European Financial Integration 2024: Keynote speech by EU Commissioner McGuinness

Good morning everyone.

Can I say Jerome, you have set the scene really well for what I hope will be an exciting conference. Now normally in the financial system excitement is not really welcome, but we have work to do around particularly Capital Markets Union. So I’m hoping for lots of strong engagement, and I hope that my speech will stimulate some of that debate. I’m really happy to be here in Frankfurt. I thought I was getting a warm welcome because we saw lots of excitement in Frankfurt yesterday evening. Nothing to do with the financial system, but very happy people going to football matches. Not all of them happy with the result – but that’s life. There are winners and there are losers. Can I firstly thank the ECB and indeed my own services in the Commission for organising this really important conference, and a special word of appreciation to ECB Vice-President de Guindos. For what is a really important event.

We’re talking about fundamental issues in the financial system, but also how we advance our agenda on sustainability and digitalisation. And as is no surprise to everyone in this room, money will matter in advancing the cause of both. So I want to get down to business straight away. And talk about Capital Markets Union and Banking Union.

Both are essential, and they complement one another. But not just talk about the why we need it, but how we’re going to make progress in what appears sometimes to be a very difficult landscape. So on the question of why.

It’s already addressed. We need money. We need investments. And the estimates vary, but the Commission uses a figure of an additional investment of more than €600 billion every single year for the climate transition. And this is about investing in all of the renewables, the technologies, insulations, you know right down to the basics that our citizens fully understand and know. But also investing in new clean and green technologies, which will show the fruits when we get the investment in and the products and innovations out.

But if I look beyond the climate transition, we also need private investment in digital technologies, in innovation and of course defence. Public finance will not be enough to meet these massive investment needs. And banks of course will play a role – but they don’t have the capacity to fill the gap by themselves.

Instead, the funding will need mainly to come from capital markets. So we need the Capital Markets Union – better known as CMU in the industry, so I may use CMU in the rest of my contribution. And this is a really big project for the European Union.

When I was a Member of the European Parliament, this was discussed, not advanced hugely, but we made some incremental progress. It’s a project that has direct benefit for citizens because it answers the question that they as, how are we going to fund the climate and digital transformation?

It also addresses the political question of how do we have a transition that leaves no one behind. And therefore the link between people and this project is key. The truth though is that we’ve just come out of a European election campaign in 27 Member States where I didn’t hear the words CMU or and I didn’t hear Capital Markets Union much discussed. And it’s extraordinary – I fought four European Parliament elections since 2004.

I was never asked about, how was progress on Banking Union and Capital Markets Union? However, I have been asked, why as a citizen I can’t borrow in another Member State. So I think we need to use the opportunity to speak to citizens, because they will drive change more than it being led just from the top.

So in a way the campaign for the European Parliament was a missed opportunity. And I hope, and I will be imploring, the incoming Parliament to get fully behind our efforts to make progress on Capital Markets Union. Because citizens do know that there are barriers when it comes to accessing financial products in the single market.

And therefore we need to address this concern. Because fragmentation leads to inefficiency, missed opportunities and it is a barrier to maximising the benefits of a single market for capital. Which frankly is one of the four freedoms that has yet to be fully in place in the European Union. So here we have a lot of work to do.

But there’s also opportunities when we get the work done. If I look to Banking Union, it helps make sure that account holders know money is protected the same across Member States. And Banking Union is not only there to protect taxpayer and depositors’ money, but also to create a single market for banks to the benefit again of business, citizens and banks themselves. Because a true Banking Union will lead to more competition, more affordable financing for companies and households, and better financial services.

And meanwhile Capital Markets Union would provide an opportunity to put savings to good use, no matter where you are in the European Union. And this provides better returns over the long term and helping our citizens prepare for many things, including for retirement. And the amount of savings – because Europeans are great savers.  It’s quite extraordinary the amount of money that rests peacefully but not actively in savings and deposits.

We’re talking about €33 trillion. Not an insignificant sum, but perhaps hard to conceptualise because it is so significant. And I think if we can effectively mobilise these savings on our capital markets, we can unlock a significant source of investment capital.

And this is key. I want to emphasise that of course we are not starting from scratch. There are colleagues in this room from the Commission that have been working on Capital Markets Union long before I’ve been engaged in it. And you’ll hear from them later.

