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ECON European Parliament
Ihren Sitzungen folgenCarlo Comporti
Having chaired ESMA's Digital Finance Standing Committee, I'm ready from day one to accompany technological changes, making ESMA a center of expertise for technological development, strengthening its data and analytical capabilities to deliver common risk-based supervision. ESMA must also remain vigilant on non-bank financial intermediation and keep sustainable finance workable. And in this new geopolitical context, ESMA must invest in its external relations within IOSCO and the Financial Stability Board, and bilaterally with the key partners that are relevant for global capital markets, so that Europe's voice is influential and coherent as global standards take shape. Dear members, ESMA is accountable to this Parliament, and I regard that accountability as a source of strength. You will find me a chair who appears before the ECON Committee regularly and candidly, who listens to all, and who never forgets that behind every regulation stand European savers, investors, and pensioners, whose trust we must earn every day.
I commit to offer all my experience and energy with cooperative spirit in all relevant matters and fora. It is with excitement that I stand before you, aware of the importance, responsibility, and challenges of serving as chair of ESMA. If appointed, I will devote all my knowledge, experience, and energy to a strong, open, diverse, transparent, and inclusive ESMA and to the growth of financial markets throughout the European Union.
Aurore Lalucq
Thank you so much. Q&A session, I will give the floor to Regina Doherty for EPP.
Regina Doherty
Thank you, Chair. Mr. Campa, congratulations first of all on your nomination. I would like to raise the market integration and supervision package with you, specifically the proposal to transfer direct supervision of significant cross-border infrastructures and crypto-asset service providers from our national competent authorities to ESMA. At a member state level, current supervisors have spent the last two years building up real supervisory expertise and capacity under MiCA and developing genuine specialisms as a result. And the trade-off with centralizing direct supervision at ESMA is the loss of proximity and accountability for a single layer that's more remote from the firms it's supervising and further from the people whose savings and investments are actually at stake.
So do you believe that ESMA has all the tools needed to deliver on its mandate? And how can ESMA make best use of the expertise and experience that currently exists in all of our member states? And on a separate note, when we all know the important role that digital assets will play in the future, where do you see the benefits of digital assets for European financial markets and how should ESMA effectively assure that these assets are both available and supervised? Thank you.
Carlo Comporti
Thank you very much, Mrs. Doherty, also for the kind words that you expressed on my recent activity. I mentioned the fact that I've been chairing the Digital Finance Standing Committee as a point of, let's say, to some extent, pride for what I've been doing within ESMA, but also setting a sort of benchmark on what I see as a potential development of ESMA into supervisory convergence. So let me start by addressing your question with what I consider as an absolute must. Supervisory convergence has been currently lagging behind and, let's say, the objective of the single market by single, let's say, the single rulebook proved not to be sufficient. So we need to address the fact that supervisory, let's say, convergence has not been achieved until now.
And there are different ways. You can, let's say, reinforce the way in which NCAs cooperate and achieve a common understanding on how to implement rules, and that is what we have been doing. Or you can attribute to ESMA, let's say, direct supervisory responsibility. These two go, I would say, hand in hand. They are not necessarily mutually exclusive because even when ESMA will be entrusted with direct supervisory responsibility, if this remains within the significant ones, there are the non-significant that will still remain under the responsibility of national authorities that still need to be, let's say, convergent in their national approaches.
So that is a fundamental point. Regarding where to put the bar, I would always take the principle of subsidiarity, that is a common principle of the functioning of the European Union, as an inspiring guidance or criteria, let's say, to make the allocation. But honestly, this is the role of co-legislators and I will fully respect whatever co-legislators will end up in deciding on how to, let's say, transfer responsibility to ESMA or not.
If this is the case and where certain, let's say, activities, you mentioned trading venues, CASPs, would be transferred, I will ensure that ESMA would be fit for the purpose, of course, with some sort of time and I will be able to elaborate on what the plans are. But clearly, we need leadership, we need transformation, we need a clear roadmap with prioritization. And we need also skill set assessment because the current skills within ESMA are not necessarily the ones that would be needed. And here the point of transferring knowledge from NCAs, because NCAs are currently the ones that are in charge and we should not duplicate, we should rather see these complementing each other. On digital assets, that is a much broader topic.
I see this as a clearly transformation, profound transformation of how financial markets function and I will devote, now I have to stop, I know. I hope there will be other, let's say, questions on this because I have a clear vision on how this should be designed and accompanied, designed and accompanied, sorry. Thanks.
Irene Tinagli
No, that's okay. Thank you so much, Irene Tinagli, for this and the... Okay, I take up your call on more questions on digitalization, okay. So, my question is on tokenization because it's increasingly seen by international institutions and financial market participants as potentially transformative for the financial system. The ECB itself has presented it as an opportunity to overcome fragmentation in the European capital markets, build a more integrated financial ecosystem, but these benefits are not automatic.
So even the ECB itself has warned that without interoperability, tokenization could actually have negative effects on, you know, creating new technological gatekeepers, fragment liquidity. So I would like to hear your view on this, if you think it's just a technical issue, if it involves also, you know, competition, market structure issues, and does the existing framework of ESMA, you know, give ESMA the powers to manage and accompany this process and to prevent closed ecosystems and ensure effective cross-border access to tokenized trading and settlement infrastructures? Thanks.
Carlo Comporti
Thank you, Mrs. Tinagli, I'm happy because it's exactly the kind of opportunity I was seeking to further elaborate on this. Let me start from what I consider to be, let's say, a firm belief. The transformation on tokenization is something that has the potential to change the functioning of financial market, at least the current mechanism of functioning of financial markets. And I think it should be coupled also with the strategic objective of achieving the savings and investment union. I will tell you in a minute why.
This is creating a new digital finance ecosystem. There are tangible benefits that have been demonstrated also to your question, what are the benefits, there are tangible benefits that have been demonstrated through experimentation. And there are countries that are more advanced than Europe all together. There is an atomic settlement, there is a potential reduction of risk, there is the programmability of smart contracts that help in itself by design, let's say, alleviating some of the pains of the current operations. But we need to, if we want to exploit these, let's say, potentials, we need to move fast.
Because Europe has been lagging behind compared to Asia and compared to the latest developments across the Americas and particularly the US given the recent, let's say, administration policy.
