 So good afternoon and welcome to this second and last panel on the role of institutional investment in the capital markets union. Before we dive into that discussion, I would like to very warmly thank and express my tribute to the vice president, not only for his very thoughtful speech. And when Vitor starts by saying that he now feels a free man, it sends the shivers down our spine. But I can say that I agreed with nearly everything you said and certainly very much with the conclusion that, and I quote you, that we shouldn't forgo the benefits of having created a monetary union and not having a fully fledged banking union and capital market union. Given all the efforts and pain we've taken to get there. So that's certainly something that we can support very warmly in this building. And more broadly, I would like also to thank you for having set up the framework, the intellectual institutional and operational framework, which allows the ECB to deliver on its financial stability, responsibility, and also on its macro-prudential responsibility under EU law. Certainly, you built on foundations led by Tomaso Paduaqueopa and others, but you built a very strong house on these foundations. And that's a very strong legacy that we live with. And we strive to develop. So Vitor, thank you very much. And coming to capital market unions, which is the topic of this discussion, we've chosen a particular angle into the CMU discussion for this second panel, which is about the role of institutional investors and institutional investment. And there are several reasons for doing so, apart from bringing some novelty to this conference. Otherwise, we would every year have a first session on banks and a second session on capital markets. So we have to explore new angles. And that angle, I believe, is particularly relevant for different reasons. The first reason being that institutional investors play an increasing role, an important role, in allocating savings for productive users. And we can see in the numbers, which are, by the way, again, in our report, in both reports today, that increasingly we see the financing of the economy shifting away from banks and towards capital markets. And the size and scope of institutional investment has been quickly changing in the post-crisis environment. But important differences still remain across advanced economies. And Europe still has idiosyncrasies, I would say. In particular, when it comes to the internal segmentation within Europe. And so we will hear from the speakers how relevant is the issue of segmentation within the EU, both in terms of asset allocation, in terms of distribution channels, and which issues are being created for the functioning of the single market and for an efficient allocation of savings to productive use, and also what are the main obstacles to financial integration and to resharing. And I would like to encourage the speakers as much as possible to, out of the analytical discussion, to distill the policy, consequences, and recommendation that we can take on board and process as an institution. That's also what we expect from that discussion being on the receiving side of that discussion, in a sense. One second reason is that efficiency in wealth management has become or is becoming an important element of social policy, more broadly, with the responsibility for retirement savings, progressively shifting from governments to individuals in different ways, in different places. So policies should aim at removing frictions and obstacles that create inefficiencies in how individual wealth is being managed by private institutions, and should aim at ensuring investor protection, obviously, in capital markets. And in Europe, again, we have idiosyncrasies. We see institutional investors actively contributing to financial integration, but we also see a home bias persisting in some of these activities, particularly in terms of managing individual wealth. So we will also talk about these biases in portfolio allocation and investigate these constraints and barriers which affect such a location. And maybe one third reason which I would like to highlight for that discussion on institutional investment is that we see both a conceptual and also a historical link between the way re-sharing is being done in different economies and financial structures. And one, by the way, one chapter of the financial integration report, special feature A, elaborates on this link between financial structures and re-sharing and capital market functioning. We've seen large institutional investors playing an active role in shaping the way capital markets are working in the US. And one could also argue that the relative lack of private financial re-sharing in Europe is also due to the two different institutional features, including pensions being paid as you go rather than funded in many places, which I'm not passing a normative judgment here, because that's a broader discussion with broader social consequences and drivers. But I'm just saying that the way, for instance, the way pension systems are being organized does have an impact on the capital market functioning. And so it has an impact on our discussion today. So we see this interaction between financial structures and capital market development. So the ECB and the EURO system have been strong supporters of the CMU as the vice president recalled minutes ago to broader financing sources, to