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Sustainable Finance
Let me begin with sustainable finance, which is also at the top of the regulatory agenda. The transition to a low-carbon, more resource-efficient and sustainable economy can only be achieved by building a financial system that supports and finances sustainable growth. Internationally, important steps have been taken with the 2016 Paris agreement on climate change and the United Nations 2030 Agenda for Sustainable Development. To achieve the ambitious targets for the EU, as agreed in Paris, which include a 40% cut in greenhouse gas emissions, Europe must fill an investment gap that the European Commission has estimated at €180billionper year. A transition to greener growth is about making an investment in our future –and €180 billion per year is a substantial investment indeed. To be able to achieve this we need to fundamentally review how the EU capital markets can support investment in sustainable growth. To kick-start this tremendous transition, the Commission has initiated an ambitious ‘Action Plan on Financing Sustainable Growth’ for the Union, which you will all be well aware of. The plan intends to clarify fiduciary duties and to increase the transparency for both risks and investment opportunities related to sustainability.
Turning to investment firms, ESMA’s technical advice on MiFID II covers investment firms’ general organisational requirements, risk management, and conflicts of interest policies. It also covers product governance. ESMA is, in addition, also working on updating its guidelines on product governance and suitability assessments.
Benchmarks
Let me now move on to benchmarks. I will first talk about low-carbon benchmarks (following on from my comments just now on sustainability) and then speak more generally about the transition to new benchmarks. Benchmarks play an important role in guiding investors, pricing investment products and in directing investment flows. The creation of new benchmarks that consider the carbon footprint of underlying assets will certainly help to reassure investors looking to invest into sustainable finance products.
The ESG angle aside, as I mentioned earlier benchmarks play an extremely important role in financial markets. Following the manipulation of important benchmarks in the past, the EU’s Benchmark Regulation (BMR) therefore regulates indices used as benchmarks in financial instruments and financial contracts, as well as indices measuring the performance of investment funds.
Regulatory priorities 2019
Let me now finally move on my last topic of today. As promised earlier I wanted to use the opportunity of this speech to touch briefly on a couple of other key challenges that are occupying the EU securities markets, and us at ESMA, this year.
Brexit
The first topic on this list, not surprisingly, is Brexit. It is difficult these days not to talk about the UK leaving the EU, in one way or another. However, I do not want to comment on the political process but rather focus on practical issues we need to address to guarantee an orderly exit in terms of the financial markets. It is important to be well prepared when the biggest capital market leaves the EU’s single market. Given London’s many and close interlinkages to EU financial markets, which will continue to exist after Brexit, the UK will not just become a “normal” third country.
MiFID II and DataThe second subject which you can hardly escape these days when speaking about Europe’s securities markets is MiFID II. Even if MiFID II has been in place for nearly 1½ years now, it is only gradually that we can judge its impact on the markets. Overall, regulators and ESMA saw a smoother than expected transition to the new regime. On the markets side, the reporting –following a period of teething problems –for equity and many non-equity instruments is now functioning reasonably well, with an unprecedented amount of data being available to regulators and the public.
I have focused on the transition and challenges for European securities markets stemming from sustainable finance and benchmarks, but also from Brexit and MiFID II. I have emphasised the importance of markets adapting to the challenges that these changing circumstances present. Hopefully we can also seize these transitions and changes as opportunities to further strengthenthe European capital market. Looking at the next panel discussion which will focus on 10 years after the financial crisis, let me end by saying that I am pleased to see the tremendous transition EU financial markets have already accomplished and that I’mlooking forward to experiencing the next chapter.