You can see from the Commission’s European Financial Stability and Integration Review what’s been done, because that will be presented this morning. Highlighting that the EU is largely self-reliant in terms of many key financial services. So we do have a very solid base on which to build.

And this is good news for our open strategic autonomy agenda. But there is a but here. Because our capital markets are still not developed enough to meet our vast financing needs. What we need in the European Union is a deep, liquid, and unified capital market. We need a single market for capital, rather than a collection of small and fragmented capital markets.

There is a third point. The Banking Union and the Capital Markets Union are projects that reinforce each other. CMU requires strong banks that can operate across the single market, especially for services like listing and trading. A genuine CMU would also enable banks to scale up their activities and services. And finally maybe on the ‘why’ – there is a huge cost if we do not act.

And I here look at figures from New Financial, a think tank. Their estimation is that another 4,400 companies in the EU could raise an extra €470 billion every year on capital markets – if we get there. And that’s an additional €12 trillion in long-term capital which could be put to work in the EU economy to help boost sustainable growth. And that’s money and investment that we are missing at the moment.

Sometimes I’m asked to do impact assessments on various proposals. I think more and more we should do impact assessments on, if we don’t act, rather than just on when we do make proposals. And I think those figures spell out the impact of positive engagement with CMU. And I also think it links very well with our strong discussions at the moment around competitiveness of the European Union.

So let me move to what we need to do. I’ve said we have made good progress on Capital Markets Union during this Commission mandate. So the European Single Access Point – this online portal for company financial and sustainability information – is being set up.

We’ve agreed the Listing Act, again here to reduce red tape, making it easier for companies to get listed and to stay listed. We are working on setting up the EU consolidated tape, for a single view of EU trading data. EU finance ministers unanimously adopted the FASTER Directive last month, providing for simpler and quicker processes for withholding tax.

So political momentum is certainly with Capital Markets Union. EU leaders in the European Council and finance ministers in the Eurogroup have given their strong backing. We have many contributions to this project, the Letta report, the Noyer report, the anticipated report from Mario Draghi.

So all of this is really encouraging. Now we just need to translate that support for CMU into support for specific measures that will build it.

So it’s time for action more than words. I would say we have picked all of the low-hanging fruits. So we now have to reach higher in terms of ambition to tackle those more significant barriers that exist. And we need the full support of EU leaders and ministers to tackle those barriers.

This is a moment where we will need to set aside national vested interests, public or private, in favour of the long-term European goals that will benefit all of us. One of the barriers that’s often mentioned is differences in insolvency law among Member States. And this is a fact today, there are many different insolvency pieces of legislation.

So investors in the single market have 27 different sets of insolvency laws to contend with. And we do have a proposal on the table to tackle this, to make those 27 different laws more consistent and efficient. But again I have to say with significant regret that progress in the negotiations among the Member States is slow – despite the urgency of CMU and despite political commitments to the project.

Another example – our Retail Investment Strategy proposal was very specific in its objectives – to make it easier for small-scale, everyday investors to participate on capital markets.

But again, progress is slow. And our ambition in the Commission – my ambition – was significantly watered down by both the Parliament and Member States. And this means that we don’t tackle as many of the barriers to retail investment as we know exist and hinder retail investors.

So now we’re looking ahead to the next mandate, with a new European Parliament just elected, to be followed soon by the new European Commission.

There are clear indications of what issues the new Commission will need to tackle. And let me say very clearly that nibbling at the edge of this problem will not give us the results that we need. So we do need to hear and see that the words are matched by strong action amongst Member States and the Parliament. Because if we don’t do that, we do risk not getting the full benefits of Capital Markets Union.

So a number of topics are on our agenda.

I’ll start with securitisation. The Commission is looking and analysing at how to revive the EU securitisation market to make it more attractive for issuers and investors. And I can confirm that we will launch a public consultation in the autumn so we can act as soon as possible to scale up the EU securitisation market. And the advantages of securitisation are clear: it frees up bank balance sheets, allowing for additional investments which could reach substantial amounts. It also provides an additional asset for banks to invest in.

