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I want to concentrate on the impact which these years of abnormally low interest rates have had on financial markets and talk about the potential consequences of a change in this area. In particular, I will speak about the impact of low rates on investor behaviour, liquidity and the role of the non-banking sector in general. These are the three key issues linked to the current exceptional monetary policy that we have observed from the perspective of securities regulators.
Capital markets must continue to be attractive for wholesale market participants too and bond markets in particular already play an increasingly important role in EU capital markets, partly, as I mentioned earlier, due to the low interest rate environment. I’d like to see this greater role become a permanent feature and therefore it should be supported with policy measures where needed. To this end, ESMA submitted its proposed rules on transparency and liquidity for the bond market under MiFID II to the European Commission in September and they are attracting attention from a wide range of stakeholders. I want to emphasise that protecting liquidity is of paramount importance and when I say transparency is the magic word, I am fully aware that transparency applied indiscriminately to illiquid instruments can be extremely damaging. However, we have carefully calibrated the liquidity thresholds and exemptions, based on extensive evidence using large data sets. This should provide investors with the right balance between transparency and protection which, I believe, will contribute to fostering liquidity.
I believe we should continue to promote the participation of retail investors in the financial markets – even as savings accounts become more attractive again. It is one of our key tasks as regulators to ensure robust investor protection, part of which means ensuring both performance and fee structures of investment products are transparent allowing choice and competition. The EU Regulation on Packaged Retail Investment and Insurance-based Products (PRIIPs) which is currently being implemented serves as a good example of this.
Last but not least, let me underline the importance of supervisory cooperation. Bigger and more interconnected – or if you wish global – capital markets require effective coordination and cooperation between the various authorities around the world. In Europe, we go very far on this: convergence of supervisory practices among European regulators will be an essential part of the Capital Markets Union, and also become ESMA’s key activity.