Check against delivery.

Ladies and gentlemen, on behalf of BaFin’s Executive Board, I would like to welcome you to our annual press conference.

We are living in a time of contradictions. Many companies in the financial sector are reporting strong to very strong profits. At the same time, uncertainty is high: geopolitical risks are heightened and our economy is transforming, growing more sustainable and digital. Supervisors and financial institutions thus have plenty to discuss.

Almost everyone agrees on one point, though: we need to think in terms of Europe as a whole. If we fail to act at the European level, Europe will likely be the loser of this difficult phase.

How we in Europe perform globally also depends on how our financial system develops. The picture is currently mixed: the banking union has yet to be fully implemented and its full potential remains unrealised. The capital market in Europe is fragmented and inefficient. We do not have one market – we have 27 markets. We need a more harmonised and more efficient capital market to more easily finance multi-billion euro investments in the green and digital transformation of the European economy.

But even a more harmonised European capital market will only succeed in the long run if both its stability and integrity can be ensured – and if all market participants trust that it will stay that way. Regulation and supervision play a key role here. With this in mind, we now need to set the course for Europe’s future financial market regulation and supervision. Three points are decisive in this context:

1. We cannot relax the calibration of financial regulation.
2. Instead, we need less complexity in our regulation and more proportionality.
3. We also need pan-European supervisory convergence with uniformly high standards.

Regarding my first point: if we want to now lay the groundwork for the European regulation of the future, we cannot afford to make the mistake of rolling back our standards. It would not be a good idea to weaken the solvency requirements under Basel III and Solvency II, for example. Indeed, doing so would weaken the very area of regulation that has helped us safeguard the stability of our financial system in recent years. We certainly cannot make any concessions in the calibration of our regulation. I feel the need to emphasise this point, because in the current debate people have – with increasing frequency – been suggesting precisely that. We have already seen in the past where this kind of deregulation leads: directly to the next financial crisis.

Rather than make concessions relating to calibration, we should assess whether we need to close any more gaps in the regulation. We can start by learning the right lessons from the turbulence of 2023. Regulating the financial system is a bit like regulating traffic: in order to avoid a crash, we need a strict speed limit on more dangerous stretches of the road. And that brings me to my second point.

We should always differentiate between the calibration and complexity of regulation. A speed limit is a simple, comprehensible and effective rule, especially when enforced.

If the jungle of road signs gets too dense and hard to decipher, this just causes confusion. For this reason, several German cities, such as Wiesbaden, regularly examine their roads to determine which signs are still necessary and remove those that are not. We should learn from this example. Confusing regulation misses the mark, including in the financial sector. This is why we should reduce complexity in our regulation without relaxing the calibration.

One current example is MiCAR, the EU’s Markets in Crypto Assets Regulation. There is no doubt: we need MiCAR and the associated national implementing law. But do we also need the 52 European legislative acts intended to specify the details relating to MiCAR? The drafting of this legislation already takes up a lot of resources. BaFin currently has 25 people on the associated drafting teams or committees. 30 additional experts are involved part-time. Couldn’t things be simpler? More pragmatic?

Another example of new regulation that is highly complex: the various rules surrounding the field of sustainability. They are intended to foster transparency and clarity, and to boost the demand for sustainable products. Implementing these rules is a huge effort. Their impact on demand? Limited. Sales of sustainable products are stagnating.

What needs to be done? We should systematically simplify and streamline regulation, and eliminate overlapping rules. Particularly with new regulatory projects such as those in the field of sustainability, we have a good chance of significantly reducing the complexity. We aren’t so trapped in our routines yet, which makes it easier to critically examine the rules.

We should do the same for regulation that is “made in Germany”, by the way. Here in Germany, we have a tendency to generate additional complexity. Good intentions do not always lead to good implementation. There are a few specifically German solutions that we do not actually need – or that we no longer need.

In the past few months, we have identified a couple of dozen regulations that the German Bundestag could streamline without reducing the effectiveness of the regulation. Some of the effects would be small, some larger. In all cases, it would be possible to avoid unnecessary effort: on the part of the financial institutions, the supervisory authority – or both.

