The two legislative terms (2009-2019) since the financial crisis have seen policymakers, regulators, and supervisors alike focus on implementing a range of post-crisis financial stability reforms, with the objective of reducing market risk, shoring up resilience and addressing conduct risk in financial markets.
At EU level this has come through in various forms, ranging from implementation of the G20 Pittsburgh commitments for derivatives markets, market transparency reforms through the Market in Financial Instruments (MiFID) framework, the reforms of the Basel Committee on Banking Supervision, the work of the International Organisation of Securities Commissions (IOSCO) on conduct risk in the indices space, as well Financial Stability Board work on recovery & resolution of critical market infrastructure.
On 1 December a new European Commission has assumed office under the leadership of her President – Ursula von der Leyen – following European Parliamentary elections in May this year. Unlike in previous legislative terms, financial services policy is not expected to be front and centre. However, a number of the overarching policy priorities that the new Commission has staked out for the coming five years will have significant impact in the financial services space, including for corporate treasurers.
In many ways, Europe finds itself at an inflection point. A deterioration in its external relationships with the likes of the United States, China and Russia, as well as the ongoing process of the UK leaving the EU will result in an EU that is seeking to reduce its external dependencies and create opportunities for European businesses to become more competitive on the global stage. At the same time, it is the EU’s ambition to step into a leadership role globally on some issues such as climate change, tax fairness and multilateral trade in the context of an increasingly inward-focused United States.
In terms of concrete policy priorities, some of the key initiatives that will drive the EU policy agenda in the coming years are:
The Green Deal is at the very core of the new Commission’s agenda and will enshrine the objective of climate neutrality target by 2050.
Here a strong focus will be on building a functional European Green bond standard for listed and unlisted European and international issuers as well as a significant focus on corporate disclosure of ESG risks as well as compliance with the EU’s new sustainability classification system – the so-called taxonomy – to provide investment companies with a richer set of data vis-à-vis corporate sustainability practices. Part of this agenda will also see a stronger focus on corporate board practices and ensuring that company strategy takes adequate account of sustainability objectives and risks.
One of the remaining pure financial services priorities will be the implementation of the final Basel III standards on capital requirements for banks at European level, which will significantly reshape the way corporate exposures of banks will need to be capitalised including for derivatives transactions, specialised lending and trade finance.
Building a fully integrated capital market for the 27 Member States post-Brexit including revisions of MiFID – a significant part of this agenda will be dedicated to facilitating cross-border access to markets and creating a more beneficial market-based finance environment for in particular SMEs and mid-caps. This will also involve an overhaul of the MiFID 2 framework across a number of areas relevant for corporate treasurers, including the bond transparency framework, the question of introducing new trading obligations for new asset classes such as bonds, and the consolidating and pricing of pre- and post-trade market data.
The Commission will likely to seek to develop a legal framework for AI, attempting to tackle some of the bigger questions around ethical AI. By the end of 2020, policymakers could already propose a civil law on liability for AI in case of damages. EU policymakers will also seek to introduce a new FinTech strategy including a common legislative approach on crypto assets. Policymakers have equally grown more attentive to cyber risks associated with an increasing digitalisation of the economy and will seek to boost the EU’s toolbox for tackling such risks.
Competition policy will be used as a means to make the EU more autonomous and competitive vis-à-vis the rest of the world, with the Commission expected to review and adapt of rules on antitrust, mergers and state aid to evolving geopolitics dynamics, notably to promote European champions. The new Commission will also look more broadly at how best to tackle to challenges the digital economy poses to competition and the EU’s industrial strategy. This will include work on a Digital Services Act to make platforms, services and products safer and build consumer trust, regarding digital citizens’ rights.
This of course only represents a small snapshot of the policy agenda at EU level for the coming five years and known challenges such as the ongoing IBOR transition will remain priorities. That said, the agenda will likely continue to evolve as economic conditions and geopolitics change and create the need for additional policy action.
In conclusion, even though financial services policy is not one of the main policy priorities of EU policymakers at the outset of this legislative term, several other policy agendas will have a tickle down effect to financial services and corporate treasury.