Capital Markets Union Speech by Mark Boleat

Speech by Mark Boleat, Policy Chairman, City of London Corporation, at European Capital Markets Union Conference, City and Financial Global, London 7 April 2016


It is a pleasure to be invited back to speak at the CMU Conference today. A year has passed and we have seen and welcomed the launch of the European Commission’s Action Plan on Building a Capital Markets Union.

Discussing London’s role in implementing the European CMU is a particularly interesting topic at present given the current debate on Brexit, which I shall touch upon in more detail later. Indeed it brings to the fore two points:

  • Not only does London participate to the forging of successful EU initiatives
  • But London also benefits from EU initiatives

The European Capital Markets Union is the perfect illustration of an initiative that London, and the UK in general, have helped shape and will benefit from, as well as all other EU countries naturally. Implementation of the European CMU will help the financial services sector recover and thrive again.

But how does the City of London Corporation, which I represent, fit into the CMU debate. The City Corporation supports and promotes UK-based financial and professional services firms, irrespective of ownership. Relevant to today’s conference we work with the industry to engage on the regulatory and policy agendas so as to promote London as Europe’s international financial centre.

We do this work in a number of ways: we were a founder member of TheCityUK, and we work with it, and the major trade associations, to represent the views of the industry to policy makers, regulators and central bankers.

Together with TheCityUK, we have established a number of bilateral dialogues with EU Member States, including France, Italy and Ireland. They all have CMU as a priority, although the threat of Brexit, the refugee issue and security are rather higher priorities at the European level generally at present.

We also have a programme of engagement with EU Member States. The City Corporation’s new Special Representative to the EU, former FCO Minister Jeremy Browne, is contributing energetically to the discussions to reinforce and expand UK commitment to open markets, free trade and flexible labour laws as he visits each of the Members States.

So why is London so keen on implementing the European Capital Market’s Union?


The industry provides jobs for 6.4 million people in Europe, and generates further output and employment in other sectors of the economy through its purchases.

There are definite economic benefits from a growing financial services sector. However, growth in the sector needs to be sustainable. The financial crisis highlighted the risks to the economy the sector can pose and policymakers have responded with a series of regulatory reforms.

We all know that the financial services sector now faces the challenge of adapting to a new regulatory environment at a time when growth is hampered by lower profitability, and the cost of addressing historical issues is high.

However there is a light at the end of the tunnel and I see three opportunities for the financial sector:

  • to embrace the technological and market opportunities for growth and avoid any inward looking approach
  • to work towards a sustainable financial sector which can help realise the goals of the EU’s Capital Markets Union initiative.
  • to take a strategic perspective to the customers it serves, the products it creates and the technology it uses to deliver services.

Commissioner Hill announced on 30 September 2015 his intention to assess the achievements and reassess the priorities of the Capital Markets Union project in 2017. We welcome this initiative as the current components set out by the Action Plan will not achieve a Capital Markets Union alone.

Indeed, we do support the action plan’s short-term components, such as the simple, transparent and standardised (STS) securitisation framework and the proposed adjustment of Solvency II calibrations, to name just a few. Yet these components will only be achieved, step-by-step, through:

  • the completion of each building block
  • and most importantly through the combined efforts of Member States and market participants.

The regulatory regime should support growth and not stifle it. PwC has found if the regulatory regime was more helpful for growth, this could create an additional €850 billion in EU economic output by 2030 and almost 11 million extra jobs across the EU economy.

The challenge for European policymakers in designing and implementing regulations in this sector is to balance the need for the FS sector to grow in a sustainable way against the need to reduce the cost and probability of future crises.

Policymakers should carefully consider the potential impacts of new regulatory initiatives such as bank structural reforms and the financial transaction tax, and how they would interact with existing rules and reforms, on the sector’s ability to continue supporting economic growth.

