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Innovation and Regulation:
What Inspiration for Europe and China?
Illustrative Cases:
Securities Law and Accounting Framework
INTRODUCTION
• GLOBALISATION IS A REALITY, IT IS A SOURCE OF
GROWTH FOR THE WORLD
• THE CRISIS IS NOT JUST THE RESULT OF AN ECONOMICAL
CYCLE, IT TRIGGERS:
- A NEW GOVERNANCE MODEL FOR THE WORLD
- A NEW FINANCING MODEL vs REAL ECONOMY
TO FACE THIS REALITY OUR INDUSTRY NEED:
INNOVATION
« SMART » REGULATION
3
I- GOVERNANCE ISSUES /: A MULIPOLAR DIVERSIFIED WORLD
G20 Pinciples
3
US
CROSS BORDER CROSS BORDER EU
CHINE
AUTRES…
…27
1
COMPATIBILITY HARMONISATION
2 ITS BACKBONE:
- GOUVERNANCE
- SINGLE RULEBOOK
- REGULATION COMMUNE
AUTORITES (ERA) + ECB
- RESEAU DES CENTRES
FINANCIERS
- INFRACTRUCURES DU MARCHE
COMMUN
. PAIEMENTS
. CSD
. CCP
. ECHANGES
Critical mass +
competitiveness
4
A TOP DOWN COHERENT GOVERNANCE FROM G20 to INSTITUTION
G 20
FSB
FMI BANQUE MONDIALE IOSCO
CE
ESB
BCE
ESMA EBA EIOPA
TRESOR
BDF ACP AMF
CONSEIL D’ADMINISTRATION
COMITÉ DES RISQUES
DIRECTION DES RISQUES
DIRECTION OPÉRATIONNELLE
PRINCIPLES WORLD
CONTROL TOWER « TOOLS »
REGION ASEAN / EUROPEAN Framework EU « Banking Union » REGULATORS
NATION LEGAL / TAX Framework Local supervision
INSTITUTION Risk culture / manegement
A Robust risk chain from top to bottom -Risk appetite -Risk coverage -Risk monitoring
THE RISK CHALLENGE vs INNOVATION
• COMPLEXITY IS A GIVEN IN MODERN SOCIETIES : IT WILL
INCREASE THROUGH TECHNOLOGY AND GLOBALISATION
• FINANCIAL INDUSTRY’S MISSION HELP THE REAL ECONOMY
TO HEDGE RISK
• YESTERDAY’S PARADIGM: COMPLEXITY COMPLEX
FINANCE PRODUCTS
EXPLOSION & VICIOUS INTERMEDIATION
• POST-CRISIS PARADIGM: COMPLEXITY
SIMPLICITY (+TRANSPARENCY)
VIRTUOUS INTERMEDIATION more research & innovation
5 March 30, 2012
THE RISK MACRO HEDGING CURVE
THE RISK HEDGING TUNNEL • MACRO PRUDENTIAL SURVEILLANCE
• BANKING STRUCTURES + RESOLUTION PLAN
• MARKET STRUCTURES REGULATED OTC BASED ON LEVEL
OF LIQUIDITY
• ACCOUNTING RULES
SOCIETAL COMPLEXI
TY =
RISK
HOW TO FOLLOW THE CURVE ?
HOW TO MAKE THE NEXT CRISIS LESS PAINFUL OR SYSTEMIC
INNOVATION or NEXT CRISIS ?
6 March 30, 2012
II- A NEW FINANCING MODEL FOR THE REAL
ECONOMY
• THE B20 RECOMMANDATIONS : priority to growth via SMSs &
INFRASTRUCTURES
• WHY TO RECONSIDER POST CRISIS PRIORITIES ?
• AS FOR OTHER INDUSTRIES, WHY INNOVATION IS KEY?
- structural innovation conditions for a robust competitivity
- Strategical innovation what format for the financial industry, robust
and safe ? How to optimize capital allocation , prudential vs
production? Why universal banking model ?
- Entrepreneurial innovation : clusters & innovative SMEs
8
VIRTUOUS BALANCE & CHALLENGE (« 9 » 3+3+3) !
