or steal business away from London but rather
to build our own infrastructures, and that’s an important nuance.
I want to stress that the drive towards “Open Strategic Autonomy”, as
we refer to the our strategy, does not mean navel-gazing or
protectionism.
It is not a zero-sum game where someone’s gain must be someone else’s loss.
But to continue enjoying the benefits of our openness, we have to
make our economic and financial system stronger and more resilient and
protect ourselves from unfair practices by those pursuing unilateral
goals.
And this will help maintain the European Union’s openness to our global partners.
Now part of building up our strength and resilience is by working
hard on integration. We want to develop a deep and efficient single
market for capital – the Capital Markets Union.
At the moment we have 27 national capital markets that are neither fully developed nor fully integrated.
So a company in Bulgaria looking for equity funding probably won’t be
able to get that investment from Madrid, for example. And that impacts
whether investors in New York or Singapore want to invest in the
European Union.
And that’s why our project for a Capital Markets Union is a top
priority here in the Commission. The CMU is about working towards the
completion of the EU’s single market for capital – also because of the
wider benefits that this could bring.
Well-functioning, well-integrated capital markets could contribute to
the post-pandemic recovery. In the European Union, we saw how these
well-developed capital markets helped the US recover after the 2008
financial crisis.
And only deep and integrated capital markets can provide the scale of
financial support needed to power the transition towards a greener and
more digital Europe.
Last September, the Commission published a new Action Plan for the Capital Markets Union, based on three core aims.
Firstly, we want to help European companies access more diverse sources of non-bank funding, including across borders.
Secondly, we want to make the European Union an even safer and more
attractive place for savings and long-term investments. A small investor
base inhibits the capacity of EU capital markets to offer the funding
that EU companies need, especially in smaller Member States.
And thirdly, we need to remove obstacles to the integration of
national capital markets into a genuine single market. These obstacles
include withholding tax and insolvency laws. And they are deep-rooted
and will take time to tackle. But I am very determined to act on them.
An area we will reflect on in the coming months is supervision and
the functioning of the European Union single rulebook for financial
services.
Following the departure of the United Kingdom, Europe’s capital
markets have a multi-centre architecture. Several financial hubs fulfil
specialised or regional financing needs.
If we want to match the performance of other highly efficient
centres, we need to make sure that the EU hubs cover the necessary
product range, have enough liquidity, are well connected to each other
and are integrated.
And EU financial centres need to operate and compete on an equal footing.
This will require greater supervisory convergence. Financial
regulatory harmonisation has made considerable progress since the last
financial crisis. However, even harmonised legislation can lead to
diverging supervisory practices by national regulators.
So we need to bring the vision of a single rulebook for financial services closer to reality.
This year, we’ll gather the input of stakeholders and report on
issues of supervisory convergence in a comprehensive manner, without any
preconceived idea of what the outcome should be.
If we look to this wider issue now of sustainable finance: the
benefits of the Capital Markets Union are not limited just to the
financial system. It will also help us mobilise the huge amounts of
money we need to become a green economy.
And as you know, the European Union is firmly committed to becoming a sustainable economy.
Our plan to get there it the European Green Deal.
It aims to make the EU climate-neutral by 2050, by supporting green jobs, green growth and green investment.
The financial system has a key role to play. Finance itself needs to
become green – and it also needs to finance the transition to
sustainability of the wider economy.
The European Union has taken major steps in sustainable finance to
enable finance play its full part in the transition to sustainability.
Our sustainable finance toolkit increases transparency and clarity
about what economic activities and investments are green, notably
through the EU Taxonomy.
And we’ve also recently proposed the Corporate Sustainability
Reporting Directive. This will allow companies report clear, comparable
information on what impact things like climate risks have on their
business – as well as their impact on society and on the environment.
Now the Commission is working on a renewed Sustainable Finance
Strategy to provide a roadmap to increase private investment in
sustainability. It will look at how to empower companies to move towards
sustainable activities. And it will seek to make climate and
environmental risks mainstream in the financial system.
This summer, we’ll also bring forward a proposal for a European Green
Bond Standard, based on the EU Taxonomy. The aim is to create a gold
standard based on market best practice, available to all green bond
issuers on a voluntary basis.
Now of course, we all know that climate change is a global issue. And
markets are global. That means sustainable finance must be global too.
Here the European Union is leading the global sustainable finance
discussion. We set up and co-chair the International Platform on
Sustainable Finance. We want to bring policy-makers together so that
international work is both coherent and ambitious. The members represent
over half the world’s emissions, GDP and population. And we are glad
that the United Kingdom is a member of this body.
The European Union is also actively participating in discussions in
the G7 and the G20, and we are looking forward to COP 26 later in the
year.
We support the UK Government’s intention to make this year’s COP
successful and impactful. I recently met COP President Alok Sharma in
Brussels where we discussed our shared goals.
This global challenge will only be met if everyone across the globe meets their international sustainability commitments.
And that brings me back to the issue of trust.
When you sign up to international agreements and make commitments,
partners need to be able to count on your word and your signature.
The European Union is based on 27 countries that decided to come
together to build trust between them, and this does not happen by
accident: it is built day by day.
That trust and collaboration is what’s needed for us to continue to
integrate our financial markets, and for the EU to be open to the rest
of the world from a position of strength and resilience.
And the European Union maintains that commitment to multilateralism at a global level.
We want and expect to build relationships beyond the EU based on trust and meeting commitments.
And we hope to rebuild that trust with the United Kingdom. Addressing
our shared challenges, including on finance and a greener future,
demands it.
Commisoner McGuinness
© European Commission