promote cross-border private re-sharing. Under the CMU initiative, a proposal on investment fund distribution aims at removing barriers for cross-border distribution of investment funds. So we will also hear from the speakers how effective this proposal can be. And if the CMU needs a more top-down dimension, as the vice president was arguing a minute ago, to make it swifter and maybe bolder. We have a very diverse and extremely relevant lineup of speakers. So Laurence Boone is a chief economist of AXA Group and also head of multi-global head. Global head of multi-asset client solutions and trading and securities finance at AXA. After having taken several public responsibilities, including as economic advisor to be a president of France, former president of France, Bruno Gerard is professor of finance at the Norwegian Business School and has worked on a wide range of issues related to portfolio allocation. And asset pricing, issuance processors, and also he has been advising, or he's been consulted by ourselves, ECB, and also by the Norwegian central banks, on asset allocation and volatility issues. Carol Lano is the CEO of CEPS. And we know the contribution CEPS has brought to the discussion on not only on CMU, but much earlier on on banking markets and the supervisory process in Europe and European capital markets more generally. And Nils Lemares is the MD at the European Investors Association and before that has been working with the Dutch Investors Association, also advising the European Commission and European Parliament and publishing a number of issues related to securities law, corporate law, et cetera, and financial markets. So this is just to say that we have a wealth of expertise both in the industry and also in public policy, which we are going to tap now, starting with Laurence. So Laurence, the floor is yours. Thank you. Thank you, Benoit. Thanks for the invitation. It's a honor and a pleasure to be here. I should but a lot more modestly, thanks Victor Constancio for everything, all the dialogue, the kindness, and the thoughts that you have displayed over your years at the ECB. You'll be missed, I'm sure, by many, many people. So thanks. So let me start with the institutional investor view, which I'm supposed to represent here. Let me just start by following up on what Benoit and Victor were saying regarding the importance of capital market union, which I think is to fold. It will serve both to increase the resilience to shock and also to push trend growth upward by making more funding available for all sides of firms. The two, and I think, and this was alluded to by Victor Constancio early on, it's especially important at a time where other aspects of the architecture of EMU seem to be stolen to some extent that we consolidate what's happening on financial market side. So a little more concretely, what I will look at is how what capital market union is about for us in practice is to diversify both the source of funding for firms and the sources of investment for households. And for that, that means diversification through the spectrum of asset classes and also geographically. And I think the two dimension are very important. So the main message I would like to leave you with today is that there has been a lot of progress. In particular, I think for asset class diversification. And I will give some example like turn and perhaps a little less for geography diversification. And I will insist on three points as Benoit suggested in terms of concrete policy aspects. The first one is to explain a little bit more how Solvency 2 and IFRS, the accounting standard, are really shaping the balance sheet of an institutional investor and how it frames asset diversification. The second point is to look at how a little more cross-border high modernization on alternative assets could actually help. And when I say alternative assets, I have one thing in mind, which is loans and in particular, loans to SMEs and very small enterprises as well. And the third thing, and it's along the same line because it would help lending to SMEs, is to look at the securitization framework. So what I'll do with the presentation is first highlight a few stylus facts about diversification. Then go in to explain why we are here, both on the asset side and then on the geographical side. And then conclude with the suggestion. So the first is to try and manage this. Yes. So just a few facts to start with. Insurance tend to have a long-term view. Typically, a life insurance is invested with a duration of a little more than eight years where we have a property and casualty insurance is invested with a time horizon of more than five years. And because of this long-term horizon and because of the necessity to deliver a regular stream of investment, an insurance will like bonds. And in particular, either sovereign or high-grade bonds because you want some stability in what it delivers. Then once the score on bonds is shaped, is formed, we need a bit of diversification in order to pick up yields. And over the recent year, I think this has increased in part thanks to the CB monetary policy. So that's the first thing. The chart that you see on the right-hand side, if I'm not mistaken, is supposed to be a summary of home country buyers. I would urge caution when looking at it for two reasons. So the first one is the diversity that you can see is also a reflection of the diversity