After the 2008 financial crises, plans emerged to make financial markets more resilient. Unfortunately, lobbying - by the financial sector in particular - caused these plans partly to stall. Several regulations have been implemented, but to a large extent on the terms of the financial sector itself. Now, in the wake of the so-called Letta Report “Much more than a market”, the completion of the Capital Market Union is among the EU´s political priorities. Moreover, after the EU elections, the EU-Parliament and the EU-Commission will be reconstituted, and a new legislative period will start. Against that background, it is time to discuss the function and tasks of financial markets.

Finance Watch presented a list of “Key Reforms to Reset the Financial System in 2024 – 2029” which can serve as a basis for further debate. Using the slogan #ResetFinance, candidates for the EU-Parliament and the next EU-Commissioners are called to pledge their support for this agenda. Policy makers should aim to give the financial system a clear purpose, safety and resilience so that it serves people and the planet. AK EUROPA supports that call. Below, some examples of the comprehensive list of policy recommendations are briefly outlined.

1. Reset regulations preventing failing institutions and future crises
Financial institutions should be capitalised to a level that allows them to operate without recourse to public funds. Systemically important and significant banks should be resolvable and should be placed into resolution when needed. The EU must implement international frameworks on capital requirements into its banking regulation. Financial institutions should also be resilient to environmental risks to financial stability. Higher capital requirements for fossil fuel-related exposures should be introduced. Investment banking and commercial banking must be separated. European Supervisory Authorities should be provided with a sufficient scope of tools, powers and resources. Employee participation models should be promoted to improve governance and ensure a fairer distribution of corporate profits.

2. Reset the role of finance, ending extractive practises and enabling sustainability
Environmental, social and governance (ESG) or other sustainability claims of financial institutions should be verified by supervisors. Business models based solely on short-term gains and profit extraction need to be curbed, while economic activities that are in line with the EU's environmental and social objectives should be promoted. This includes mandatory transition plans for financial and non-financial companies. A harmful taxonomy defining which business activities are harmful to the environment, as well as a classification system considering the social dimension, a Social Taxonomy, should be developed.  For additional responsibility, sustainable corporate governance is required, which includes connecting this to the liability and remuneration of directors. The ECB should adopt green credit guidance, including reduced interest rates on its lending operations to banks that issue green loans. Consumers should be able to easily detect sustainable finance products. On the fiscal side a financial transaction tax can limit short-term speculation. Additionally, putting a stop to tax evasion and tax havens is overdue.

3. Reset practises that exclude or harm consumers in financial markets
Affordable basic financial services, that are needed for full participation in society, including cash, must be ensured. Discrimination based on any ground such as someone's financial situation, digital savviness, ethnicity, or age must be eliminated. This refers, for example, to automated decision-making tools. Customers should receive unbiased high-quality financial advice including simple information to understand costs and risks. Mis-selling of financial products should be prevented by regulation. In case of over-indebtedness, consumers should have access to effective debt relief mechanisms.

4. Reset rules in the digital world, protecting privacy, financial stability, and consumer interests
Crypto asset service providers should be regulated by taking into account the specific risk profile of crypto assets. Services related to crypto assets equivalent to “traditional” financial instruments should be brought under existing securities regulation. New financial services should be regulated before entering the market, while AI assisted systems should be regularly supervised and reviewed by national competent authorities. The protection of consumer data and privacy must be ensured.

5. Reset rules on public finance and unlock investment in our future
EU fiscal rules should not rely on arbitrary indicators but on a meaningful analyses of debt sustainability. Member states should be able to make sufficient qualitative investments and reforms to make the European economy stronger, more sustainable, more democratic and more inclusive. Therefore, a new investment fund should be established, and future-orientated investments aligned with EU priorities should be excluded from deficit and expenditure limits. Minimum standards for the quality of public finance should support the objectives enshrined in the European Pillar of Social Rights and the European Green Deal. Public budgets should include green and gender budgeting as well as an impact assessment on social cohesion. Additionally, the ECB should incentive green public investment, including a permanent green public bond purchasing facility, available to governments, municipalities, the EU Commission, and supranational bodies like the EIB. Social partners, the EU Parliament and national parliaments should be adequately involved in the economic governance framework.

6. Reset the role of lobbying in lawmaking
In the course of financial market supervision and regulation, public interest should be properly represented. This entails better regulation of corporate lobbying to make sure EU legislators put society and the environment before short-term profits. Also, civil society should be adequately involved in the EU consultative and stakeholder groups.

Further Information:
Finance Watch: A financial reform agenda for the EU elections
Finance Watch: Report, Finance in a hot house world
AK EUROPA: EU's new economic governance turns out disappointing
AKEUROPA: Study: Sustainable Financial Products