ICSA Annual Meeting and Conference (2024)

Ladies and gentlemen,

Thank you for the honour and the privilege of addressing you today. On behalf of BaFin: welcome to Frankfurt. It’s great to welcome such a group of distinguished capital markets experts here in Germany’s financial centre.

Some of you have come a very long way to participate in this conference. You probably don’t deal with BaFin on a regular basis. Therefore, let me briefly introduce BaFin.
We are Germany’s federal financial supervisory authority.

Our mission is to ensure the proper functioning, stability and integrity of Germany’s financial system. BaFin’s tasks include banking, insurance and securities supervision, the prevention of money laundering and terrorist financing, and resolution. Our teams are based in Bonn and here in Frankfurt.

We are a German authority. But a large part of our work concerns Europe. Because a great share of the regulations and directives that shape our work originate in the European institutions. Therefore, we are deeply involved in the work of the European Supervisory Authorities. For example, I have the privilege of chairing the Sustainability Standing Committee of the European Securities and Markets Authority.

At BaFin, we have set ourselves high goals regarding our participation in European institutions. We want to be an opinion leader when it comes to defining the rules for European financial markets and to shaping supervisory standards. Today, this is more important than ever.

Because we need strong European capital markets. To transform our economies towards climate neutrality and digital transformation, we must invest enormously. Just take the EU’s Green Deal and RepowerEU programmes. They deal with the transition towards climate neutrality and sustainable energy. The European Commission estimates that in order to meet the objectives of these two programmes, we will need additional annual investments of over 620 billion euros. Such a large need for investment requires private capital. This is why the further development of European capital markets towards a Capital Markets Union is so important.

The Capital Markets Union is not a new project. We have been working on this for almost a decade. The list of outstanding regulatory projects is long: the Listing Act, the Retail Investment Strategy, EMIR 3.0 or FiDA, formerly known as Open Finance – there is still much to be done. This will also be true for the new European Parliament and the next European Commission.

Europe must be an attractive and safe location for capital market players. What will be important in the coming years?

Firstly, we must reduce complexity and lessen the burden of bureaucracy. This is important for several reasons.

Companies need to comply with complex rules. Supervisors need to enforce them. This creates high costs for everyone involved. At the same time, complex rules raise the barriers to market entry. They limit competition. Complex rules also impede consistent supervision at the European level.

Now, the term “complex rules” sounds rather abstract. Let me give you a specific example of what I mean. Take the MiCA Regulation, the Markets in Crypto Assets Regulation. This has put in place a binding regulatory framework for the regulation of crypto-assets and service providers in Europe. MiCA will provide a high degree of legal certainty for suppliers and customers. We highly welcome this.

However, MiCA also has 52 Level 2 and Level 3 acts to clarify the regulation. This makes me wonder: Does it really help to have so many rules? Do we actually need a set of rules laying down standard forms and templates for crypto-asset white papers? Could it really not be simpler, more pragmatic?

If Europe wants to harness the potential of capital markets, it must not stand in its own way. Regulation should not regulate every little detail. It must address the major problems. And it must set clear guardrails. This gives certainty to all the parties involved. This reduces bureaucracy. And this will also allow for quick action.

So what needs to be done? We should leave the calibration and stringency of financial market regulation untouched. However, we need to systematically consolidate and streamline rules from level 1 to level 3.

We should also do a better job of integrating the various laws relating to the digital aspects of the single market. Especially looking at the interface between sector-specific rules and horizontal regulation, for example in the areas of data protection and artificial intelligence.

I don’t believe they are: the highly complex rules we have at present are not helping to direct more funds to sustainable products. Demand is – at best – stagnating.

Now is the time to reduce the complexity of sustainability regulation. We should simplify and consolidate the existing rules. And we should integrate them into a single, consistent ESG rulebook.

The current review of the Sustainable Finance Disclosure Regulation presents a great opportunity to kick off simplification efforts. We should start by providing a clear definition of what a “sustainable investment” actually is. This is absolutely indispensable if we want to achieve transparency. And in order to steer investments towards sustainable ends. It goes without saying that when it comes to clear and precise definitions, we need consistency across the various ESG regulations.

Greenwashing is another case in point. We’ve been discussing this topic for many years. Last year, the European Supervisory Authorities published their preliminary reports on this topic, which included a common understanding of greenwashing. By the way, the final report will be released very shortly.

Another step the Commission should take in the context of the SFDR review is to create an easy-to-understand European system for ESG product categories. A system that would provide clear guidance for investors, with straightforward messages such as:

• This product invests in sustainable activities.
• This product invests in transformation projects.
• Or, even if its investments aren’t fully sustainable, this product excludes investments in certain areas, such as environmentally damaging activities.

We are currently witnessing profound technological change in the entire financial industry. Innovation is thriving. New and existing players are redefining entire value chains. Such times of disruption present great entrepreneurial opportunities.

With regulation such as the AI Act or MiCA, Europe has created a strong legal basis for digital companies to thrive. Yes, companies must abide by these rules. This comes at a cost. But these regulations also provide legal certainty. Take MiCA as an example. Our North American or Asian counterparts keep telling us: this is the benchmark when it comes to crypto regulation.

Now, it’s important to conclude regulations that can further nurture Europe’s capital markets in a fully digitized world. Let me give you just two brief examples.

The Financial Data Access Regulation – also known as “Fida” – will oblige companies to provide their customer data to other financial institutions and financial information service providers. Always with the customers’ consent, of course. And always only to companies within the regulated financial industry.

This secure and efficient data access will open up new business opportunities. For established companies and for new players on the market. We will very likely see new, innovative business models as a result. Competition is likely to become more intense.

The Consolidated Tape will provide consolidated data on prices and volume of traded securities in the EU. This will improve overall price transparency. Currently, we have many trading venues in the EU – and thus also strong competition. That’s good. At the same time, however, liquidity in individual financial instruments is distributed across different trading venues. A consolidated data ticker will combine this liquidity virtually. The three planned data tickers will support the efficiency, transparency and integrity of EU financial markets.

These regulatory projects can significantly advance European capital markets in the digital environment we all live in. Because they set clear guardrails for an efficient exchange of data. And because they reduce transaction costs and enable new business models. And there’s one more aspect that’s important.

Regulations such as Fida or the European Single Access Point, which will consolidate financial and non-financial information that companies disclose publicly, will ensure that more reliable data is more readily available in the future. This will be crucial for new AI applications.

Even though there is a lot of work to be done for the next Commission – I am convinced: The reliability of information and data will be a strong competitive advantage for Europe in the years to come.

Fourthly and finally, Europeans must pay heed to the fact that in a digital world, financial service providers can easily scale globally. And they can move quickly. We thus have a strong interest in having effective rules in place in all major financial centres around the world. To ensure financial stability. But especially to provide companies with open capital markets at a level playing field. This will boost growth and competition. This is in the interest of both the financial industry and consumers. Europe has economic weight. The next Commission should leverage this weight and advocate for clear and fair rules across the globe.

If we don’t bear this in mind, Europe will fall behind the US and Asian capital markets. For this reason, and speaking as a regulator, I insist: let’s move ahead with a deep, digital Capital Markets Union.