Simon Lewis was appointed chief executive officer of GFMA in January and chief executive of AFME in October 2010. Previously, he was director of communications and the Prime Minister’s Official Spokesman at 10 Downing Street. He has held a number of senior corporate roles, including director of corporate affairs at Vodafone, Centrica and NatWest. He was appointed as the first Communications Secretary to the Queen in 1998.
How has the financial reform programme affected Europe’s capital markets during 2012?
It has been another challenging year for the international capital markets, featuring protracted negotiations about an ambitious regulatory agenda in Europe and corresponding uncertainty about the business environment for our industry.
We have also witnessed further uncertainty around the eurozone crisis, until the European Central Bank promised to do “whatever it takes” to ensure the euro’s survival.
Since the summer, this has contributed to a more positive mood in the markets, bolstered by the encouraging progress eurozone governments have made towards establishing a European Banking Union. Equally promising is the fact that policymakers and market participants are starting to address the conundrum of unlocking capital market finance to fund Europe’s economic growth.
What do you see as being the defining events in the last 12 months?
For the capital markets, the ECB’s declaration of intent to make secondary market purchases of the debt of distressed member states, together with the plans to build a Banking Union with a single supervisor, were key developments. The agreement reached by EU finance ministers on 13th December to appoint the ECB to this role was an important milestone, and we very much hope member states will maintain the momentum towards completing Banking Union – for example by establishing a common framework for resolving distressed banks.
In terms of the broader financial reform agenda, the progress has been more halting, so it’s hard to talk of a defining event. The overall mood in the industry continues to be one of uncertainty. We are urging EU governments to complete the regulatory agenda as fast as feasible — for example by concluding the talks on CRD IV and MiFid II — so the industry has a stable and predictable framework within which to reshape itself.
What do you see as the key themes for financial reform in 2013?
We see three emerging themes for 2013 and beyond. First, we note — and welcome — an increased focus by EU governments and the European Commission on the subject of economic growth. In the first quarter of 2013, the commission plans to publish a Green Paper on long-term investment — an issue of direct relevance to AFME and its members, which after all make their living from financing investment and growth. We will want to play an active part in the debate following the publication of this paper, in partnership with the government of Ireland, which holds the presidency of the EU starting in January and has declared growth to be one of its top priorities.
Second, we anticipate a continued shift in the way in which finance is raised, with less reliance on the traditional banking model, and more focus on funding from the capital markets. With banks restructuring and deleveraging, they are not in a position to finance investment in the economy via their own balance-sheets as they were before the financial crisis. So it is more important than ever for Europe to develop deep and liquid capital markets as an additional source of funding for companies — including SMEs. This transition from a bank-dominated financial system to a hybrid model in which capital markets play a larger role is of huge significance.
Third, making this happen will take a lot of work — by governments and regulators on the one hand and by the entire financial industry on the other. In particular, we need to focus single-mindedly on creating an environment in which capital markets are capable of financing investment and growth. That means, for instance, developing our market infrastructure to support much higher levels of corporate bond issuance than Europe has ever seen before. It also means identifying and eliminating any disincentives to corporate issuance or to investment that exist — for example as unintended consequences of the new regulatory framework.
At AFME, we are developing a research project which will illuminate some of the key issues from the perspective of the buy-side and the corporate sector, with a view to making policy recommendations to the commission.
Are there any particular aspects of regulatory reform that concern you?
Yes. We are deeply concerned about the recommendations for structural reform of banks produced by the High-level Expert Group chaired by Erkki Liikanen and now being considered by the European Commission. The Liikanen Group proposes ring-fencing banks’ trading and market-making activities from the rest of their business. If implemented, this would increase funding costs for our member firms and restrict their ability to deliver affordable financing and risk management services to European customers at a time when Europe needs capital markets funding more than ever.
This question-and-answer session was produced as part of SmartBrief’s 2012 Best Of reports, which capture the year’s most important stories in each industry. Sign up now for GFMA SmartBrief to get tomorrow’s report on the top must-read stories on the global financial marketplace.
Image courtesy of GFMA.