Now, what are the axes in order to address and potentially exploit the benefits? The first you mentioned is the regulatory. Currently, we started globally with a very clear framework, the DLT pilot regime. It proved probably to be too tight, too constraining, and it did not allow the market to scale. So I think that the proposals coming to get better, let's say, flexibility in size, in terms of scope of assets, in terms of timing, would clearly give the possibility for the market to invest and have a sort of long-term vision.
Second is the payment. The payment leg so far has been missing, let's say, in terms of availability. Some, perhaps more private nature, are coming available because of MiCA, but the ECB is projecting, let's say, a clear, let's say, strategy with the two projects, Pontes and Appia, with the target operating model. And the fact that they started already receiving as collateral digital assets means something in terms of market operations. But I would add another one that is not yet on the table, that is the legal clarity across Europe.
In order to exploit the full market, we need probably a 28 regime. We need to study a 28 regime for having a sort of European-wide system of legal system of transfer of entitlements. And last point, but of course there are more, the vision about the infrastructures. The market ecosystem will work on ledgers. These ledgers, in the recent even speeches by key ECB representatives, could be presented as one single ledger, but with pros and cons also in terms of innovation and competition.
But on the other side, more ledgers, and then the question of interoperability runs also in terms of what are the, let's say, standards for safety and establishing the bridges. I have to stop here, but I think that the ecosystem need to address by public and private initiative.
Enikő Győri
Benvenuto, signor Comporti, piacere di salutarla qua. I have two questions. The first one, and I will take you back to where we started from with my Irish colleague's question concerning centralization versus subsidiarity, because my group is especially worried about over-centralization of financial markets supervision, but I will not repeat what has already been said. And let me be a bit more specific on this question. Having a more centralized approach, how do you think it could be taken into account the interest and specific needs of all Member States, including those with smaller and less developed capital markets?
Because my fear is that having more centralization, specific interest, specificities of those can be easily ignored. So what you can do as chair of ESMA to go against that? And my second question would be more on simplification. Despite years of policy initiatives under the CMU, European SMEs and startups remain heavily dependent on bank financing, and public markets continue to attract relatively few growth companies.
If appointed as a chair of ESMA, which existing regulatory requirements you would be prepared to simplify or reconsider to improve market access for SMEs and startups, and would you be willing to accept even a higher level of risk for investors? Thank you so much.
Carlo Comporti
Thank you so much, Mrs. Jory. I think that these two questions are very relevant in the understanding of future interactions between, let's say, the European-wide and the national. Let me start from your, this very much important point. I truly believe that across Europe we should not forget that a local ecosystem should remain the entry point, should represent the, let's say, the first layer of proximity with, particularly with SMEs. You mentioned the SMEs in the second question.
Our financial economic structure is largely based on SMEs and I think that proximity matters with them. I will come back to the point on proportionality and how to assist their funding needs. But vibrant local ecosystem in my view is an important asset across Europe. That doesn't mean that these local ecosystem should remain constrained within the national barriers. That is the problem and we need to address their capacity to link up, to connect, to be interoperable, to, let's say, to create larger liquidity pools because that is the problem.
And the connection may create the conditions for growth, may create the all what MISP in the end is trying to address. So I will not repeat what I mentioned in terms of where to put the bar between local and, let's say, but the two are completely coexisting and should continue to coexist. That doesn't mean that there should be a massive transfer of competence from local authorities into the central level. I think that that is matter of organizing a cost-efficient mechanism of cooperation that would need to be based on clear principles. And here I would really advocate for co-legislators to put in level one clear principles of roles and responsibility, legal grounds on which these cooperation arrangements will be, will need to be built.
But these cooperation arrangements will then need to be built on the base of flexibility because not every single sector, let's say, caters the same mechanism of cooperation. Not every single sector, let's say, is exactly the same as a point of time. So over time the flexibility should be adjusted. To your point on SMEs, I mentioned already how important they are. And I also, by the way, I come from a country where, let's say, the sector, the economic sector is largely, let's say, based on SMEs and at national level we have been doing all what even recently with legislative changes what is needed to strengthen the, the alternative means of access to funding.
They need to fund for their growth and scale is what we need across the single market. The Listing Act is a good example. We need more. So simplification and burden reduction that I put in one of my clear priorities is something that would definitely help from that perspective, but with concrete measures.
That is what we need to look and last point I want just to echo the fact that venture capital is an additional extra source that I hope that proposal from the Commission will come soon to review the current framework.
Giovanni Crosetto
Thank you, Chair, and thank you very much, Mr. Comporti, for your contribution. I will go on in Italian. Come lei sa molto bene è in corso una profonda fase di revisione delle infrastrutture e dei meccanismi di supervisione di mercato. E uno dei protagonisti sarà proprio ESMA. Come spesso vediamo accadere in questa commissione, ma non solo in questa, stanno emergendo due chiare visioni di come interpretare questa transizione.
Da una parte c'è chi vorrebbe una rapida e sostanziale centralizzazione delle funzioni di vigilanza in capo ad ESMA, penso ad esempio alla governance ed al perimetro di competenza dell'autorità. E dall'altra c'è chi invece ritiene, come ad esempio il gruppo che io qui rappresento, che non basti una revisione legislativa per poter trasferire competenze, cultura e operatività dalle autorità nazionali competenti a quelle europea, ma serva un approccio più graduale. Volevo chiederle, sulla base della sua esperienza maturata in una delle più importanti autorità nazionali competenti, ma anche della sua importante partecipazione a quella che è stata la precedente fase di transizione che ha visto il passaggio da comitato, il CESR, ad autorità, l'ESMA che tutti oggi noi conosciamo, come si può oggi interpretare questa importante revisione legislativa trovando il giusto equilibrio tra opportunità e potenziali rischi? Grazie ancora.
Carlo Comporti
Thank you so much, Mr. Crosetto. That help me probably to complete a little bit the vision that I started addressing with other questions and I will not repeat what I've been mentioning in terms of exactly the line to be drawn between national and European responsibilities at least in terms of supervision or direct supervision. And I will not repeat what I already mentioned in terms of supervisory convergence that in my view remains paramount in the new in the new context. But probably I take your question as an opportunity to elaborate on how I see the next steps, okay? Because I give it for granted that of course it's in your hands, but that some activities then is reducing or enlarging the scope and in terms of significant, in terms of let's say areas of business will be transferred as direct supervision.