We at BaFin also need to take a critical look in the mirror. We aren’t responsible for much regulation. The rules we apply are just the cherry on top of the regulatory cake. But they do not always make it easier to digest.

We can document our supervisory practice more concisely and streamline our processes even further, all without reducing the level of security. We aim to accomplish just that with 14 of our 69 annual goals for 2024: reduce bureaucratic workload or speed up processes.

Another reason we need to reduce complexity is that it has a discriminatory effect. Complexity makes it difficult for young companies to enter the market, and it is particularly onerous for small companies in general. Large, established companies are in a better position to digest complex rules.

We therefore also need greater proportionality in regulation. There is simply no one-size-fits-all here. We could greatly reduce some requirements for smaller companies – at least for those that look especially secure and stable. A couple of examples include reporting obligations and the calculation of complex risk indicators.

Other countries such as Switzerland have shown that this can work. The United Kingdom is also following this approach with its “strong and simple” regime. Why shouldn’t something like this work in the European Union?

Less complexity also means no longer regulating down to the smallest detail. Relying on principles-based regulation in those places where we do not need strict, rules-based regulation. If regulation is drafted in the form of principles, supervisors can act with more flexibility. They can then react more quickly to new developments and risks. All because they have more scope for discretion. In turn, this can only work if everyone across Europe has the same understanding of how we use this discretion, meaning how we apply the rules. We need a level playing field in supervision – not a race to the bottom.

Supervisory authorities must not stoke competition between marketplaces by luring companies with particularly tolerant supervision. For example, when it comes to companies that have digital business models and little direct contact with their customers. Their business models can easily be scaled up, and they can easily sell products across national borders. It is child’s play for them to exploit differences in how EU regulations are applied. This damages the integrity of the European financial system.

We need uniformly high standards of quality in supervision. This also means that the European supervisory authorities EBA , EIOPA and ESMA should intervene more strongly.

We at BaFin already know what that can feel like. The European Insurance and Occupational Pensions Authority, EIOPA, issued criticism of conduct supervision to 18 authorities last year. We were one of the 18. We are now working hard to improve and have made good progress, which is already benefiting many customers. The European supervisory authorities should point out our shortcomings as national supervisory authorities more often and more persistently. This would be helpful for all of us. And they should be able to intervene more forcefully when the integrity of the European financial market is in danger: take passporting, for example.

Passporting is a great achievement for the European market, but it also comes with obligations. If these obligations are not upheld, the European supervisory authorities should have the power to intervene. It needs to be possible, as a last resort, to limit the sale of products or services across national borders.

Would further centralisation of financial supervision at the European level be a solution for our convergence problem? This is a frequent topic of discussion these days. We need to be aware that further Europeanisation of financial supervision does not make markets deeper, more liquid and more efficient per se. Bigger hurdles are different market structures and legal frameworks.

But centralisation can make sense –for tasks that really can be handled more effectively and efficiently at EU level. Centralised European prudential supervision is beneficial for systemically important companies that are active in multiple countries and highly interconnected. This is the case for European banking supervision, in which the significant institutions are directly supervised by the ECB.

One could therefore consider a centralised EU supervision for clearing houses. They represent the safety net for markets: they assume the default risk above all for derivative transactions. But they have also become huge players. If just one clearing house were to fail, for example due to a cyberattack, billions would be on the line. Centralised supervision could make sense for such institutions, even though we can currently handle them fine in Germany.

In any case centralisation should only happen once we clarify who intervenes in emergencies: supervision, resolution and the costs of crisis management should be on the same level. And we cannot afford any loss in efficiency. Ironically, this is one of the dangers when centralising supervision. The new system ends up consuming more resources than the old one.

What are the most important factors now? Europe should not try to pay for the green and digital transformation of its economy by weakening capital requirements. We must not relax the calibration of our regulation, as doing so would pave the way for the next financial crisis. But we have to reduce complexity in our regulation. What we need are clear and proportional rules that we as supervisors can implement uniformly in every member state of the EU. Selective centralisation can help if it represents the more effective and efficient alternative. By following these steps, we can lay the groundwork for a stable European financial system that is more harmonised and more efficient, giving Europe’s economy the chance to compete better at the global level.