of national market. It's obviously much easier to be long French bond than it is to be long Belgian bond or Finnish bonds. That's one thing. And the second is that we have not been able to fully check what you see for Germany, including Shushain or not. But nevertheless, I think it's an illustration of some of the diversity of home buyers that you can see. So that's the first point I would like to make. And I will explain a little why we see that. And I think it's important to take into account five points. One is the economic constraints. The second is the accounting one, regulation, the structure, the long liquidity position of the nature of an insurance, and then what's happening at the national level. So long liquidity, I think, as you know, delivering streams of revenues over time for people going into retirement or for the education of their kids means that an insurance will purchase a bond and keep it until maturity. And that also means that the insurers are long liquidity, which is very different from a bank, obviously, and they can use this position of being structurally long liquidity to actually seek yield in non-liquid assets. And in fact, given accounting and regulatory constraints, it's usually easier to look for premium in a liquid asset than it is to look for them in a credit risky asset, like, for example, the emerging market, which one could not cover for FX volatility. So that's the first thing. Long liquidity means a preferred habitat is bound and preferably well-graded. Second thing is accounting. The way that IFRS works in Europe means that insurers will dislike taking position into volatile assets. And obviously, and I think Victor Constantio and Benoit were leading to it, the typically volatile asset is equity. And because this volatility of equity movement is directly reflected into the P&L of an insurer, it will tend to dislike that intensely. And what you cannot see on this chart is that a typical European insurer position in equity is around 5% of its balance sheet, which is to be compared with 10% to 15% in the US. The third factor, which I call, and just to conclude on that, sorry, it's not the case for private equity. Again, Vice President was alluding to it. Private equity is illiquid. It's not volatile, though it's something that insurers will prefer to listed equity. The next factor I wanted to highlight is market restriction. One of the reasons why it's very difficult for a eurozone institutional investor to look for emerging market bonds, for example, investor or non-euro-eu bonds is that usually an investor cover for the FX risk. And if you want to cover an asset for FX risk, you need a deep FX market. And as an example, in the EU, you will have Poland, which has an FX market that is relatively deep, but very little other countries have something like that. So diversification is also hampered by the depth and the liquidity of the market. As a result of all these constraints, and obviously there are regulatory charges, so I will not go through that, but whether one uses a sovereign C2 stand-down model or an internal model, you have penalties which varies from being extremely low on the sovereign side. If when using an internal model, sometimes they're not zero on the sovereign, and towards very high capital charges for equities, for example, which as you know, are of the order of 39%, to which you must add the volatility factor so that can bring the capital charge for equity to 49%. So when you add all these factors, economic accounting, regulatory, and the market constraints, the typical balance sheet in so far as we are typical has about two-thirds to three-quarters of its asset in bonds, which roughly are half Govies and half corporate bonds. The rest will be other form of fixed income, so typically that's loans, and then you will have alternative assets like real estate or private equity. And on the right-hand side chart, what you can see is the flow by opposition to the stock, which is on the left-hand side of a natural investment of an insurance. And what you can see that is, and it's natural, and again, thanks to monetary policy, the search for yield has moved insurance towards more and more investment into corporate bonds, which is good because that's real economy, and less into sovereign bonds, which are less real economy. So the eviction effect that was sought for by central banks has actually worked. So that's my second point was to explain how the balance sheet is shaped by the regulatory accounting and economic environment. Now let me take you through the geographical diversification. The one thing I think which is important to grasp is when you're an institutional investor, the investment you make has to reflect the commitment you have. And what I sought to illustrate with this chart is how investment are actually mimicking the business that we have. So let me take an example. A life insurance in Germany is subject to national regulatory, national constraints on the guarantee that is delivered to the policy holder on the gap that will be allowed between the asset and the liabilities. And that is why there is, from the start, a quite significant home buyer because from a business and local regulation standpoint, there has to be a reflection of what the typical characteristic of the insurance or pension fund is at the national level. So you will see that we have France 25%, France 20% of revenues, and 