Is not the first time that it happens, but it is true that for the previous let's say activities to be supervised directly by ESMA, these were newly direct supervised entities. So so far there's not been a transfer of competencies from NCAs and national authorities into ESMA.
So some very concrete and practical, let's say, arrangements in order to respond to your questions, also based on my experience. I already mentioned that the current competence and knowledge should not be dispersed. So in a way, there should be a way gradually, I don't think that is something that happens overnight. And I mentioned already the need to have a sort of roadmap. We cannot even from the ESMA side onboard all these new activities in just one go.
Probably we need to prioritize a roadmap. I mentioned we need to run assessment about how many new, let's say, staff, what kind of new staff, how to fund it. So we need to prepare for it. But probably I see this gradually to transfer, let's say, areas by areas. And probably I give it what it could happen that for instance CCPs, if transferred, would be the ones where let's say ESMA has already sufficient knowledge.
Then you may target CASP where for reasons that I mentioned previously, there is already other knowledge. And then you may transfer, let's say, trading venues. But I'm not advocating now, not committing, but just to give you a sense of what I aim at doing in terms of transition. But preparing, establishing a roadmap, clear communication between all stakeholders, including of course I would say here with this committee in terms of preparation what can be delivered or not. That is in my view paramount.
I mentioned funding because without resources it is, I would say, unwise to take additional responsibility. And the funding mechanism should be, let's say, corresponding to the new responsibility. And I mentioned arrangements for transferring knowledge. These, there are already mechanisms in place, particularly at the SSM. We can look at what has been working well at the SSM and take inspiration.
But I keep it for granted that the cooperation between ESMA and NCAs would remain paramount also for the future.
Gilles Boyer
Merci Madame la Présidente et merci Monsieur Comporti pour votre présence ici et pour vos réponses. Évidemment, vous êtes candidat à la tête de l'ESMA dans un moment tout à fait crucial de son histoire pour accompagner la mise en place de l'Union de l'épargne et de l'investissement que nous souhaitons sinon tous, du moins dans notre grande majorité. J'aurais une question sur un peu peut-être un peu plus générale. Nous sommes tous ici à la recherche du je crois du bon équilibre entre d'une part la protection des investisseurs, la stabilité de nos marchés financiers et d'autre part la nécessité de renforcer l'attractivité des marchés européens en particulier vis-à-vis des États-Unis et de l'Asie. Aujourd'hui une part trop importante de l'épargne des Européens quitte l'Europe pour aller s'investir sur des marchés qui sont aujourd'hui considérés comme plus attractifs.
Et je voulais savoir quelle était votre vision de cet équilibre pour préserver évidemment ce qui doit l'être, la protection des investisseurs, la stabilité des marchés, mais aussi la nécessité de lutter à armes égales contre des compétiteurs qui n'ont peut-être pas exactement les mêmes préoccupations. Et je voulais avoir votre regard sur cet équilibre. Merci.
Carlo Comporti
Thank you so much, Monsieur Boyer. You go back to the fundamentals of what we are, what we have been discussing and what is, let's say, in the broader SIU agenda, the strategy and the individual, let's say, legislative proposals that you are currently discussing. This equilibrium, clearly, I would say the current mechanism, the current situation is unsatisfactory.
So I don't have to elaborate. There are excellent reports that have been prepared, that have been convincing, I would say, all institutions and stakeholders. There is a strong commitment to ensure that the objectives that have been identified will be implemented also in a short time. I think that the fact that you combine the three elements, investor protection, stability and attractiveness, that is also a matter of competitiveness to add another keywords in this triangle, I would say that is most important is to ensure a coherence. What is different from my understanding compared to the past is that we have been working under action plans with isolated, let's say, actions that comprehensively did not give necessarily a coherent picture.
I would say that the coherence of these three elements would be paramount in order to achieve the objectives. Clearly, do I have to compromise investor protection if I strengthen the investment of, let's say, retail investors in the equity market? If I create a good conditions and a market, better market integration, better market deepening with better liquidity, with more participation from retail but also for institutional investors, by definition, I think that these markets will be more protecting investors but will be also more competitive and attractive by definition. So I think that there are elements that are reinforcing themselves, but we need to take all together. The fact that most of our savings, let's say, are directed, some of them, of course, either because of direct choice or because of mandates by portfolio managers that are seeking yield, they are channeled through the US.
I think that in the near future, the new market conditions will repatriate these savings and will be important for the growth of our economy, for the success overall of the single market and ultimately the investor protection. So I think that the key message I wanted to give you is that in isolation you can challenge or you can discuss, all together they are reinforcing themselves to achieve a strategy.
Pasquale Tridico
Thank you, Madam Chair. First of all, congratulation to Mr. Comporti for the nomination. I would like to insist on digitalization because I think this is the real challenge for the future supervision of the authority. Because actually this increasingly transforming the European financial system so far, creating new opportunity, but also new challenge for regulators, from artificial intelligence and digital asset to new form of financial services. These developments can rise significant risk for investor, market integrity and financial stability as well.
As incoming chair of ESMA, what would you see as the main risk and opportunity arising from digital finance and what would you be, what would be your priority to ensure that innovation does not come at the expense of investor protection and resilient financial market?
Thank you very much.
Carlo Comporti
Thanks to you, Mr. Tridico, because you allow me to elaborate also we have been discussing about the current implementation of certain, let's say, pieces of legislation on on the digital finance, the opportunities and some sort of risk, but how to accompany the financial innovation. You go back to the same question but with another perspective, that is the risk, broadly speaking, that these innovations bring in order in our mandate as supervisor, but also to the broader community of users and particularly the investors, as you mentioned. So I I start with one clear assessment, that is the speed and the uncertainty of the technological developments make us necessarily not fully aware of the the developments themselves and the combined impacts. So first point I want to retain is clearly to be always up to the standards, up to the most important developments to understand their risks. And that's why I'd been in my introductory remarks that if Europe wants to take leadership, and we know that we have been lagging behind on some technological developments and we have dependence from other non-European, let's say, jurisdictions, we need to regain competence, we need to regain capacity to master the developments and related risk.
