Finance Watch, the public interest advocacy group working to make finance serve society, made the following comments on the Commission’s mid-term review its Capital Markets Union initiative.
Resist pressure for financial deregulation
With the prospect of deregulation in the US and a desire in some member states to attract financial firms after Brexit, the Commission must resist the creeping pressure for competitive financial deregulation. Rolling back regulatory safeguards to achieve short term benefits for the EU’s financial sector could have high social and political costs.
Finance Watch Head of Policy Analysis, Frédéric Hache, said:
“With today’s announcement, we will start monitoring proposals developed under the CMU mid-term review to ensure that alleged competitiveness benefits and new opportunities for investors do not lead to a regulatory roll back. There include measures to boost competition among financial firms, to make the prudential treatment of banks and investment firms more proportionate to size, and to adapt securitisation proposals for banks’ non-performing loans. We will be monitoring them closely.”
Put sustainability at the heart of the CMU
Finance Watch shares the Commission’s view that “a deep re-engineering of the financial system is necessary for investments to become more sustainable and for the system to promote truly sustainable development from an economic, social and environmental perspective”.
We therefore urge the Commission to plan for a permanent policymaking structure to succeed the High Level Expert Group (HLEG) on Sustainable Finance when its mandate ends in December 2017, and to review the regulatory and supervisory mandates at DG FISMA and the ESAs in order to prioritise climate and sustainability goals.
Finance Watch Secretary General, Benoît Lallemand, said:
“We see an opportunity for the EU to lead in expanding the approach to financial regulation from a historically narrow focus on prudential and consumer issues to one that actively promotes the wider social purposes of finance, in line with the EU’s commitments under the UN 2030 Agenda for Sustainable Development and the Paris agreement.”
Only a bolder approach than we have seen in the past will shift finance onto a sustainable path. For example, the suggestion of giving regulatory preference to green or sustainable assets when they have an improved risk/reward profile might not shift investment flows between assets with similar financial risk/reward profiles. A purposive and ambitious framework of incentives and sanctions that tilts the whole sector in a sustainable direction, using regulatory, fiscal, monetary and all available tools, is needed to achieve the large scale shifts in financial flows needed.
In the meantime, we look forward to supporting the Commission’s initial work on rating methodologies, supervisory processes and investment mandates, and draw attention to our previous recommendations on mainstreaming responsible investment (see joint report "The Capital Markets Union and sustainability: recommendations for the mid-term review", April 2017).