20% of investment. Europe is roughly a third, nearly a 40% of the revenue, and it also represents 40% of investment. So the first point is that the characteristic of the local business do matter a lot. The second point is that there has actually been some diversification, and you can see it when you contrast the investment in France with its revenue towards happening on the European side. And the reason why there is more investment in Europe versus revenue than what you see for France is because there's also be a search for yield and diversification, meaning that even for the French balance sheet, the institutional investor has purchased bonds from the periphery of Europe for yield enhancement, as well as for diversifying the risk. So I think that from that standpoint, Central Bank policy has been efficient. The additional element, which may perhaps is a little less known, is there is a contingency provision which allows institutional investors to actually use the same local swap rates in case of spreads widening sharply for one country. So if in country B, for whatever reason, the spread increases by more than 100 basis points, the institutional investors is allowed to use this spread, both for the asset and liability sides, to ensure that there is some buffer through very violent fluctuation. And that obviously is welcomed by any investors because it allows to look through cyclical fluctuation, which would be quite extraordinary. At the same time, obviously, it also favors the home buyers. But from our standpoint, it's quite welcome. So these three elements are very important in shaping the geographical diversification. And I think it's fair to say that it has been to some extent, but mostly in the bond area and to a limited one. So in two minutes now, let me conclude on what we think could be. So I hesitated to use the words low hanging food because when I tested a couple of ideas on my right-hand side neighbor, he put his heist towards the sailing and said low hanging. But let me go through that quickly. The first one, and I think you mentioned it, Victor, which is the withholding tax harmonization. It's true that you have a treaty for double taxation, but it's also true that it doesn't work for some countries where there are some specificities. And I won't quote them, but I can think at least of three countries in the eurozone where this is an impediment, especially for loans. And loans obviously means SMEs. The second thing, and I know it sounds like a very vague sentence when I could break it, but for us it's important because we'll be moving from a situation where we have one financial center with a clearly identified supervisor to a one where there will be possibly several financial centers. And so differences are fragmented supervision. And any global, to use the word of Benoit, at least European institutional investor would like some certainty and one supervisor rather than fragmented supervision. Now, just a quick focus on loans because I think it's really the key things for CMU for two reasons. First, if we want to diversify geographically, and also if we want to expand the availability of funding for SMEs and even smaller, very small enterprises, and that's important both for securitization and for the way we do it. So for large firms, for real estate, for infrastructure, it doesn't matter. Usually, these are very specific projects and any investor will look into it. So where it's important, it's when we look at the small firms and the loans. And I think your first key thing that could be very helpful is to have some common standards in terms of contract for these loans, specifying what type of documentation we need, what type of covenants. Obviously, insolvency would be great, but I think insolvency harmonization is a little away from us. So at least having some common standard documentation, covenants, and enforcement rule would be fantastic. That's one thing. The second is data availability. And we need possibly some standardization of the data which are being provided as well. And again, I know it's difficult, but perhaps less than the harmonization of insolvency law. And once if we had this clear and sort of standard contract formats with transparency and also comparable data, then we could shape a homogeneous pool of loans. And the investors wouldn't need to look through each little loan to small firms or very small firms. And not only they could form pool, but then they could be securitized by the banks and distributed as a set to investors. And the reason why securitization is important is because a lot of investors need some kind of credit enhancement on their investment. So as not to take all the risk, especially when you distribute to retail. And I won't, and I will stop here because my time is past. But the one thing just to conclude is I think there has been progress in terms of asset diversification, less so geographically. We cannot eliminate the home buyer. Some of it is even desirable. And the last thing is I think standardization of contract would make a big difference. And it's perhaps a less difficult goal to reach that harmonization of insolvency. Thank you. Thank you very much, Laurence. I'm sure we can come back to some of these issues, including the one you didn't have time to detail in the discussion. But let me give the floor to Brunner-Gerard. First, thank you for having me in this panel. And it's a very