I just mentioned one that is the very clear cyber risk. In this new geopolitical context, cyber risk is evident, but I would echo the words that Andrew Bailey, the chair of the Financial Stability Board, just released few days ago with a letter to the G20, raising the risk of model the frontier models for AI, for which there is a risk, exaggerated risk for cyber, but also the opportunity to use the same models in order to defend. So the the consequence of all of this is to master the developments and to master also how the supervisory efforts should be done vis-à-vis supervised entities with preparedness, capacity to patch, and the capacity to restore operational conditions shortly. From that perspective, we are good that we have the DORA framework that is currently being implemented. ESMA is one of the key supervisors together with the others.
There is a joint committee effect on ESMA because is by definition trans- let's say, horizontal. And from that perspective, ESMA would need to ensure that the market infrastructures, let's say, comply with the with the DORA framework. Just last point is you just to add additional risk, of course, the concentration and dependence are important ones. The dependence, I think that we go back to the SIU conditions. If we create capacity to fund our technological industry, we will probably in future reduce the dependence from non-EU providers and this concentration effects.
Siegbert Frank Droese
Yeah, thank you, Chair. I will be speaking German. Herr Gambotti, vielen Dank für Ihre Vorstellung und interessant, dass Sie die gleiche Meinung, was Sie zur Subsidiarität gesagt haben und die Frage zum Binnenmarkt, die ich habe. Also ein Binnenmarkt kann ja logischerweise nur ordnungsgemäß funktionieren, wenn dieselben europäischen Vorschriften von den nationalen Aufsichtsbehörden alle gleich ausgelegt und durchgesetzt werden. Eine weitere Zentralisierung auf europäischer Ebene ist jedoch nicht automatisch ein Ersatz für eine wirksame nationale Verantwortlichkeit.
Ab welchem objektiv feststellbaren Punkt sollte eine anhaltende unterschiedliche Anwendung des europäischen Kapitalmarktrechts einen Eingriff der ESMA auslösen und welche der bestehenden Konvergenz- und Durchsetzungsbefugnisse der ESMA wären Sie tatsächlich bereit, in so einem Fall einzusetzen? Vielen Dank.
Carlo Comporti
Thank you so much, Mr. Droese. We go back to the issue of supervisory convergence to some extent and let's say the fact that the attempt to achieve a single market in itself by virtue of having a single rulebook proved to be, let's say, unrealistic. I mentioned already and I repeat that my vision is to probably reduce the burden but not the effectiveness of the regulatory framework with the simplification and burden reduction agenda and to complement this with an increased attention on how supervisors implement the different rules in a coherent manner. I think that by readjusting this equilibrium, I think that in itself will have a much better system. Clearly, you mentioned also the fact that the legal frameworks across Europe diverge and this is a mere fact and harmonization of legal framework in all areas, let's say, is probably unrealistic to imagine in short time and there are different ways.
By the way, one is, as I understand, it's not up to me to make any statement on this, but is under the current MiFID, let's say, package on the depositary passport. Okay, so that is one clear example. But on clearing and settlement, on post-trade, there is another clear example where how to address this. Supervisory convergence, I think, can honestly help delivering. Another alternative route is the development of, let's say, 28th regime where well-calibrated, once needed, I already mentioned that on digital assets for the legal transfer, I'm not talking about the civil law, let's say, effects of transfer of entitlements, you may consider that rather than harmonizing the contract law of all different member states, you may have achieving, you may achieve the same objective with a 28th regime to be elaborated on commonly accepted principles.
This should be inspired by opt-in mechanism that would be beneficial for the single market itself.
Aurore Lalucq
Thank you so much. Second round of questions, one minute for the question and two minutes for the answer. And I will start with Marco Falcone for EPP.
Marco Falcone
Thank you, Chair. I am going speak in Italian. Intanto grazie. Ho ascoltato e ho apprezzato l'introduzione del dottore Comporti, ma ho anche ascoltato con attenzione le domande che sono state rivolte e le risposte date. Mi ha fatto impressione positivamente nella sua introduzione, dottore Comporti, la, diciamo così, la citazione di due questioni.
Da un lato il rafforzamento della vigilanza, dall'altro lato però anche la riduzione degli oneri e quindi la semplificazione che noi riteniamo essere specificatamente strategica per la competitività della Unione Europea. Potrebbe ecco dire oggi come ritiene che rafforzare la vigilanza non sia elemento e sinonimo di appesantimento della e degli oneri relativi al mercato. Quindi come riusciamo anche a bilanciare da un lato la tutela degli investitori, ma dall'altro lato la semplificazione regolamentare dei mercati.
Carlo Comporti
Thank you so much, Mr. Falcone. Again, is another question that helps me to elaborate probably to give the additional elements on...
Two minutes.
Carlo Comporti
Two minutes, yes, yes. Because to some extent I already mentioned the equilibrium that in my view so far has been exposed on establishing the single rulebook and the stratification of rules, level one, level two, but also with additional convergent actions and measures ended up into a stratification. And honestly, the supervisory convergence has been lagging behind and I mentioned that is one of my priority because I consider unjustified that the same rules are applied differently across across Europe by the same authorities. So clearly you're right. I see this as a matter of the simplification efforts, but not diluting the effectiveness of the measures.
So I'm not advocating for deregulation, I'm not advocating for diluting the investor protection or financial safeguards and market integrity of course, but these two in particular. But I think that we can clearly achieve the objective by ensuring that certain rules are applied consistently. And I give some example. But I give one very clear example where we can achieve this is reporting. Is financial reporting by supervised entities to NCAs have been inspired by multiple reporting, different in format, different in periodicity, different in content.
Once we approach this in ESMA on shall we go for single reporting, report once, hopefully to the single hub that is ESMA, that is then make it disposal of NCAs for their own day-to-day national responsibility. That creates the condition for having on top of the data, common data, data quality, capacity of establishing let's say analytics, so supervisory technology with AI. And then you give it at the disposal of NCAs and you create by itself the condition for supervisory outcomes that are similar. And of course the conditions for stability, investor protection.
Eero Heinäluoma
Thank you, Madam Chair. I would like to continue the AI discussion because the sector is really booming. Despite its potential, there seem to be quite some considerable risks also. We can see the impact of the financing of data centers on the sovereign bond market and there was only this week the warning around the cyber risks of AI agents. So two questions from my side.
