The European Union is working at full speed to promote a plan that will finally unite the community capital markets with the aim of encouraging citizens to be more involved in financing companies and in shaping the future of the region, especially now that time seems to be pressing. Missing the train is not a concern in Europe... as it has been missed many times before, although this time it could be the final opportunity. It is expected that next December the European Commission will finally announce a package of specific measures to propose to the European Parliament regarding what is known as the Savings and Investment Union (SIU). Verena Ross, the top authority in Europe for market regulation, is one of the key figures driving these measures that could lead to the creation of a specific securities account for each citizen, with tax incentives to promote investment and, over the years, a supplementary income to complement public pensions, which are expected to face challenging years due to the aging population and a decreasing number of workers. Ross, President of ESMA, the European Securities and Markets Authority, believes there is still time to catch that train and create a European market capable of competing with the American one.
QUESTION. What role is ESMA playing in this initiative?
ANSWER. One of the priorities of the European Commission for this legislative stage is the creation of a savings and investment union to ensure that we have markets and banks capable of supporting companies, citizens, and the growth of Europe, making it a more competitive region compared to other parts of the world. In recent months, specific proposals have been received that we hope will collectively give us a great boost to ensure that we can create a single capital market.
Q. How long will it take from the European Commission's approval of the new plan until it becomes a reality for all of us?
A. These things take time. Legislative proposals will be put on the table in the coming months and will be discussed at the European level; then they need to be agreed upon in the European Parliament and by the Council of Member States, which will take at least another year, and then time is needed to put it into practice, so we could be talking about close to two more years. But the reality is that some things are already being implemented to help us in the search for a capital market. The Spanish government, for example, is looking into creating a label for a European-level product that aims to support community companies. They are also exploring how to implement savings and investment accounts for each citizen to allow them to invest in the market efficiently, with tax advantages, to ensure that people, basically, react and start thinking about what to do with their money. At the moment, there is a lot of money deposited in bank accounts, with very small or no interest, and the idea is to encourage people to consider investing in the real economy through financial products, stocks, investment funds... ensuring that they receive better returns on their savings. So they can save for their retirement or for any other project.
Q. This European initiative that Spain would be leading proposes investing a minimum of 70% in European companies...
A. It is an initiative. What the European Commission is promoting is an account, not a specific product. In reality, it is an account that allows buying and selling products and has tax benefits. Something similar to what exists in Sweden.
Q. Does the ISK account refer to this?
A. Exactly, and this proposal runs parallel to the Spanish initiative. They are complementary measures.
Q. What specific proposals are being directed from ESMA to the European Commission?
A. We need to motivate European investors to be more engaged with the market. Above all, from ESMA, we are considering how to make the investor's journey simpler. How to ensure that the information they receive is easy to understand, simpler, more comparable. We also want to ensure that when you go to a bank office, you do not receive hundreds of papers with complicated language [about financial products], but rather documents that are easy to understand and compare in terms of costs, etc., with other products. Asking yourself: Is this the risk I want to take? On the other hand, we want to have less fragmented markets that work together. There are many barriers, and money does not flow easily. We need to increase interoperability between different markets.
Q. Does this also include stock exchanges?
A. Yes, stock exchanges or investment funds.
Q. Will investment funds created specifically in Luxembourg for marketing in Europe come to an end?
A. Luxembourg allows for a passport to market that product in other European countries. The idea is to break down the barriers between markets and develop a European-level playing field.
Q. Are they looking to create larger investment funds?
A. The idea is for an investment fund not to be purely focused on Spanish investors, for example. To develop larger funds that can invest in European companies and provide them with the necessary funding.
Q. But different funds can already be marketed at the European level in open displays...
A. Yes, this passport already exists. But when compared to the size of U.S. funds, European funds are much smaller.
Q. Do you really believe it is possible to create larger funds than the Americans?
A. One must always be cautious when making comparisons. In Europe, we are a federation of countries, with different languages, cultures... we need to build a savings and investment union that works for us. But, to do this, we also need to ensure liquidity, interoperability, and remove national barriers that make it more difficult for money to flow from one part of Europe to another. We need to break down those barriers. And this is what the union is about; finding the formula at the level of regulation, supervision, legislation, and various aspects to create a more efficient European market.
