Economic Secretary's speech at the event, ‘Capital Markets Union, what’s the vision for European Debt Capital Markets?’
Good morning, and welcome to the Treasury!
I’d like to begin by saying thank you to Nicolas Véron and Bruegel for co-hosting this event with us, and to congratulate Bruegel on its 10 year anniversary.
My job, as Economic Secretary to the Treasury, is to achieve a strong and healthy UK financial services sector, which remains globally competitive.
A strong, stable financial services sector benefits everybody: the customer, businesses, and the country as a whole.
But in today’s interconnected, global market place, success can only come when you work collaboratively across borders.
In the UK we are very ambitious about working in partnership with countries the whole world over. Our past, our present and our future is as a global trading nation.
Working closely with our nearest neighbours in Europe is an integral part of that.
We have not been shy of talking about our vision for Europe – reformed to be more open, competitive, democratically accountable, always on the lookout for where it can add value, create opportunities for growth, and drive private sector job creation.
That is why we have been such staunch supporters of the plan for a Capital Markets Union across the member states of the European Union.
And we strongly welcomed the European Commission’s action plan following its publication last month.
The UK believes that this project is an excellent example of the sort of policy making and reform Europe should be doing.
It will have a very positive impact on businesses and investors across all 28 member states, including here in the UK.
It will stimulate investment and growth, improve European competitiveness, and help deliver jobs and growth across the whole of the EU.
I’m sure we can all agree that Europe’s capital markets are long overdue reform.
The free movement of capital did not become enshrined in the treaties of the EU until Maastricht in 1992, and while our capital markets have grown significantly since then, when we look at other international markets we see that the EU still has a long way to go.
The debate on Capital Markets Union has drawn many comparisons with the US, and whilst it would not be appropriate simply to replicate their model, we should be open to learning what lessons we can.
European businesses, particularly our small and medium sized firms, are too dependent on the banking sector for accessing finance, especially at a time when bank lending is constrained. It’s essential that we find more and better ways to give them the funding they need to grow and succeed.
More broadly, Europe’s capital markets need greater depth. One particular statistic that highlights the problem is from New Financial, whose analysis shows that by 2020, if we closed half the gap between the EU and the US in terms of capital market depth, it could generate an additional 2.5 trillion dollars – money that could be invested to help boost jobs and growth.
Domestically, the UK is actually in a very good place. Our capital markets are nearly twice as developed as the rest of Europe, and on many measures, such as the value of stock markets or the level of IPO (initial public offering) activity, we are as developed as the US – if not more so. And we are of course home to London – the world’s most competitive financial centre, according to the most recent survey.
But there are many clear reasons why the UK should embrace Capital Markets Union.
Although the Government has prioritised helping our small and medium sized firms, we know these vital job creators can still find it hard to get access to finance so they can develop ideas and grow their business.
Capital Markets Union will help by giving them access to more investors across the single market by better pooling investment resources, helping venture capitalists and angel investors, and making it easier to list on public markets.
It’s not just our smaller firms who will benefit. Breaking down barriers across the single market will help British firms diversify their investments at lower costs, and offer our competitive products to savers across the single market.
One statistic that really highlights the potential difference from Capital Markets Union is that despite good levels of saving across the EU, 94% of Europeans have never bought a financial product outside their home country. With Capital Markets Union committing to lowering the obstacles to doing so, the UK is well placed to offer those customers a competitive alternative.
There are wider reasons, too, why the UK is so supportive of the Capital Markets Union.
The first is quite a philosophical one: what is the future of financial services in Europe?
We agree with the Commission that there needs to be a shift of focus.
Since the crisis, a huge amount of financial services reform has taken place. Rightly much of it has focused on financial stability and market conduct.
But with that framework now in place, we need turn our attention to reform that boosts our economies, and increases competitiveness within the single market, and the competitiveness of the single market as a whole. This ambition is at the heart of Capital Markets Union, which is why we are fully on board.
The second reason is about process.
We have called for a new approach to policymaking in Europe, one that does not put the prescription before the diagnosis. We want to see policy being made on the basis of sound analysis, backed up by evidence. This agenda was set out in Prime Minister’s Business Task Force report, published in February this year.
So it is greatly encouraging that the Commission shares our vision, and is putting it into practice with the Capital Markets Union Action Plan. Commissioner [Lord] Hill has been clear that many of the problems Capital Markets Union seeks to tackle are deep-rooted, that it will take time to think properly and clearly about solutions, and that he wants an open, consultative, step-by-step approach to this work.