Could you a little bit evaluate more on the risks on AI for financial systems? And then secondly, we know that we have the AI Act, but do you believe that the EU financial regulatory framework is fit for addressing the risks linked to AI or do we need specific adjustments, for example in MiFID, as some experts are calling?
Carlo Comporti
Thank you so much, Mr. Heinäluoma, because that is also complements the round of interventions on the digital finance. I will not elaborate, I don't have time, on the opportunities of AI, on the fact that is already there in financial service are one of the sector where AI are most developed and most implemented already. So it's there and we have, let's say, surveys that demonstrate the extensive use. Of course, the capacity to use this is incremental and as I mentioned, there are unknowns that are unfolding and we have to take stock of these uncertainties. So in terms of risk, there are many.
I would say just to remain on the most relevant, the most recent, I repeat the fact that the frontier models, AI models, exacerbates, let's say, the risk landscape and particularly exacerbates the risk on cyber because they can autonomously, let's say, overcome the certain protection and they may make this a vulnerability. Now, how to address this, just to give you just to add another dimension on what I already mentioned, there is a global this is a global issue that we should address of course regionally, but together with the other important, let's say, players globally, also knowing that most of these models are, let's say, prepared, are deployed, let's say, outside the European Union. So strengthening our capacity to dialogue with them, to enter in contact, to better understand is one of the precondition. And I think that ESMA should be on the front side as discussed, for instance, in the Financial Stability Board. So the capacity to understand, capacity to manage the risk is paramount and goes also with the capacity building within within ESMA.
I want to address your point about the current regulatory, let's say, framework, whether this is fit or not. I retain one of the key principles that has been inspiring until now financial regulation is a technological neutrality. And I think that if I look at the some of the positions that have been taken by ESMA, we have been able to do it, let's say, just preserving the same objectives of regulation without necessarily changing, let's say, the rules.
So I would say that this is one inspiring principle. But then the second one, I think that we need flexibility because the mere fact that there are large unknowns, I think that if we constrain too much the regulatory framework in what is known until now, would not necessarily fit for managing properly the forthcoming, let's say, challenges. But I think that probably the best conclusion is that ESMA could be a technical, let's say, would provide technical support to co-legislators and first to the European Commission in order to handle the forthcoming risk and to understand how AI is deployed in order to be always up to the most recent developments.
Aurore Lalucq
Thank you so much, Mr. Conforti, and I can give you the floor for a few seconds if you want to conclude.
Carlo Comporti
Yeah, thank you so much. And thanks to you, Chair, Madam Chair, thanks to the members of the committee. I found this exchange extremely helpful, productive, at least from my perspective, confirms that Europe's capital markets stand at a very important moment and that this committee's scrutiny makes ESMA stronger. All your questions, let's say, are crucial for the future of European financial markets, but for an institution like ESMA that would play an increasing important role. I return briefly to my three commitments: convergence, credibility, and contribution, including to the European technological, competitive, and strategic agenda.
And I leave this hearing as I entered, with excitement, awareness, conscious of the responsibility and the fact that most of the topics that you have been raising deserve a continuous close attention, but not in isolation, I would say, all together. And if confirmed, I commit to carry out this dialogue and bring it forward to the next level, mindful of the broader, let's say, principles of investor protection, financial stability, and market integrity that should continue to guide our future, let's say, activities. Thank you so much.
Aurore Lalucq
Thank you so much. And the ECON vote on your appointment is scheduled later today, this afternoon, and the plenary vote is foreseen for September. Thank you so much and thank you to the members of the ECON committee for their questions.
OK, so dear colleagues, if you can go back to your seats. Thank you. And I would like to welcome to this public hearing in ECON Mr. Thomas Tschechner, presently Head of Division in Directorate General Systemic and International Banks at the European Central Bank. Today's hearing is organized in the context of the procedure for the appointment of Mr. Tschechner as Executive Director of the European Banking Authority, which is governed by Article 51(2) of the EBA Regulation. By a letter of July 21, the EBA Chair informed the European Parliament that the EBA's Board of Supervisors had selected Mr. Tschechner as its future Executive Director, subject to Parliament's confirmation.
So you know the rule, there will be an opening statement of six minutes, and then there will be a Q&A session, one minute and a half for the question, three minutes or more for the answer. And welcome, and I give you the floor right now.
Thomas Gstaedtner
Madam Chair, honorable members of the committee. Thank you for the opportunity to appear before you today. It's a real honor for me. In today's session, I will speak in English, je parlerai en anglais aujourd'hui, ich werde heute Englisch reden. I attach great importance to this hearing.
The interaction with this ECON committee in this selection process underlines the accountability and transparency of European authorities to the co-legislator and the public at large. Let me start by briefly introducing myself to you before I present my views on the EBA and the specific responsibilities for the Executive Director. Allow me to start with a few words about my experience in banking and finance. During my career of 26 years, I have worked in many different parts of the financial sector, in the private and in the public sector, and most of the time in multinational environments. I started my career in an asset management company and then moved on to work in a global significant bank in London where I had different managerial responsibilities.
And for the last 12 years, I work in the ECB where I manage a division in the supervisory branch of the ECB. I apply for the role of the Executive Director of the EBA because I think with my experience in banking, supervision, and European institutions, I will be able to help bring the EBA into its new phase.
At the same time, Europe requires significant investment to strengthen its competitiveness, finance the green and digital transition, and preserve its strategic autonomy. Alongside these developments, we are witnessing a rapid technological transformation. AI and digitalization are reshaping the financial sector. At the same time, cyber threats are creating risks for institutions and their financial stability. Against this backdrop, the European banking sector enters this period from a position of relative strength.
Banks are on the whole well-capitalized, resilient, and have successfully navigated the recent shocks. Even profitability has returned to levels not seen for a long time. Nevertheless, this is a pivotal moment for the EBA, which has a unique role within the European institutional architecture. It is the guardian of the single rulebook and an important contributor to market integration. The Executive Director has a particular responsibility.
The ED is not driving the policy agenda but is managing the authority so it can deliver on its policy tasks. As ED, I would ensure that the authority delivers sound and independent on the mandates set by the co-legislator and the Board of Supervisors. I would manage the authority's resources effectively and prepare the organization for future challenges. Looking ahead, I see significant opportunities but also challenges for the EBA in three areas. First of all, simplifying the single rulebook.