Q. How can this be done if we don't have a magic wand?
A. No, we don't. In recent months in Europe, we have shown the need to ensure that we create a capital market that has the capacity to grow, offer returns, provide financing to companies. I believe this is led by more positive responses to trying to do something collectively, to move forward and do it urgently because we know that in Europe we have a strong need for financing in defense, digitalization, infrastructure, sustainable transition... we need a lot of financing from the capital market. Banks alone cannot do it. We need to ensure that we create that ecosystem, where banks are a part and that it is led by the capital market.
Q. Don't get me wrong, but aren't we already late?
A. It would always be better if you had done it yesterday, clearly, but that cannot be an excuse not to start now urgently, ambitiously, to really put things in their place. Yes, it will take time, but if we don't start now and leave it, it will be even worse. It is evident that we need to take clear steps. There are things that have already happened or are happening now, such as the creation of a common repository of listed companies at the European level. Its implementation takes time, but we are in the process of getting it started.
Q. Undoubtedly, this will help investors
A. It will help, exactly. It will bring visibility to smaller companies at the European level. It will make them more interesting.
Q. Will large pension funds be created? Because the demographic challenge in Europe is enormous...
A. Part of this savings and investment union is looking at how we can, collectively, do something at the national level and how we can develop pension systems that supplement public pensions, through private funds, because we need to ensure adequate retirement for the population. Many member states are thinking about what they need to do in this field.
Q. A supplementary income to the public pension will be practically mandatory in the future, in ten or twenty years...
A. Many states are thinking about how to do it. It is evident that the public pension will have a hard time financing everyone's retirement as the population ages.
Q. There is a problem, if you want to call it that, in the EU of sovereignty because, for now, states have the power to decide individually, among other things, on taxes. Here we have a government that has clearly hindered collective investment with different measures, such as limiting contributions to private pension plans. How is this issue resolved?
A. Cooperation between the European and national levels is essential because we need to find a way to incentivize investment in capital markets, instruments, and products. Many countries have realized that they need to make that change and modify incentives so that citizens consider other possibilities beyond leaving their money in the bank or buying a house as an investment idea.
Q. Europe is a pioneer in cryptocurrency regulation, a competence that is almost exclusive to ESMA. Will they become a problem for younger generations in the future?
A. We are in the process of providing the crypto world with a regulatory framework with investor protection. But it is important to remember that this does not eliminate the risks associated with crypto assets. We continue to warn that crypto assets are very volatile, there are many scams and frauds in this space, and even with this regulatory framework, it does not mean they have the same protections as traditional financial products. It is very important that people understand this. In any case, there are people who want to speculate in the crypto world. If they want to invest five euros in it, okay, but they have to do it with open eyes and knowing that they can lose their money. On the provider side, we want to ensure that crypto asset firms offering custody or trading services are authorized in Europe, that they meet minimum standards.
Q. It is true that many companies already have those MiCA licenses and even MiFID if they offer futures for investment, but I can still buy bitcoins on other unregulated platforms. Will this end?
A. That is part of the transition period we are in, and it will end for everyone next summer. By then, if you want to offer this type of products to European investors, you need to be authorized. If not, you will be conducting unauthorized business, which is a crime, and you will be punished for it.
Q. How many crypto firms are already authorized to operate in Europe?
A. At the moment, there are 82 authorized entities. If we look at the big names globally, we have authorized around 15 entities, and then there are smaller companies and national players.
Q. Do you think investment in crypto will become mainstream?
A. It's difficult to predict how it will evolve over the years, but what we are seeing is that it is increasingly linked to traditional financial services. More and more funds, for example, are looking to allocate a small portion to invest in crypto. There are stablecoins being developed that will need to invest in sovereign bonds or other assets to secure the business. More banks are starting to offer cryptocurrencies, the number is still small, but it is clearly growing. We are closely monitoring the potential consequences in terms of investor protection, as well as financial and market stability. It's hard to predict, but I believe it's clearly something that is growing at the moment.
Q. In Spain, there is the paradox that I can buy a bitcoin directly from a bank, but I cannot invest in a fund that invests in cryptocurrencies because it is not allowed for small investors. Will this be possible soon?
A. This is currently being discussed. Now that we have the MiCA regulatory framework [Markets in Crypto-Assets], these assets should be allowed, at least, to be part of funds. Probably no one wants a fund that only invests in cryptocurrencies, but the possibility of it being part of the investment.
Q. Banks are now directly offering the buying/selling of cryptocurrencies. Are you concerned that they will become a massive investment asset among the population?
A. Some traditional players, such as banks, have indeed started offering them because customers are demanding it. It is something that will probably become more common, it will happen more and more, but we need to see how it unfolds. These are times of change.