Next to pan-EU saving products. We should explore this to ensure that EU citizens can save for their future effectively. And I think there are positive lessons we can take from auto-enrolment for private or occupational pensions, both inside and outside the European Union. I think there is also lessons – maybe less positive – we can take from the Pan-European Personal Pension (PEPP), which has underperformed. The PEPP suffered from a low cap on costs and from the diversity of tax treatment across the EU, including a lack of tax incentives.

And we will need to consider factors like taxation, product portability, investment horizons, and asset allocation. And now to a third point already alluded to, supervision – which is a critical area for discussion, and is a difficult political issue.

But for me as I look at this landscape, it is very difficult to see a genuine single market for capital with 27 or indeed more national supervisors. So a company operating in several Member States may have to deal with several different regulators which may each have different interpretations. Fragmented national supervision will do nothing to address our need to boost EU competitiveness and cut red tape. Fragmentation is not an efficient way to do business.

Now I also want to be very clear that of course single supervision cannot happen overnight, but it does need to happen over time – and perhaps not too lengthy a period. But I should also say that we should not make it the only focus of Capital Markets Union. Or allow it to be the only visible impediment to it, which I am concerned about in some of the conversations that I hear.

I just would say that later on today, and very happily while in Frankfurt, I’m visiting EIOPA. And I think that’s a reminder not to forget that central supervision is not just about capital markets and ESMA. We should also look to other areas, including the insurance industry. But in any case, we need to have the discussion on supervision now.

Which is why this afternoon’s panel is so important. There are different approaches we could consider. And I give you an example. We could start with groups or market infrastructures that provide services across the whole of the single market.

ESMA and EIOPA should be able to make the supervisory system more effective and efficient. And this could be through an opt-in regime or joint supervision. A word then on market consolidation, because this is another priority and another important topic that will be discussed in a panel today.

ECB President Lagarde made an important point in her speech on CMU late last year. Instead of waiting for fragmented markets to integrate by themselves, Europe should actively anchor the Capital Markets Union around a unifying project. Does it really make sense to have numerous trading venues with very few or even no Initial Public Offerings?

Because that’s a sign those venues are not really delivering as a source of new financing. And in the same way, does it make sense to have some twenty Central Security Depositories when the US has only one?

Again, Member States should set aside national symbols and recognise that consolidation is crucial over the long term to develop a single market for capital. The Commission has launched a study on the consolidation of investment funds, trading, and post-market infrastructures. We should think single market – embracing Capital Markets Union as a European project that has enormous benefits for all of us.

I’ve talked about capital market funding, but I want to just emphasise that banks will continue to play a very important role for the EU economy. We do have a strong banking sector in the European Union, robust capital positions and sufficient liquidity. And that is down to the reforms we carried out, including Banking Union.

Single supervision by the ECB, and this ensures that banks in the 21 participating Member States are subject to very high, consistent standards of supervision. And this is underpinned by a single rulebook, following a long process of reforms to safeguard against any future crisis.

The final element of this process is our Banking Package which implements the final elements of the international Basel standards.

Completing the Basel III post-financial crisis reforms is a major achievement. And it’s important that we stick to the date of implementation we committed to – 1st January 2025. It is in the EU‘s interest to implement Basel standards. Banks are competitive only when they are resilient and well supervised.

And I think we all know in this room and indeed in the wider world the price we all pay when banks go into crisis. At the same time, as with any international agreement, it’s essential that all parties implement faithfully. And this is important for the credibility of international standard-setting bodies.

And this is what we did in the European Union. And we are monitoring implementation in the rest of the world. The only area where the European Commission is empowered to delay the entry into application of standards is market risk, if the level playing field cannot be ensured.

This is the so-called “Fundamental Review of the Trading Book”, or FRTB. Rules on market risk are very important for investment banks, and there is strong competition between European, internationally active banks and other global banks.

I think by now, it’s become clear that there will be a delay in the United States in implementing Basel. In practice, the entry of application of the Basel standards in the US is now highly unlikely to take place before January 1st, 2026, at the earliest. And this is why we have decided to use the Commission empowerment to postpone the date of application of the rules on market risk in the EU by one year, until January 1st, 2026.

This one-year delay ensures a global level playing field, for those big European banks competing with other global players. It gives us time to see what others are doing. We will work closely with the new European Parliament and the Council in this process.

