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Today I would like to speak about two important objectives: The building of the EU Capital Markets Union and the fostering of global financial markets. The two issues are quite interlinked – if not dependent on each other – and both are at the centre of ESMA’s activities.
The EU Capital Markets Union project is celebrating its fifth anniversary this month. This is a good opportunity to take stock of the CMU initiative. Firstly, I should probably clarify upfront that this milestone does not mean that the single capital market in Europe has such a short history. The Members of the European Union already started working on harmonising their legal and regulatory frameworks with the objective of supporting cross-border service provision in financial markets a few decades ago. However, it was European Commission President Jean-Claude Juncker who made the Capital Markets Union a priority in the economic agenda of the now outgoing European Commission, alongside the Banking Union.
I would like to discuss today a few key areas of regulatory action, as I believe they are relevant not only in a European context, but also in a global context. These are sustainable finance, technology in financial markets, and effective supervision. Interestingly, these topics also match the main themes of the panel discussions to follow this afternoon, so I will be pleased to offer you an introduction to today’s discussions from an ESMA perspective.
Let me first talk about sustainable finance, which is one of the main building blocks of the Capital Markets Union project, and also an excellent example of how well-developed financial markets can help to achieve fundamental shifts to the benefit of everyone’s life. I do not need to convince you that the negative impact of climate change is real, and that capital markets can play a key role to address this negative impact.
The second area of the Capital Markets Union I want to talk about is the development of new technologies in the financial sector, and the importance of ensuring that the benefits of their use are adequately complemented with regulatory and supervisory measures in order to avoid any unnecessary risk or consumer detriment.
While this area of the Capital Markets Union, seen from a regulatory perspective, has not advanced as fast as that relating to sustainability, there are a number of similarities between the two areas: i) the learning curve for regulators is steep; ii) new market developments disrupt – or have the potential to disrupt – current funding flows of the economy; and iii) a global perspective is needed for an effective regulatory and supervisory response. For example, in the area of virtual currencies and Initial Coin Offerings (ICOs), we have made great efforts to exchange views and align our thinking on how to regulate them across the EU and globally. The core element of our approach to a crypto-asset is simple: when it has the characteristics of a financial instrument, it should be regulated and supervised like a financial instrument. More detail on the implications of this approach can be found in our advice to the European Commission earlier this year.
Let me now turn to the third important aspect of the Capital Markets Union initiative, namely effective supervision of EU financial markets. Over the past two years the EU Institutions have strengthened the supervisory system of financial markets, with gradual steps towards stronger powers for ESMA to ensure consistent supervision across the EU’s national supervisors and establishing some direct supervision at EU level. As a result, in the near future, more supervised entities will fall under the remit of ESMA, and this concerns both EU market participants as well as third country market participants active in the European market through equivalence and recognition.
In conclusion, I would like to reinforce message for today: Building a Capital Markets Union in the EU goes hand in hand with supporting global financial markets. This is equally true for each and every element of the Capital Markets Union: sustainability, financial innovation and strengthened supervision and international cooperation based on a proportionate and effective use of deference among regulators. I expect that the contributions later this afternoon will support this correlation.