interesting topic of discussion today. Since the panel focuses on the interplay between institutional investment and capital market integration, I thought I would focus my thoughts on contrasting the behavior of institutional investor with that of individual investor and taking advantage of cross-border investment opportunities and enhancing capital market integration. As economists, we always think about home buyers and financial market integration along two lines. We think that financial market integration is important because it allows individuals and economies to share risk across borders, like a smooth consumption. And the second reason why I find it's important is because it allows to more efficient allocation of capital. And that is related to some of the discussion earlier. More efficient allocation of capital should lead to higher growth. Now, what home buyers in Portfolio then tell us, well, there is a symptom of both suboptimal risk sharing and suboptimal asset allocation. And what I'd like to do is find whether there is a big difference between institutional investor and individual investors in terms of home buyers and international diversity occasion. I think this is really important because we have large institutional investor in terms of pension funds. But in many countries, including within the euro area, there is a push towards this defined contribution of self-directed account. So we have to know what happens on the individual side as well as on the institutional side. Now, in terms of the institutional side, this is data from the OECD survey of pensions. It's incomplete. It's a limited sample, but it's still quite informative. There's one big outlier. And that's the Netherlands, where the three big funds are 80% investor brought. If you think about what the benchmark should be for a fully diversified international portfolio for a country like the Netherlands, it would be about 90%, 95% abroad. So they're very close. You could justify some more exposure to the local market by a desire to hedge local inflation, which still exists within the single market. Now, all the other set of countries have far lower degrees of international diversification. We find out that you can see that within the immune and the removal of the current series had induced a larger degree of international diversification within the immune. Is that international diversification as useful as diversification outside the immune? Probably not. As the market become more integrated, they will be more correlated. And the big gains of diversification will be outside the immune. And one see that as the country size decreased, there is a tendency to have slightly larger exposure internationally. What happened in the US? Well, in the US, home buyers, in institutional investor, at least in pension fund, defined benefit pension fund, is basically a thing of the past. They should have about 60% abroad. They have 45% abroad. So it's really, really close. And so what we can see hidden in those picture is that size matters and size matters to dimension. Size matters in terms of the portfolio, the larger your portfolio you manage, the more you're forced to go international. The more your managers are sophisticated, typically, and the more constrained you are by the capacity of the local market. Those constraints are less important in large countries. Countries like the US have less need to invest abroad because their market is broader. And they're a stronger driver international market. Still, in the US now, you have broad international diversification. We have less international diversification of pension funds in Europe. So the size of the portfolio and the size of the market interact. One reason why the Dutch are so well-behaved in terms of international diversification. Well, they have really three large portfolios and a small market compared to that portfolio. So they have no choice. The other example would be Norway with the oil fund, exactly the same thing. Immense portfolio, very small markets, absolutely no choice to do it locally. Now, what about the behavior of individual investors? That's much more difficult to find. And here I will report on a study that is not done by me, but by Hebert Hart, where they looked at 3.8 million members of defined contribution pension fund, 401k plan, out of 295 company. So it's a huge number of planned participants. And it covers seven years. And this is what it shows. The green line is what should the international allocation be, 60%, 66%. And then you have blue lines for older people like me and red lines for younger people born after 1980. The first column on the right, high D plants. So those are the five plants with the highest average diversification among planned members. So among the most internationally diversified plants individuals, the international degree of diversification is about 30%. Four people aged 50 or older and about 35, 38% for people below 30. When you look at the five plants with the least degree of diversification, you find it's below 10%. When you do the aggregate, the level is about 18%, 20%. So we have defined benefit plants that are now nearly fully internationally diversified. But the individual plants or the defined contribution plants self-directed by individuals are far less internationally diversified. So they need to be helped, and they will be important for the future international diversity. This is