EU Financial Policy News and Analysis | Bimonthly Newsletter | Summer 2020

EU FINANCIAL POLICY NEWS AND ANALYSIS

SUMMER 2020

European Supervisory Authorities' Stakeholder Groups | Sustainable Finance Strategy | Digital Finance Strategy | Wirecard AG | New Vision for Europe’s Capital Markets | Collective Redress | Non-financial Reporting | Shareholder Rights | Corporate Due Diligence | International PEPP Conference | Annual Report | Upcoming Events and Consultations

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Wirecard AG: an outrageous case of corporate governance, external auditing and supervisory failures

On 18 June 2020 Wirecard AG (“WD”), one of Europe’s FinTech success stories and a "blue chip" of the German stock market, disclosed it may have mis-reported €1.9 billion in its balance sheets, filling for insolvency a few days later.

In light of this disastrous governance, supervision and audit failure, BETTER FINANCE put forward several policy recommendations for EU authorities under the following headings:

Guillaume Prache, Managing Director of BETTER FINANCE warned that “Wirecard is a terrible case of accumulated failures by supervisors, auditors and corporate governance bodies, resulting in huge detriment for non-insider investors and pension savers. EU policy makers must draw the lessons and act swiftly. Otherwise their stated goals to achieve a Capital Markets Union that “works for people” and to restore investor trust will remain wishful thinking.”

BETTER FINANCE Member and leading shareholder association in Germany, DSW, repeatedly criticised Wirecard in the last years for its lack of transparency and weak Corporate Governance structures.

“The ad-hoc disclosure of 18 of June 2020, in which the company stated that there was no proof for the escrow accounts about 1.9 billion € made clear that our worst fears were being surpassed“, said Marc Tüngler, DSW‘s chief managing director.

DSW - supported by BETTER FINANCE – is reaching out to all Wirecard investors with the possibility of a lawsuit for investors to get their money back, allowing not only Wirecard shareholders, but also bond holders and holders of derivatives on Wirecard shares, to recuperate their losses.

More information:

European Savers one step closer to getting Sustainable Value for their Money

A little over 6 months after the European Commission (EC) launched its High-Level Forum (HLF) on the Future of CMU, the group of 28 experts published its “New Vision for Europe’s Capital Markets” with a list of key recommendations. Several of those have been proposed by BETTER FINANCE and endorsed by the Group, which is good news for EU Citizens as Financial Users.

BETTER FINANCE’s Managing Director, Guillaume Prache, was one of the only two representatives of EU Citizens as Savers and Investors out of the 28 HLF members. Despite being dwarfed by the at least 18 members representing financial intermediaries or working for them (including six executives of extra-large US financial institutions), BETTER FINANCE is pleased, and grateful for the EC’s help, that it could get through - at least partly - many of its Key Priorities published last year. In fact, the HLF CMU recommendations endorse 16 of our 35 key measures.

However, a fundamental misunderstanding of the “raison d’être” of capital markets, and who they are for, remains: they are not primarily for financial intermediaries, they are for the real economy users and providers of capital: the businesses in need of capital to grow and the end investors who provide this capital. And who are these providers of capital, investing directly or via pension funds, investment funds or insurance-based investment products? The EU citizens as savers.

More information:

EU Citizens as Users side-lined in favour of Financial Industry in European Financial Policymaking and Supervision

The new composition of the European Supervisory Authorities’(ESAs) “Stakeholder Groups” is a step backwards with regard to balancing representation between industry and consumers in EU financial rulemaking. This is the result of the recent ESAs reform, which reduced the quotas for consumers and academics in favour of financial institutions (industry & “professional associations”). Already earlier, the European Commission had selected just two consumer representatives for its 28 member “High Level Forum on the Capital Markets Union” which also included no less than six US financial giants.

Before the ESAs reform that came into effect in 2019, these stakeholder groups (SGs) reserved 10 spots for financial industry representatives, 5 for academics and the rest for a “bundled” category composed of representatives of employees (of financial institutions), consumers, users of financial services and SMEs. Following the reform, the quota of the financial industry at the European Banking Authority (EBA) and at the European Securities and Markets Authority (ESMA) was increased to the detriment of the other categories: now each stakeholder group must comprise 13 members representing the industry, 4 academics, and 13 from the “bundled” category. The new EU rule is even worse in the case of EIOPA, where representatives from professional associations are added on top of the increased financial industry quota of 13, with the financial industry now making up half (or more) of the total membership.

A quick glance reveals that the proportion of appointed consumer and user representatives in the SGs decreased from 33% to 28% of total, and that of independent academics from 17% to 13%, whereas industry representation (including professional associations) increased to nearly half of the members, up from 39% to 48%. This seriously hampers efforts to advocate for and defend non-industry interests.