Streamlining the existing framework, using available proportionality opportunities, and ensuring that all work is assessed against the actual contribution to financial stability, all without jeopardizing prudential soundness of banks and depositor protection. Second, reducing the reporting burden for banks and integrating supervisory reporting systems. For data reporting, the future approach needs to be report once and use many times. This will improve supervisory effectiveness and at the same time reduce costs for banks. Third, ensuring that the new supervisory mandates of the EBA under DORA, MiCA, and EMIR are thoroughly effective.
In all these cases, the central challenge will be to strike the right balance between simplification and resilience. For me, it is important: simplification should never be confused with deregulation or a watered-down supervisory approach. In order to deliver on its mandates, the EBA will need to adjust its approach and be even more risk-sensitive. It should focus its collective efforts on the risks that matter most and reduce complexity where it does not meaningfully contribute to prudential stability. The EBA needs to check whether all the rules developed are still relevant and fit for purpose and whether the organization itself can be run more efficiently.
But, and this is important, the EBA shall not neglect its own achievements. Safeguarding financial stability, ensuring supervisory convergence, but also new topics like the prudential approach to the use of AI in banks and sustainability and climate issues in regulation and supervision shall be upheld because these are important prudential achievements. I think that this approach will also enable the EBA to support in the best way the competitiveness agenda of the EU Commission.
Thank you very much for your attention.
Aurore Lalucq
Thank you so much. We will now move to the Q&A session and I will start with Luděk Niedermayer for EPP.
Luděk Niedermayer
Thank you, Madam President, and thank you for your opening speech. I appreciate your accent on simplification and I guess we can reach a lot of that, but at the same time we are still struggling with not sufficiently functioning single market and probably some obstacles to the to the higher competition in the banking sector. So I wonder how quickly and how we can you believe we can move in those very important areas. And the second, you mentioned your new mandate and so let me focus on your DORA mandate because it seems to me that in this area this is not about simplification, this is about providing sufficient resilience and security of the banks and especially of the technology used. So I wonder at which areas you see the weakest points and how they can be addressed.
Thank you.
Thomas Gstaedtner
Thank you very much for your question. First of all, on your assessment of the single market, I would see in banking the single market is not still has a lot of room to improvement. I mean, we have basically a single supervisor in the key parts of the European Union. We have a single resolution mechanism in key parts of the European Union. The single rulebook can be is definitely not single in all cases, definitely needs to be improved as well.
But we certainly also have some elements, key elements in this framework which are still missing. One of them certainly is EDIS, which is not existing yet and which would further ensure a consolidation of this market. So there's a lot of things to be done which are not in the responsibility of the EBA, which is something which has to be decided on a political level by the co-legislators. But I would like to emphasize this as well. I think what the EBA can do in this area is to ensure that the rules are applied in a consistent way.
So supervisory convergence is a key part in the future work of the EBA. I think there are a lot of continuing mandates for working on the single rulebook which the EBAs have having and will continue to get, but the key part is also that these rules are consistently applied across the European Union. I think within the organization we need to shift the focus also more from a rule writing to the consistent application of the rules because this is within the remit of EBA in order to ensure that the single market is enhanced and improved further on. When it comes to the big decision, the role of EBA is to provide advice, yeah, to provide technical advice of all different possibilities so to enable the policymakers, you and the Council, to take the right decision on the key points. But the assessment I completely share with you, there's a lot of room and this is certainly also because we're talking also in this connection about the competitiveness of European banks, one of the big drawbacks of the European market that it is still very fragmented.
Moving on to the second part of your question, so DORA. So the EBA has only just taken up a new mandate under DORA. So this is something where I also would like to give the organization time to make its assessment how the whole thing works. But for me it's a very crucial mandate because it ensures also an oversight of critical third-party service providers, yeah. So parties which banks are using and the entities which are falling under this are public, it's cloud computing infrastructure which are used by almost all the banks.
So this is very, very crucial and for me it's important that we can detect market concentration with regards to these third-party service providers and that we also can share this then with our supervisors in the EU in order to ensure that as part of their day-to-day supervision these points are taken into account. So I think when it comes to the DORA framework, I would like to assess first of all how the experience is because it has not been working that long and then assess this, but I think it's a big step forward specifically when it comes to critical third-party service providers.
Jonás Fernández
Thank you. Thank you, Chair. Good morning. Maybe I have two questions. The first one is around the single market.
As my colleague Mr. Niedermayer raised in the previous question, we need to do more to consolidate the Banking Union. And you said that the European Banking Authority can provide technical support to analyze different options and I am talking about EDIS. So I don't know if you have in mind after many years without any real advance on EDIS, the idea of a new EDIS is in the communication of the European Commission of July. I don't know if you have any view about that, about how we can, what we can do to unblock the negotiation. And my second question is about the mandate of the European Banking Authority.
In the communication by the Commission, there is also an idea or a debate, they open the debate around the possibility to review the mandate and I would like to know more about your vision on this point. Thank you so much.
Thomas Gstaedtner
Thank you, Mr. Fernández, for your question. Maybe I start with the second one on the mandate. I think you're referring to the competitiveness mandate or potential competitiveness mandate of the EBA. And that's a discussion currently had and also in the European Commission consultation or communication on bank competitiveness this topic was raised. And there are certainly points which would also, which could be considered in that regard.
It would enforce essentially this target on a legal basis. But on the other side, you also have to see that I think the EBA has done already a lot in this direction. If you look into other authorities, for example the PRA, how they have effected a competitiveness mandate, it's essentially about making regulation more efficient, having a stronger cost-benefit analysis, keeping let's say the impact on or the limits on innovation as limited as possible, so also furthering innovation. I think this is also a lot of points which the EBA has already done in the past. So I'm sure the EBA will be able to fulfill on this target of competitiveness also without a specific mandate.
And I also think that the main competitiveness authority and body is essentially with the policymakers. So the Parliament, the Council, and the Commission, they are driving competitiveness policy. The EBA is a technical authority and within its current mandate, I think it can drive on its own already a lot of topics which would fall potentially under a competitiveness mandate. But I also would not shy away from this, to be quite honest.
