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“I would like to start with the first topic of today; conduct risk. By definition, we must apply a broad and forward looking view to effectively assess the risks arising from the conduct of financial firms. Too many examples can be provided to illustrate that poor conduct of and within financial firms can have great adverse impact on consumers and consumer confidence. A continuous effort should be made to ensure that industry participants conduct themselves in a way that is consistently in the interest of their clients. The conduct of financial firms is shaped by many diverse drivers, for example: conflicts of interests, regulatory differences across sectors, and tax incentives. The conduct of business regulations still shows too many differences between the banking, insurance and investment sectors.
These differences allow for regulatory arbitrage and could easily lead to a concentration of conduct risk in the sector that – at a given point in time – is regarded to have the lowest level of consumer protection. In this respect, I welcome the PRIIPs Regulation which takes a cross-sectoral approach to improving the comparability of complex financial products, regardless of the sector where the product started its life cycle. Looking ahead, the Capital Markets Union (or CMU) will be one of the forces shaping the future of finance in Europe and a key topic to take into account when considering conduct risk.
The CMU – which we all know is high on Commissioner Hill’s agenda – seeks to establish a genuine single capital market in the EU, and to increase capital markets based funding. The foundations of this ambition are currently being built. The CMU poses several challenges for the assessment and supervision of financial institutions’ conduct. First, the objectives of the CMU also imply attracting retail consumers to participate more actively in the financial marketplace. This reinforces the relevance of our existing consumer protection framework. I am therefore very pleased that the European Commission has made the protection of consumers a key principle in building the Capital Markets Union.
Secondly, increasing capital markets funding in the EU will also imply a larger capital market to supervise. This will require adjustments to both the level of intensity of supervision and the resources allocated to supervising European capital markets.
Finally, a true single European capital market is likely to increase cross-border activity in financial services. Although the supervision of conduct risk is already often a supra-national matter, in a true single market cross-border supervisory efforts and a common understanding of conduct risk and how to supervise it will become even more important.”