Growth
Stability Solidarity Entreprises
Régulator Country 1
« Régulated »
Trust
Savings/ investors
Financial intermediaries
Corporate / SMEs
3
3
3
Régulator Country n
Smart reg
Mutual recognition
9
FINANCING THE ECONOMY
I/ Investors: deep
liquidity
II/ Corporate: value
creation
III/ Credit Intermédiation
& market risk
« Transformation «
REGULATION
INFRASTRUCTURES
Domestic Savings Global savings - Assets
- Pensions
- Deposit
State/
municipalities
locales
Productive assets Prudential assets
Alternative
finance
Regulated
Transformation
SUPERVISION
A STOCK EXCHANGE AT THE CENTER
Corporate
needs
Stock Exchange
Investors needs
Brokers MI CUSTODIANS
Political Authorities
Regulators • BLUE CHIPS vs SMEs • PRIMARY vs SECONDARY • CAPITAL FLOW vs LIQUIDITY • EQUITY vs BONDS
• DOMESTIC vs FOREIGN • INDIVIDUALS vs INSTITUTIONS • LT FUNDS vs MUTUAL FUNDS
• DVP • CSD
• RULES • MARKET PRACTICES • SUPERVISION • TECHNOLOGY
10
11
MARKET INFRASTRUTURES as MATERIALISATION OF LEGAL
& REGULATORY FRAMEWORK
STOCK EXCHANGE
CLEARING
Settlement
SYSTÈMES DE PAIEMENTS
CLEARING
RTGS / TARGET 2
- CARDS - Transfers..SEPA - CHECKS…
Low value Paymts
High value paymts
o Organized mkt vs
o MTF OTC
- SILO? - GOVERNANCE?
DVP Central
Bank CSD
Trust =
Securities law, transparent ownership from direct investor to issuer
STRUCTURAL CONDITIONS : KEY QUESTIONS
• MARKET STRUCTURE • IS FRAGMENTATION AN ISSUE ? FOR France, YES
• REINFORCEMENT OF STOCK EXCHANGES
• PROPER BALANCE vs MTF & OTF….
- TRANSPARENCY • PROPER BALANCE vs LIQUIDITY
• BUT PROGRESS ARE NEEDED IN POST TRADE EVEN FOR BONDS
• INNOVATION in BOND TRADING : A BALLANCED ORDER BOOK for LOW LIQUID INSTRUMENTS the CASSIOPEA project
- LIQUIDITY / COLLATERAL CHALLENGE
- THE UNIVERSAL BANKING MODEL: WHY IT IS STILL GOOD FOR EUROPE. • THE CRITICAL MASS & COMPETITIVE ISSUE
• THE CUSTOMER SERVICE ISSUE
• THE PRODUCT ISSUE STONGER LINKS BETWEEN CREDIT & MARKET WORLD, A COMPLEMENTARY CHAIN OF SERVICES
- IMPROVEMENT OF THE RISK MANAGEMENT CHAINE IS MORE EFFICIENT THAN JUST CAPITAL BUFFERS
WHY ACCOUNTING RULES ARE STRUCTURAL ?
• ACCOUNTING IS ABOUT VALUES = MEASURE OF
ECONOMICAL SUCCESS
• IT IS A « TOOL » FOR MULTIPLE PURPOSES
- CORPORATE MANAGEMENT
- LONG or SHORT TERM INVESTORS
- TRADERS
- REGULATORS ( PRUDENTIAL)
• DEEPLY LINK INTO LOCAL PRACTICE & CULTURE
• BUT GLOBALISATION IMPLIES SOME CONVERGENCE
• TO FIND A COMPROMISE
• IASB CONCEPTUAL CONSULTATION vs EU ACCOUNTING
GOVERNANCE / the « EFRAG » ISSUE
FINALLY TOWARDS A LONG TERM INVESTMENT
STRATEGY
• TO REBALANCE SHORT vs LONG TERM HORIZONS
• A L T INVESTMENT STRATEGY RAPS UP COMPETITIVE CONDITIONS FOR THE REAL ECO
• A NECESSARY DEFINITION • INSTRUMENTS : EQUITIES, BONDS….
• ENVELOPES: PENSION FUNDS, LIFE INSURANCE, EMPLOYEES SCHEMES, MUTUAL FUNDS…
- IT IMPLIES ALSO SHORT TERM COMPONENT TO GUARANTEE A FAIR EXIST PRICE AT THE END, AN EFFICIENT MARKET PLACE IS A TRUST COMPONENT & CONDITION….
In EUROPE A GREEN BOOK TO FIX ORIENTATION FOR THE NEXT LEGISLATURE 2014- 2019….
HOW TO LEVERAGE INNOVATION & REGULTION
BETWEEN CHINA & FRANCE ?
• The next EU priority is GROWTH,
• THE 18eme CC of PCC triggered new structural orientations
• INNOVATION, PRAGMATISM & CROSS FERTILISATION
WILL HELP TO DELIVER
• THE SHANGHAI FREE TRADE ZONE WILL BE A PROPER
LABORATORY TO TEST NEW PRACTICES ON FINANCIAL
MODELs
• THE RMB CONVERTIBILITY IS A MID TERM OBJECTIVE,
TECHNICAL STEPS ARE NECESSARY, PARIS AS AN OFF
SHORT CENTER WILL BE PART OF THIS PROCESS
• DUAL CROSS BORDER LISTINGS + FUND MANAGEMENT
MUTUAL RECOGNITION + QFII /QDII CONVERGENCE….