More information:

Towards a renewed Sustainable Finance Strategy

On the 16th of July 2020 BETTER FINANCE published its response to the European Commission's Consultation on its renewed Sustainable Finance Strategy.

In its response BETTER FINANCE discusses the importance of providing harmonised, standardised and comparable environmental, social and corporate governance (ESG) data through a common publicly accessible free-of-cost data platform, the wide and worrisome discrepancies between ESG rating providers, the dangers of greenwashing and the need for high EU Green Bond standards, the important role of Employee Share Ownership (ESO) and the importance of developing an inclusive, wide and ambitious taxonomy.

BETTER FINANCE identified the following opportunities and challenges posed by a shift towards sustainable finance:

Further reading:

A Digital Finance Strategy to benefit individual investors and the EU economy

At the end of June, BETTER FINANCE provided feedback to the European Commission’s Consultation on a new Digital Finance Strategy for Europe and published its contribution to the European Parliament’s Committee on Economic and Monetary Affairs (ECON) own-initiative report on said Digital Finance Strategy.

BETTER FINANCE believes that digitalising finance and enabling new technologies to enhance the provision of financial services would benefit both individual investors and the EU economy. However, the positive disruptive potential of these new technologies cannot be fully harnessed if there is no legal framework for providers and users of these services.

Moreover, the risks identified by the European Commission and the European Supervisory Authorities (ESAs) cannot be prevented or addressed in absence of an adequate supervisory and regulatory mechanism.

Regulation is needed in order to ensure investor protection, preserve the benefits of the emerging instruments and its underlying market, remove legal uncertainty, and create the necessary resolution mechanisms in case of a crisis.

BETTER FINANCE recommends for policymakers to:

More information:

BETTER FINANCE and BEUC join forces to reaffirm the necessity of creating a pan-EU collective redress mechanism

BETTER FINANCE and BEUC joined forces in a letter to members of the JURI Committee of the European Parliament and Permanent Representatives to the EU to reaffirm the necessity of creating a pan-EU collective redress mechanism that does not exclude European citizens as financial consumers and individual investors and enables them to obtain compensation for the damages incurred.

This is crucial in the area of financial services where complex products have a serious impact on the quality of life of active and retired citizens. Moreover, due to the lack of an effective redress mechanism many financial consumers as investors are de facto unable to exercise their rights.

The letter also points to the fact that the Final Report of the High-Level Forum on the Future of the Capital Markets Union, organised under the auspices of the European Commission, includes collective redress as a key recommendation to restore the trust of financial consumers, ensure proper enforcement mechanisms and attract more investments from EU households in the real economy via capital markets.

More information:

The importance of advising clients on social and environmental aspects of financial products.

On 6 July 2020 BETTER FINANCE published its feedback to the European Commission's consultation on obligations for investment firms to advise clients on social and environmental aspects of financial products.

Whereas BETTER FINANCE welcomes the introduction of requirements for firms providing investment advice and portfolio management to ask clients about their non-financial objectives and preferences as an important step forward for the integration of sustainability in the fiduciary duties of financial advisers, it put forth specific amendments in order to avoid:

More information:

European Commission agreed with BETTER FINANCE to reject the request led by financial intermediaries to delay the implementation of the new Shareholder Rights

On 29 April 2020 the heads of European and Member State organisations representing individual shareholders across Europe sent an Open Letter to the European Commission (EC) opposing lobbying attempts led by powerful financial intermediaries to postpone the implementation of the Shareholder Rights Directive II(SRD II).Their call did not fall on deaf ears.

On 28 May, in its answer to the industry lobbyists, the European Commission’s Directorate for Justice (DG JUST) responsible for consumer and shareholder rights, echoed the arguments put forward by BETTER FINANCE and others against such a delay, dismissing the claim for the need to allocate resources to Covid-19 measures as “the Directive was published almost three years ago and the minimum requirements set out in the Commission Implementing Regulation has also been known for more than 1.5 years. This should have allowed sufficient time to adapt existing practices and procedures to the new rules.”

More information:

Enhanced corporate due diligence at the centre of the European Green Deal

BETTER FINANCE joined other civil society organisations in a letter to Commissioner for Justice, Didier Reynders, to commend him for his commitment to push for robust legislative initiatives on corporate due diligence and directors’ duties as part of the European Green Deal.

