What’s next on the Financial Services agenda?

No business as usual as the EU sets out to make financial services legislation green, digital and global

The financial services sector is at the heart of some of the key themes the European Union will be focusing its attention on in the upcoming five years; sustainability, digitalisation and its relationships with third countries – including the UK. In addition to this, there are also scheduled reviews for several significant legislative files and the continuation of the Capital Markets Union (CMU). Compared to the previous European Commission mandate, we can expect more legislative activity in the next years, fuelled by both broader policy priorities as well reviews of a number of key existing policy files. This will impact the financial services sector as a whole as well as individual companies. In this context it is key to stay informed and make sure your firm or industry is well equipped and well placed to engage and influence the policy process.

Prepare your calendars for the opportunities and challenges this 5-year mandate could throw your way, as we outline the top 5 issues likely to dominate the EU’s financial services agenda.

1. MAKING FINANCE GREEN

The EU aims to lead the discussion on sustainable finance globally and develop a coherent financial system supporting global sustainable growth. Ursula von Der Leyen, the European Commission President elect, has committed to a ‘European Green deal’ as the main priority. Climate change and the financial services sector’s contribution to a further sustainable environment is getting increasing traction and is foreseen to be influencing all future initiatives, including prudential legislation, which specifically sets out how financial firms must control risks.

Potential impact? Financial services firms can expect further legislation requiring Environmental, Social and Governance (ESG) factors to be taken into account. In addition to dedicated legislation, ESG considerations are expected to be integral in any new legislation or revision – not least due to pressure from the European Parliament.

2. TECHING IT UP A NOTCH

Ensuring that the supervisory and regulatory framework for technological developments is fit for purpose for the financial services sector is an EU priority. FinTech will be treated as a separate issue and be addressed where necessary by the Council, while the European Commission will assess risks and opportunities on a wide range of technologies. Artificial Intelligence, distributed ledger technology (also known as Blockchain) and cyber resilience will continue to be core to the Commission’s Fintech-agenda and work, as it was for the past years.

Potential impact? EU policymakers will pay close attention to the opportunities and risks associated with increased digitalisation in financial services. Emphasis will be put on ‘future proofing’ legislation, adapting it to new technologies while increasingly focussing on legislating specific applications such as cryptocurrencies.

3. BEYOND BRUSSELS

The EU’s relationships with global markets and third countries is growing in importance as the world is becoming increasingly fragmented. Discussion around the international role of the euro and a revamped equivalence decision process has already started and the new European Commission will need to follow through on delivering concrete policy changes.

Potential impact? Promoting and enabling the role of the Euro-currency in global markets by  policy changes as well as an increased emphasis on equivalence provisions in forthcoming legislation can be expected. Global firms will be facing an increasingly complex and politicised regulatory landscape. In this context, it will be vital to stay close to policy debates in order to anticipate potential changes, but similarly to contribute insights to the debates to ensure your voice is heard.

4. CASHING IN ON THE CAPITAL MARKETS UNION

The completion of the Capital Markets Union (CMU) is a key structural reform for the European Single Market. To support the creation of more vibrant capital markets in Europe, the European Commission is expected to primarily place focus on: (i) further integrating the capital markets architecture; (ii) diversifying capital raising opportunities; and (iii) increasing retail investor participation. Given the growth of the asset management industry, it is likely that focus will be on gathering data and understanding the fund sector better, including from a systemic risk perspective. 

Potential impact? Efforts to complete the Capital Markets Union will bring a set of ambitious actions to produce a long-term impact on the financial position of the EU. This is something Ursula von der Leyen has vowed to work on. The non-banking sector is likely to receive a lot of attention, due to its systemic importance for growth and stability of European financial markets. Businesses, especially those in the fund sector, will need to remain attentive of the preparatory work to come, as it will determine the EU policies in the sector for years to come.

5. REVISITING POST-CRISIS RULES

10 years after the financial crises, revisions and updates are due for many existing pieces of legislation. These will impact all financial services firms. Banks will continue to focus on the implementation of the Basel IV standards, the legislation on Non-Performing Loans and a European Deposit Insurance Scheme. Retail banks will need to closely follow the reviews of the Payment Accounts Directive and the Interchange Fee Regulation. Insurance will be high on the agenda, primarily due to the revision of the Solvency II framework. The MiFID II revision will affect the sector at large, but exchanges and asset managers will particularly be facing new rules on market data and cost disclosures. Further, Asset Managers and Alternative Asset Managers will need to closely follow the revisions of the AIFM and UCITS Directives.

Potential impact? The review of many of the instruments in the post-crisis legislative package, raises questions on whether they have the intended impact and will protect European citizens in the event of a new financial crisis. This could lead to another wave of rules. However, the revisions also present a valuable opportunity for the sector to engage in discussions with policymakers on how to improve and simplify potentially burdensome rules, while future-proofing the frameworks, simultaneously with bolstering the growth and competitiveness of the internal market.

Seize the opportunity, manage the risk

New mandate, new legislators, new conversations. Now is the time for firms across all sectors to assess and prioritise the implications and business impact of each of these issues. Is this an opportunity or could your license to operate be at stake?

Want to know more? Contact Thea Utoft Høj Jensen or go to getready4.eu

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This factsheet only addresses a selection of the key files impacting financial services firms The views expressed are those of the author and not necessarily the views of FTI Consulting, Inc., its management, its subsidiaries, its affiliates or its other professionals

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