I would very briefly like to touch on a few specific areas of reform within the Capital Markets Union action plan, which you will have the opportunity to discuss in more detail for the rest of this morning.
The Commission’s proposals to revive securitisation in a simple, transparent and standardised way can help banks to get assets off their balance sheets, and lend to the real economy.
It’s essential that we deliver a regime that works to achieve that objective, and we learn the lessons from the crisis when it comes to securitisation, making sure that products are more transparent and easily understood by investors.
We are strong advocates of reforming the Prospectus Directive, and we will be working hard to make sure we remove the unnecessary costs that prevent smaller firms accessing public markets.
We also fully support the review of venture capital funds legislation.
We want to help these funds grow, to open them up to savers, and improve their range of options for investment, particularly in smaller firms.
So we encourage the Commission to look at lowering the barriers to entry for these funds, and to make it easier to passport the marketing of these funds across the single market.
These changes would help to increase and diversify their investor base, opening up opportunities for savers, and allowing funds to channel capital to where it is needed the most.
I also welcome the Commission’s call for evidence on the cumulative impact of the Financial Services legislation the EU has put in place since the crisis.
I said earlier that a huge amount of reform had taken place since the crisis which was essential to restore and promote financial stability.
Well-regulated financial services are essential to our economic success.
But with so much legislation being enacted, it’s timely and sensible that we take stock of its effect in aggregate, and assess any overlaps, gaps or unintended consequences, and take steps to remedy the specific problems identified. This is another example of “better regulation” in practice – something the UK has long considered a vital part of our EU reform agenda. I hope that Her Majesty’s Treasury will make some proposals as part of this process.
The Commission has also launched a consultation paper on retail financial services. I am delighted that this exercise is taking place; one of my personal priorities as a Minister is that financial services should deliver for their customers.
This consultation is a great opportunity to harness innovation, particularly in fintech, to increase choice and boost competition in financial services.
It should focus on helping empower consumers to access the products they need at the right price, regardless of where they are in the EU.
Well-targeted proposals will help customers save, invest, and protect themselves against risk, and see the real-world benefits of Capital Markets Union.
I’d also like to offer a word of caution on a small number of areas.
As the Commission progresses with the various feasibility studies and assessments, it will consider a number of areas that in some member states are working very well.
Pertinent examples for the UK include Insolvency, where we have a well-regarded regime; and credit information for small businesses, where we are in the process of completing domestic reform.
So while it’s of course important for the Commission to be wide-ranging in examining possible reforms, it should also be mindful of not disrupting best practice, in the name of bringing up standards in other member states.
We are pleased that this approach was reflected by the Commission on crowd-funding and peer-to-peer lending. These markets are flourishing in some member states, and letting them grow and develop without unnecessary interference will promote their growth elsewhere – which is good for capital markets.
Finally I’d like to talk about supervision. There are those who consider that the creation of a new single supervisor is necessary for achieving the objectives of Capital Markets Union, and it has been suggested that the UK is holding the process back.
I want to be very clear on this issue. It is our strong belief that institutional change is not required to achieve the objectives of Capital Markets Union.
I’ve outlined some of the many positive measures from the action plan, and it’s very clear to the UK that a new supervisory body would add no benefit to those processes.
Capital markets across member states are of very different shapes and sizes, with different risks and opportunities. In breaking down barriers between them, it’s essential that the local knowledge and expertise of national regulators is preserved and utilised. That will ensure reforms are as effective as they can be.
We are by no means the only ones who share this view. The European Securities and Markets Authority has a vital role to play in Capital Markets Union. It is best placed to ensure that national regulators are implementing the law correctly, and that supervisory standards are of a high quality; and all member states, including the UK, will work closely with them in that task.
If we’re serious about using Capital Markets Union to really help the real economy and generate jobs and growth which are needed now, then the last thing we need is major institutional changes which will divert our time and attention, and ultimately prove detrimental to achieving our goals.
I’d like to conclude with a commitment and a request.
My commitment is that the Government will continue to work closely with all of you as Capital Markets Union progresses, to help inform and shape the debate, and make sure that these reforms really do deliver for businesses and investors in the UK and across the single market.
My request is that you do the same.
I’ve spoken about the very positive way in which the Commission has adopted an open, consultative approach, but in order to best help them do their job and achieve their aims, it’s essential that we all participate fully in the debate.
That will ensure that Capital Markets Union is a great success; a key part of generating jobs and growth across the EU, and of boosting Europe’s long-term competitiveness.
That, in turn, will deliver for citizens across all the member states.
Thank you for listening – and I’d be very happy to take a few questions.