The sustainable finance agenda has been developing very quickly since the publication of the Action Plan on Financing Sustainable Growth in March 2018. As part of this ongoing work, the signatories applaud the Commission’s commitment to review the Non-Financial Reporting Directive in Q1 2021 and stress the need for new horizontal legislation on mandatory human rights and environmental corporate due diligence as well as new sustainable corporate governance legislation focused on directors’ duties, requiring sustainability strategies and targets for companies, to ensure that directors move away from short-termism, strengthen democracy at work and workers’ involvement in company matters, and consider all stakeholders’ interests.

More information

International Online Conference | “European Pension Savers under Financial Repression: is PEPP a solution?”

The On 18 September 2020, stakeholders from Civil Society and the Financial Industry will discuss the potential benefits and pitfalls of a Pan-European Personal Pension (PEPP) product, focussing on the Level 2 PEPP Regulation to be finalised by the European Insurance and Occupational Pensions Authority (EIOPA) in August this year, including:

Preliminary Programme

13.00 | Welcome by the Supervisory Chair of the Bund der Versicherten (BdV)
13.10 | Introduction by Guillaume Prache (Managing Director, BETTER FINANCE)
13.25 | Interview of Gabriel Bernardino (EIOPA Chair) by Axel Kleinlein (BdV, BETTER FINANCE President)
13:50 | Open Discussion
14.15 | Coffee Break
14.30 | Panel Discussion (Moderation: Christian Gülich, EU Policy Officer, BdV)

15.00 | Open Discussion
15.20 | Conclusion by Axel Kleinlein (BdV, BETTER FINANCE President)

More information:

BETTER FINANCE takes a look back at 2019

BETTER FINANCE published its Annual Report providing an overview of its activities and achievements in 2019. BETTER FINANCE President, Axel Kleinlein sums up the year:

Thanks to BETTER FINANCE, the voice of EU Citizens as savers, investors and financial services users, is increasingly being heard in Brussels and across Europe.

Whether as individual investors, shareholders, savers, life insurance policy holders, pension fund participants or borrowers, European citizens are all users of financial products and services. It follows that the financial crisis affected every single household in the European Union.

For too long individual investors and savers have been wrongly advised on equity markets and pushed into under-performing packaged products. To ensure long-term growth it will be key to rehabilitate equity investment across the board and ensure a level playing field for all market participants.

It is important to keep in mind the fact that households are the main source of funding for long-term investment in the European economy and that EU Citizens as Financial Users should once again find their rightful place at the heart of EU Capital Markets.

In 2019, as part of its mission to restore confidence in capital markets, BETTER FINANCE further boosted its presence in EU financial regulatory and policy-making processes, providing a counterbalance to the disproportionate influence of financial institutions.

With 29 experts in 14 different financial expert advisory groups set up by EU public authorities, BETTER FINANCE continues to be the main user-side organisation to provide crucial and much-respected expertise in the name of financial end-users.

In January 2019, BETTER FINANCE published its “Key Priorities for the Next Five Years” that would go a long way towards improving the financial welfare of EU citizens and strongly benefit the real economy. These priorities were well-received by most European political groups, illustrating the broad support BETTER FINANCE enjoys by EU policymakers.

Improving on its own record, BETTER FINANCE also delivered an unprecedented volume of independent research, position papers and responses to public consultations in the field of investor protection and other key issues for financial services users, such as long-term and pension returns, robo-advice, sustainable finance, costs and performances of equity retail funds, the CMU and collective redress, amongst others.

2019 set the tone for the next 5 years. You can count on BETTER FINANCE to continue the fight for a fair and sustainable finance for all!”

Further Reading:

BETTER FINANCE addresses the European Parliament on the issues of Capital Markets Union and Digital Finance

In July BETTER FINANCE was invited to speak at two hearings held by the European Parliament Committee on Economic and Monetary Affairs (ECON).

Aleksandra Mączyńska, BETTER FINANCE’s Executive Director, presented the views of financial services users on the draft report from the European Parliament’s ECON Committee on Digital Finance on 2 July.

Guillaume Prache, BETTER FINANCE’s Managing Director, was invited to address an ECON hearing on 3 July to provide input and the recommendations of BETTER FINANCE to the draft own-initiative report of the Committee on the Capital Markets Union. The recommendations submitted by BETTER FINANCE to ensure that the CMU project focuses on EU citizens as the largest source of long-term and sustainable financing, ensuring a high level of investor protection, can be found here.

In June, Guillaume Prache also spoke at the event hosted by MEPs Sven Giegold, Claude Gruffat, Stasys Jakeliūnas, Philippe Lamberts, Kira Peter-Hansen and Ernest Urtasun of the European Greens, on “The Virus of Financial Deregulation”.

Upcoming BETTER FINANCE events