The proposals for financial transaction tax, in their current form, run counter to the stated ambitions of the Capital Markets Union project:

  • to diversify sources of funding for long-term finance;
  • to reduce the cost of capital for European companies;
  • to improve risk transfer and financial stability; and
  • to support the efficient functioning of capital markets in the EU

And the proposals for bank structural reform seem unnecessary given other regulatory initiatives at both national and EU level.

The good news on both these initiatives is that little or no progress is being made; long may this continue.


CMU underlines the need for stronger capital markets across Europe in order to help deliver jobs and growth. Its aim is to diversify the financial system with deep and developed capital markets and establish a single market in the EU to unlock the flows of cross border capital. CMU presents a significant opportunity for the UK in particular, given that more than half of all capital markets activity in the EU is through the UK.

Looking beyond the City of London and the UK though, CMU will help strengthen financial centres across the EU.

CMU is also an opportunity to share best practice across Member States. It is good news that the Commission has indicated that bottom-up, industry led approaches and sharing national best practices will be at the core of this initiative.

The CMU initiative proves the Commission is encouraging industry to get involved. The financial services sector has a crucial role to bridge the gap between corporates and investors, unlocking investment for companies, and ensuring that savers can invest for their future prosperity.

We believe a primary aim of the Capital Markets Union should be to improve the availability of capital market funding for medium-sized firms and to improve the range of market-based products for consumers.

With these opportunities in hand, we shall hopefully be in a position to address the short, medium and long term priorities necessary to the CMU’s success.


In the short term, we need to:

  • Revive the securitisation markets in Europe. Securitisation is critical to the success of non-bank alternative finance, mainly by freeing up the banks’ balance sheets
  • Develop a European private placement regime. Private placement markets, already well developed in France, Germany, and the USA, are attracting foreign companies in significant numbers.
  • Review the Prospectus Directive to facilitate quicker and cheaper access to the markets and to encourage a wider array of investors to participate in the IPO process.
  • Review the cumulative impact of the financial services regulation in the aftermath of the financial crisis, as per the Commission’s intention.

We would support the idea of ongoing assessment of the impact of the changes that have been made. Given the need for swift action to restore financial stability and public confidence in the financial system, a full impact assessment was not feasible in the first few years after the crisis. This has led to inconsistencies and contradictions across the numerous legislative acts that have been or are in the process of being implemented.

Where clear evidence is provided, the Commission should consider amending legislation to ensure that the right balance between stability and growth is achieved.



The UK remains in a commanding position as the leading Financial Technology or FinTech eco-system – and London itself is a collaborative hub where creative talent, financial services, and regulatory and policy expertise can be accessed face-to-face by businesses on the same day.

The growth in FinTech is staggering – the sector was valued at over £20 billion last year, generating £6.6 billion in revenue – with over 61,000 people employed by UK FinTech businesses. The UK is continuing to attract more investment in this sector than the rest of Europe combined, with £524 million invested in 2015.

The City of London Corporation is delighted to be working alongside Innovate Finance in helping accelerate the growth of the FinTech industry and usher in a new era of alternative products and services that both consumers and clients want to see.

However, we know from our many years working closely with financial and professional services that sustaining a thriving industry doesn’t just depend on a globally unique location or being in the best placed time-zone.

The recent benchmarking report by EY on behalf of the Treasury – and our own FinTech Network Action Group, run in partnership with Innovate Finance – have clearly identified that in order to sustain the growth of our FinTech economy, we must collectively focus on increasing access to finance, strengthening access to skills and nurturing the regulatory environment for Fintech.

On the latter more specifically, I must pause to commend the steps taken by our colleagues at the FCA’s Innovation Hub, and also in government, in supporting this environment for FinTech businesses, and pushing for the further innovative thinking in RegTech.


Regarding access to global markets we are concerned to see that the Commission’s Action Plan does not pay greater attention to third country issues. For international businesses operating within the EU, it is vital that CMU not only addresses barriers to a Single Market for capital within the EU but also recognises the international nature of capital markets.

If we are to deliver stronger economic growth and create jobs, the EU must remain open to inward and outward capital flows. We believe that the EU should play a leading role in international discussions to promote cross-border coordination of regulation and supervision.