We will adopt this delay by way of a delegated act, and this of course is subject to scrutiny by Member States and Parliament. This will take a minimum of 3 months. So as you now, our procedures do not allow us take decisions on postponement at the very last moment.

We will adopt this delegated act as soon as possible, again working with the newly elected European Parliament. But I think it‘s really important that we give clarity now to our banks. I would also add that we sincerely hope that the US will apply the Basel III standards at the earliest opportunity.

And the delay of one year of the market risk rules in the EU should not be considered an encouragement to depart from this international agreement. In the EU, we are firmly adhering to our date of January 1st, 2025 for entry into application of the bulk of the Basel standards.

But on market risk, we do need to ensure a global level playing field and alignment on the entry into application of the rules. And as you know, given the length of the procedures to postpone these in the EU, we could not wait any longer.

Let me then look to the future about Banking Union. The Eurogroup agreed to strengthen the common framework for bank crisis management and national deposit guarantee schemes. And that this reform should make sure that more small and medium-sized banks are included in resolution.

Member States should agree their position on this framework [tomorrow]. Now progress is welcome. But – as there a few buts in my speech today – but I have to say very clearly that I regret that the Council‘s general approach departs significantly from the Commission proposal.

Another essential component is also still missing: the European Deposit Insurance Scheme, EDIS. I hope that progress on crisis management can lead to progress also on EDIS. And here I welcome that the ECON Committee of the Parliament managed to vote on its report ahead of the elections. After nine years of stalemate, it is encouraging to see progress.

Moving to a topic which is already a major issue, and that is around digitalisation. So a modern, integrated financial system is also increasingly a digital financial system. And we’ve done a lot of work during this Commission mandate to embrace innovation but also addressing any risks that can arise from new technologies, including Artificial Intelligence. Which is already being embraced by the financial sector.

Banks, insurers, investment managers – already using AI to make forecasts, to automate processes, to reduce costs and increase efficiency. AI systems can analyse data from a wide range of sources: market trends, economic indicators and of course consumer behaviour. And this could help financial institutions make more informed decisions using lots of information.

But of course again there are risks with AI in finance. Like leaving a decision to an untransparent algorithm on whether someone can get a loan or not. Now we have the European Union’s new AI Act, together with existing financial sector rules. And this provides a very solid basis to allow for technological innovation while managing the risks.

It is now important that the authorities in charge work closely together and with the market to implement these rules in a coherent and sensible manner. And it’s important for the Commission, including the AI Office, to work closely together with the European Supervisory Authorities and national authorities.

To inform all of this really important work and understand what the market needs, today we are launching a stakeholder consultation. And I know many of you will be interested in this, and I would invite you to consult the website of DG FISMA and participate in this consultation.

So briefly a few closing remarks in relation to this topic high on our priority, Capital Markets Union and of course Banking Union. We have had really important political declarations and of course these declarations do set the scene. They are vital. But they are not enough.

They have to be matched now by actions. Member States need to set aside the short-term national interest and think European. The costs of inaction here are enormous. Not acting means failing to finance the climate transition. Failing to invest in digitalisation and innovation. Failing those start-ups and scale-ups and unicorns who need investment. Failing to drive economic growth and job creation.

Now I believe that EU leaders, ministers, and MEPs recognise the cost of inaction. But they now need to act collectively. And they need to think single market, think European – instead of thinking about borders, about national concerns. It’s not in the script, but I never use the words ‘cross-border’, except when I’m explaining why I don’t use the words ‘cross-border’. Because I think even the use of those words really impact the mindset.

Let’s talk single market. Let’s avoid the C-B word. Because that is what is impeding progress around financial infrastructure and integration. And just to say that the Commission is preparing the way. But Member States and the European Parliament have an opportunity to act now and with urgency  – with the files on insolvency and the Retail Investment Strategy. And I hope they will take that opportunity.

I will use the opportunity of my remaining few months in this mandate to speak loudly and clearly on this topic. I have watched and listened to this debate. And I am now energised because my time is short to make sure that others also agree and act. Because the European Union speaks of open strategic autonomy, of building resilience, of addressing vulnerabilities, of investing in a more sustainable and digital future.

You can’t do that without money. We won’t do it without Banking Union and Capital Markets Union.

Thank you.

Source – EU Commission