So I think it's a discussion what exactly we have in mind. For me, the most important thing in that regard is it has to be subordinated to the primary mandate, and the primary mandate is ensuring prudential safety and financial stability within the European Union, yeah. So that has always been from my point of view the most important topic. When it comes to EDIS, that's obviously a very difficult question how this has to be done because I think first and foremost it's a political question which has to be answered. I think the key questions in that regard are how, for example, structures like IPS could be potentially integrated into an EDIS, yeah.
And this is where the EBA could provide advice what, for example, an IPS would have to look like, how the governance would have to look like, how let's say the financial assistance within this IPS would look like in order to be accepted within this bigger framework. But these are things I could imagine that the EBA could work on to provide different possibilities on how such a framework could look like. For me it is clear within let's say a full banking union this is something where a decision would be necessary in order to further the integration of the single market in banking. Thank you very much.
Thank you. Aupieffie, Mrs. Nikogure.
Enikő Győri
Thank you, Chair. Welcome. I will phrase my first question in the context of respect for national competences and proportionality. The supervision in the EU has so far been relying on a balance between EU-level convergence and national responsibilities. How would you ensure that EBA fully respects national competences, the principle of subsidiarity and proportionality, and where do you see the limits of EU-level intervention?
So in this present period of transition, when a lot of things are said to be pushed up, the need to be pushed up to EU level, where do you think that it really has to be stopped? My second is on the home-host issue. Coming from a non-eurozone member state which suffered a lot because of this host-home banks issue during the great crisis, I'm asking that as an executive director, how would you ensure that EBA closely follows these issues and ensures that necessary safeguards for the host member states are there, so their banking sector is not exposed to the big headquarters based in home member states? I think it's a very special responsibility on EBA. And just a final question on simplification.
You said simplification should not mean deregulation. It's very fashionable to say this in this house. But can you give concrete examples of areas where you think that simplification can be feasible and desirable? Thank you.
Thomas Gstaedtner
Thank you very much. I think I start with the last question where simplification can be done and where it is feasible. I think also the EBA and the ECB have already provided several examples in which area the authorities think that a simplification could be done without jeopardizing prudential soundness. One is on a level obviously to be decided by the co-legislators are macroprudential buffers where you could consolidate them from currently four to maybe two. So this is an area where we are confident that this could be done without jeopardizing the prudential soundness of the system.
The other area, this is more granular now, would be for example within specific RTS and ITS, yeah. The EBA has already made concrete proposals, for example in relation to the credit risk framework, in relation to internal models, where let's say the documentation requirements could be slimmed down, where the hurdles for material model changes are slimmed down, and where for example also benchmarking could be used more instead of intensive model developments.
So there are, I think, a lot of areas where the EBA, but also the co-legislators, could do a lot. And for me, part of that simplification is also essentially a discussion about the further use of proportionality elements within the European regulatory framework, for example, for small and non-complex institutions. There's currently a framework in place which already allows to a certain amount proportionality, but I think there's potentially room, first of all, to increase the remit of this framework. So the discussion is here whether the framework currently limits to banks with an asset, with a balance sheet of five billion, whether this could be increased, which is certainly a possibility. And the other possibility would be to say that the single rulebook is again checked whether additional elements could be applied to SNCIs, so that essentially the framework could be expanded.
So these are, I think, points which are all worth considering and which would, from my perspective, bring forward the simplification agenda. Specifically on a risk-based basis, you would say smaller banks probably don't need that much rules. You can limit the application of some rules without jeopardizing the prudential soundness of these of these of these institutions. So that's a key point. In relation to the home-host relationship, I think, I mean, one point, because you're from Hungary and you're not part of the Eurozone, within the Eurozone, for example, within the joint supervisor, you kind of internalize via the joint supervisor this home-host relationship.
So banks are supervised on a consolidated basis in all countries where they are acting, and here you are having a joint view about all aspects of a particular bank. In cases where the the the country is not part of the Eurozone, you're dealing with this on an admittedly slimmed-down basis via the colleges. So colleges allow, let's say, the lead supervisor together with all the other supervisors to bring in their views about the the prudential soundness and the prudential points in relation to each and every bank. So this is also specifically catered in order to ensure that host host countries' views are properly reflected in this discussion. A bigger topic obviously is the question about how points which are also discussed by the Commission, like capital waivers, liquidity waivers, are currently whether this is reflecting also the view of host countries.
And I think that's going to be a big discussion for the co-legislators again. But here the the possibilities, for example, of supervisors to take into account the view of a host country would be extremely important in order to say, well, in a crisis situation, we're able to interfere and make sure that the capital is distributed across the whole bank and not only staying with the parent company. Thanks very much.
Thank you, ECR, Giovanni Crosetto.
Giovanni Crosetto
Thank you, Chair. Thank you, Mr. Stattner, for your contribution.
The EU banking regulatory framework has become increasingly complex and also the EU Commission recognized it with its recent banking report published last July. I would like to ask if appointed executive director of the EBA, what are the concrete areas, the concrete points of the potential framework that you would prioritize for simplification, in particular with respect to the small and non-complex institutes, since also the Commission explicitly mentioned it, but also many political groups. And I would like also to ask you how would you ensure that reducing unnecessary complexity and compliance cost does not come at the expenses of financial stability that is very sensitive. Thank you so much.
Thomas Gstaedtner
Thank you very much, Mr. Crosetto. Again, I start with the last point. When it comes to additional regulation, the question is always what is the, let's say, the additional value of additional rule when it comes to prudential soundness and financial stability. And in that regard, the EBA also had made a lot of analysis over the last year and came up with its own report about, let's say, the complexity of the single rulebook. And in the EBA, the result was that the combination of all the rules have become too complex.
And in its own, let's say, efficiency report, they made 21 recommendations and one of them is to really go also through the single rulebook within the responsibility of the EBA in order to find additional ways where the single rulebook could be simplified. There was a specific focus on credit risk framework and on governance aspects because specifically the last one, and that leads me also to the next point, SNCIs, is a very high burden for SNCIs, for example. So here the EBA has already started its work, has prepared suggestions, proposals and issued reports where they made concrete ideas how this framework could be simplified. An additional aspect to that is obviously also the reporting framework where the reporting burden for banks has been increasing over the years. This is not only the reporting required by the, let's say, by the EBA or by ECB, but also national supervisors in different functions asking banks and institutions for additional reporting.