However, this should start at home by a wholesale review of the existing third country access rules and equivalence regime.


Finally, we are pleased that the Commission’ Action Plan is looking at the longer-term objectives of CMU.

  • The lack of harmonisation of insolvency legislation across the EU remains a key barrier for investors. Indeed, in some Member States poor insolvency legislation inhibits the availability of finance even internally, and including bank finance. So progress here will have multiple benefits going beyond the reduction of barriers to cross-border investment.
  • Inadequate court procedures are also an important component of the overall insolvency regime. Improving insolvency legislation will in itself be of little benefit unless the administrative processes enabling its effective implementation are also fit for purpose.

A final word on CMU before moving to the related issue of Britain’s position in the EU. Much of this speech is similar to the speech I gave here one year ago. At one level this is good news – a consistent approach. But perhaps it is also a reflection that being a good thing in theory is no guarantee of progress. The eminently sensible securitisation initiative has run into opposition in the European Parliament, perhaps a salutary reminder that guilt by association is a natural political trait. And while the free flow of capital across borders is clearly good news for the European economy as a whole it may not be, or may not be seen to be, good for each member country, some being concerned at an outflow of capital which they need. And it may certainly not be welcomed by some banks, which may see a wider financial system as being a threat to their mainstream business. Such concerns need to be addressed.


In parallel to the CMU, we all know a referendum will be taking place in two months, and the debate is dominating the political airwaves if not public discussion in Britain .

The City of London Corporation has made its position clear - to support Britain remaining in the European Union. Our 125 members debated at length and decided that we could not afford to remain quiet on such a fundamental question.

As a central champion and advocate for UK-based financial services the City Corporation has heard the industry’s concerns about leaving the EU and is keen to voice them.

The facts are clear on London’s role in the EU financial sphere

  • The EU is the UK’s biggest market for exports of financial services generating a trade surplus of £19.9 billion.
  • A survey of 147 UK based financial services firms found 40% cited access to the EU as a core reason for choosing the UK over other centres.
  • In a poll of 98 fintech start-up business published by Innovate Finance, 81% voted to remain in the EU, a very similar result to the survey conducted by Tech London Advocates last year.
  • And completing the single market could be worth an additional 5% to EU GDP or as much as 8% in the long term – equivalent to between £500 billion and £800 billion. The UK could benefit by £110 billion or £4,100 per a household.

Not one financial trade association has expressed the view that Britain would be better off leaving the EU – the views varying from neutrality to support for remaining. The representatives of major City institutions such as Lloyds of London, the London Stock Exchange, Aviva, Goldman Sachs, HSBC, Barclays, Prudential, RSA, Standard Life and Santander have given the views of their institution, not their personal views, that Britain should remain a member.

JP Morgan’s position perfectly illustrates the importance of the UK being in the single market to be able to passport: a financial institution within the EU that is authorised and regulated in one country can operate throughout the whole of the EU without the need to set up separately authorised and regulated, and therefore staffed, businesses in other countries. JP Morgan has 20,000 staff in the European Union, 19,000 of these are in the United Kingdom, the majority in London, but substantial numbers in Bournemouth and Glasgow.

Some will not agree with us, and while we might be criticised for taking such a stance, we need to speak up and encourage others to follow suit. I take this opportunity to encourage you all to speak out.

This fight is too important for the financial industry to keep its head below the parapet.


To conclude, let me stress once again that we very much welcome the EU’s Action Plan to create a European Capital Markets Union. Working towards a CMU will enhance the stability and prosperity of Europe and the UK’s economy.

We also need to be realistic about what can be achieved. A Capital Markets Union can facilitate growth, but will have a limited effect, given the current extraordinary monetary conditions, without fixing the macroeconomic situation in many European countries.

Let us also see the outcome of 23 June which could certainly influence the regulatory environment lying ahead. In the meantime, the UK has a key role to play in building a CMU and must be a positive and active supporter with our European partners.