Green bonds, fintech, retail finance get boost in EU’s Brexit reboot

31 January 2017 9:54am

15th September 2016. By John Rega

The likes of financial-technology startups in Germany and builders of ecological homes in Sweden may soon get EU policy shot in the arm to help expand around the region. And they will have Brexit to thank for it — at least, in part.

Fintech, “green finance,” personal pensions and other retail financial services are among businesses that could get a boost from a European Commission policy shakeup inspired by Britain’s vote to exit the EU.

Commission President Jean-Claude Juncker’s reboot of the capital markets union, unveiled in Strasbourg yesterday, adds a dash of finance pizzazz for ordinary people.

The CMU, inaugurated two years ago, started off with a largely wholesale approach. The first proposals covered arcane topics such as reviving securitization and streamlining prospectuses for securities sales.

Those may be sensible ways to improve the plumbing of the economy — and Juncker exhorted lawmakers yesterday to finish off the legislation already on the table.

The problem is that voter may never notice. Or care.

The revised plan could change that by generating wider attention as moves the focus on personal finance, as well as policies to help sell “green bonds” financing environmental projects — still wholesale, but of interest beyond the financial sphere.

Jonathan Hill, the commissioner first tasked with leading the CMU, had planned to eventually turn to retail financial services. Before resigning in the wake of the UK referendum, he’d pledged to develop policies that would give consumers greater choice of loans, insurance, bank accounts or investments, by opening up cross-border services.

The revamped CMU set out yesterday aims to accelerate that work, with an “action plan” to outline proposals in retail financial service. Expect that late this year or early next year.

The revised program also commits more clearly to introducing an EU-wide rulebook for personal pensions to help spur private retirement savings. This legislation could also come out next year.

Fintech calling

The commission also is poking around the financial technology arena, where previously it saw little opening to spend years crafting proposals for services that pop up and evolve day by day.

The policy, as described by an EU official, aims to address “how we make sure that our framework encourages all the good things about fintech,” such as new products and competition, “without introducing too many risks in terms of things like money laundering or fraud.”

The commission, not yet in a legislative stance, now aims to coordinate regulators grappling with a range of novel services: payment apps, software-generated investment advice, crowdfunding platforms, blockchain-based transaction ledgers.

Green finance also gets a go-slow approach. The commission for now promises only to create an expert group to generate policy ideas. That still represents a change of gear from the first edition of the CMU, when officials concluded the topic wasn’t ripe for action.

The market has moved since then. Sales of green bonds, for financing projects such as windfarms, are growing at a two-fold rate per year, according to a commission study due for publication as soon as November.

Authorities have also developed “a policy awareness that there is a systemic risk,” with climate-change events threatening to destabilize the wider financial system, an EU official said in explaining yesterday’s policy move.

Keeping it real

These moves, combined, help make EU financial policy more palpable to citizens. They also come at a time when the CMU was due to be revisited, even without the new focus on retail-friendly policies.

With the UK ready to check out, the rest of the EU is wondering what to make of a capital market without the region’s biggest financial center.

Yesterday’s CMU makeover aims to address these concerns by helping the remaining 27 countries build up their capital markets as an alternative to bank-based financing. That still sounds useful.

But the heightened focus on retail finance points to another way for the commission, still smarting from the Brexit vote, to seek more tangible policies to catch the eye of citizens.

Brexit Special Report