And here to have a clear, let's say, structure that everybody knows in which area there is a reporting, maybe there's even an overlap or you can use data which has been already collected by a different authority, would be for me a way forward in order to simplify the whole regime. But also if you look materially into the individual templates, there's a lot of room to simplify templates and, for example, delete data points which are not collected going forward. And the EBA itself has also committed to work specifically on this point in order to, let's say, reduce compliance costs for banks. So I think all of these rules still enable a really a prudential sound supervision of organizations, but at the same time also reducing the compliance costs for the organizations.
And at the same time, what I mentioned before, they could also provide advice how the SNCI regime, let's say how the box could be increased by, for example, increasing the asset value for banks which are falling within this regime. So this is what I would have in mind. Thank you very much.
Gilles Boyer
Merci Madame la Présidente. Merci Monsieur Gstettner pour vos propos. Lorsque nous avons ici discuté le paquet bancaire à la fin du dernier mandat, nous avons je crois constamment cherché le juste équilibre entre deux préoccupations qui sont majeures et qui ne sont pas toujours compatibles entre elles, à savoir d'une part la stabilité de notre système bancaire et la compétitivité des banques européennes par rapport à des juridictions qui appliquent les règles prudentielles avec, on va dire, moins de rigueur. Et depuis, nos inquiétudes se sont plutôt renforcées. Nous avons des exemples fréquents qui peuvent placer les banques européennes dans une situation de déficit de compétitivité et les empêcher de lutter à armes égales dans la compétition mondiale.
Et je voulais avoir votre regard là-dessus, sur cet équilibre qui nous pose question ici et sur lequel nous avons ici tous des réponses un peu différentes. Est-ce que l'Union européenne doit toujours être en toute chose la mieux-disante dans le respect des normes internationales, même si nos compétiteurs n'ont pas toujours la même préoccupation, ou bien est-ce que nous devons pouvoir conserver une certaine souplesse pour permettre à nos banques de rester compétitives ? Je vous remercie.
Thomas Gstaedtner
Merci Monsieur Boyer. Thanks very much for your question. Let me answer in the following way. The competitiveness disadvantage, if you would say so, of European banks, I think has first of all narrowed down in the last years quite significantly. And the question is also what is the original reason why European banks have performed, depending always which parameters you would apply, why they have performed worse than, for example, US peers.
And I think most of the reasons, or I would say the key reasons, are not having anything to do with the regulation. Yeah, I think we see a clear gap between European and, for example, US banks since the global financial crisis. And that has also to do with the economic situation and the development of the European economy after the global financial crisis. So the economies have really moved apart. The American economy has performed by far better, and European banks are the key financier of the economy in Europe.
So the relationship between the economy and the banking system is by far closer in Europe, where it is in America very strongly or much stronger related to capital markets. So I think that is one of the reasons. The interest rate environment was very low. So there are other points I think which played into this. But over the last two, three years, I would say the European banks have really caught up in terms of competitiveness versus global peers.
There's admittedly still a big gap in terms of market capitalization, but when it comes to profitability, the ROE numbers, the European banks are now by far better. But when it comes to competitiveness, I think also the prudential strength of a bank is a key competitive advantage that always clearly pops up in a crisis situation. If a bank is not prudentially sound, it will not be able to sustain. That means the fact that European legislator and European authorities have been managing that the banks are becoming prudentially sound, I mean the CET1 ratio is now at about 16%. The ROE ratio is by 10%, really good numbers at the moment.
Liquidity ratios are also very well, is a sign of the competitiveness via the soundness of these banks. And if you would compare, I mean we did analysis in the ECB and the EBA's been doing the same, how let's say the European regulatory framework compares to the US one when it comes to the very big banks. Our result is that if we would subject the European banks to the US rules, the capital impact would be even higher. So actually European banks from this perspective, according to our analysis, are having less capital demand as compared to the US banks. So that's why I see the regulation itself is not the reason why European banks have been performing worse, at least over the course of 15 years since the global financial crisis.
So I think on the contrary, actually the strength of the prudential rules is an additional element of competitiveness for the rules. There are certainly elements where, and this is to your question, how or if Europe should deviate from international rules. There are certainly elements where there has to be an open debate about specific rules. I name for example the market risk rules, where global banks in Europe are directly competing with US peers, where you have to see whether there is any possibility to adjust the framework so there's not a clear competitiveness disadvantage for European banks because they're directly competing with the US peers in this field. But generally I think it is in the interest also of Europe by and large to comply with international rules because we're also a trendsetter.
If Europe is deviating, it could lead to a race to the bottom because then the next ones are deviating and so on. I would, as I said, market risk rules, this is an element which has to be intensely debated because there's a direct competition between European banks and US banks. Thank you.
Aurore Lalucq
Thank you so much. I think it was the last question. Any catch the eye? No. So I can give you the floor back for some closing remarks.
Thomas Gstaedtner
Thanks very much, Madam Chair, honorable members of the Parliament. Thanks very much for your questions. They show me very clearly also the priorities of the European Parliament in this specific field. And I really enjoyed this debate because it also shows me very clearly in which areas you see the focus and in which areas you see the current debates evolving. The EBA is approaching a crucial moment.
The recent European Commission communication on bank competitiveness and the EBA's own work on efficiency and effectiveness will require a different approach of the authority. The expectation is now to streamline the rulebook, but simplify it, but not to deregulate.
There will be a greater need to prioritize tasks, refocus staff allocation and deal with new oversight and supervisory mandates. EBA needs to put all the authority's work under the common premise: how can the work be done in a simplified, efficient and risk-based manner without jeopardizing the prudential soundness of the banking system? This will also require to adapt the culture of the organization to this new situation. I'm confident I can deliver on that task. I have implemented and applied regulation during my career in the private sector and the ECB, and I know the difference between prudential important rules and where there is room to simplify.
But I also have the confidence to push back if simplification would end up in deregulation. I know that the authority is best equipped with its experienced staff and its excellent chair to face this new situation, and I would be honored if I could support the EBA in this new chapter as the new executive director. If entrusted with this role, I would be fully committed to ensuring the EBA delivers on its mandate efficiently and remains an institution well-respected within the European regulatory framework. I'm also committed to regular engage with this committee beyond today's hearing. Thanks very much.
Aurore Lalucq
Thank you so much. And the vote on your appointment will take place this afternoon and later in September for the plenary session. Thank you so much. Thank you. Thank you to all.