The European Securities and Markets Authority (ESMA) has published a speech given by its chairman, Steven Maijoor, at the Luxembourg Stock Exchange Day. The speech is entitled Priorities of a Capital Markets Union (CMU).
At the beginning of his speech Mr Maijoor refers to the financial crisis and that the European Central Bank has embarked on a massive Public Sector Purchase Programme to fight deflationary risks and achieve price stability. However, he adds that monetary policy alone is, and will not be sufficient and should be supported by policy initiatives introducing structural reforms. Increasing the role and performance of capital markets should be an important part of these structural reforms.
Mr Maijorr then comments on two areas where he believes that progress is especially important to move forward towards a CMU:
- investors need to participate in the CMU; and
- a European-wide comprehensive supervisory approach is needed.
Mr Maijoor explains that a successful capital market requires active participation by investors, including retail investors. However, a high level of investor protection is essential for a successful CMU. Only when investors feel sufficiently protected will they be willing to enter financial markets. Restoring investors’ trust is primarily the responsibility of the financial sector, but regulation and supervision should support this process. Whilst the early phase of the regulatory response to the financial crisis focused on stability and prudential objectives, Mr Maijoor states that that later regulatory measures, like MiFID II / MiFIR and packaged retail and insurance-based investment products (PRIIPs) are designed to ensure a significantly safer environment for investors.
Mr Maijoor then touches on some of the more concrete proposals which he believes could further contribute to investor protection and develop further a pan-European asset management sector benefitting investors:
- investors currently benefit from a detailed set of rules on remuneration and cost disclosures via the undertakings for collective investment in transferable securities (UCITS) key information document. However, Mr Maijoor states that more is needed than transparency alone. He adds that there are still widely varying practices on the substance of what are common costs and expenses of retail investment products for investors across the EU. Further harmonisation of those costs and expenses should be considered;
- experience has shown the difficulties of disclosing comprehensive and relevant information on costs in a table or a summary cost indicator. Mr Maijoor feels that it would be in industry’s interest to complement the information on cost disclosure via setting up reliable on-line calculators or central databases on the costs of these funds; and
- national authorities have introduced additional requirements for UCITS and alternative investment funds which hampers cross-border marketing and passporting. The type of add-ons that national regulators can make, if any, needs to be specified. There should also be clarification on the division of competencies with regard to the rules of conduct for UCITS management companies that have established branches in a host member state to manage UCITS.
The last topic that Mr Maijoor covers is supervisory convergence. He states that currently there is substantial room for increased convergence of supervisory practices and approaches among national competent authorities. For example, ESMA’s recently published peer reviews of national supervisory practices regarding Best Execution and Clear, fair and not misleading information show substantial divergence between national regulators.
Mr Maijoor notes that supervisory convergence does not mean that we should aim to converge to a one size-fits-all approach. Rather instead it means that a consistent and effective application of the same rules is promoted and using sufficiently similar approaches for similar risks.
Mr Maijoor states that it would not be realistic to aim for full convergence in the period 2016 – 2020 and full convergence may not be needed in all areas. Therefore, ESMA will be identifying a select number of high priority areas on which it will focus its convergence activities.
View Priorities of a Capital Markets Union, 12 May 2015