Innovation and Regulation: What Inspiration for Europe … · Innovation and Regulation: What Inspiration for Europe and China? ... LIFE INSURANCE, ... HOW TO LEVERAGE INNOVATION

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….