something that I would expect to be important in Europe as well. This provides you with how those degrees of diversification have changed over time for the older generation and for the younger members. They change a bit, but they don't change very quickly. So it takes a long time to get to a level of diversification that's large enough. Now, what drives the degree of diversification? Well, age. Younger people tend to diversify internationally more. Salary levels. If you paid a lot, you diversify. Quality of your options. Those plants which have a lot of ETFs, a lot of low-cost index funds, as well as many international options, tend to have members that diversify more internationally. If you come from a, if you live in an area with more international population or your coworkers are more internationally minded, you tend to invest more internationally. Higher education, financial literacy, you invest more internationally. If you get investment advice, you invest more internationally. And there, the investment advice was access to a robot advisor through the plan. 10% of the members had access. 10% used it. Their degree of international diversification increased by 5% compared to the others. So it would be going from 35% to 40%. Now, what is the typical robot advisor advice? Well, I looked through most of the European ones. It's very difficult to find them. They're not very transparent. I chose Wells Front because it's an independent robot advisor. It manages your money. It doesn't manage mutual funds. And it's the first or one of the first that introduced the robot advisor system in the US. It's funded by ITECs for ITEC people. They hired Boston Malkiel to devise a portfolio. And it's completely transparent. So I can go and see what their allocations are. And those are the allocation. And the orange and brown part are the equity allocation. The gray and blue part are bond, natural reserve, mini corporate EM bonds. So to think about the international diversification here, you have to look at the light colored bands, the light orange and the very light yellow. And look at it as a fraction of the total orange and brown band. And the left of the plot is a portfolio for low risk tolerance, so low risk portfolio. The further to the right is more risky portfolio. Typical advice would be you would get a rating of between 3 and 7. So if we want to look more precisely at those, most individuals will not be on the extreme high risk portfolio. The high risk portfolio do have substantial international allocation there, 54% for retirement accounts, 50% for taxable account. Medium portfolio, which would be what most people would be around, would have an exposure about 30% to 40% in international. This is the kind of advice that the people that invested more in international funds did. So I think what is going to be really important is, as the report says, integration can be enhanced by more widespread investment in mutual funds, private pension, and life insurance schemes. But that really depends on improved financial literacy, good advice, and good investment choice. If you don't have cheap investment choices, if you don't have good advice, you're not going to get there. And as we go towards a more self-directed type of retirement system, this is going to be even more important. Thank you very much. I guess that at the end of this round, I will give a chance to speakers to react to each other's presentation. And I'm quite sure that Lawrence, as an investment manager, may want to react to the advice. But let's move on and let me give the floor to Carol Lano. And given your experience and involvement in the policy discussion in Europe, we certainly also expect some views on CMU as a regulatory project and where CMU is heading. Thank you. Thank you, Benoit. You certainly do. But let me first thank, let's say, the organizers for giving me the opportunity to be here. I think I follow many of these financial integration conferences. I found that a great report. I mean, Philippe sent it to me. So congratulations to the vice president, to your team, Philippe. I mean, you always find new ways to looking basically at the same. And for example, this spread, which you showed this morning about to say there is more into corporate bonds, I found it an interesting, I mean, innovative way of looking at things. And I must say that, I mean, for us sitting in a small research outfit in Brussels, I mean, having these data, having this information is extremely useful. I use your index, and many of our people in SEPs use your index very often if we have to give a course. We have to speak about financial market integration. How do you measure it? It's extremely useful. And with this also, I would say that the ECB, in its 20 years, a bit more of existence, this harmonization of data, which is one of the things also Laurent said, is extremely important. You have managed to give us always more comparable data, which in Brussels is sometimes extremely difficult to get. For example, also on the equity side these days, investment fund side, and so on. So with this, I would say it is a very useful tool, and congratulations that you continue to do this. It is extremely important. What I wanted to say, I mean, three points which I was asked to develop, regulatory convergence, first of all, secondly, integration of capital markets, and then, thirdly, about distribution networks of funds in Europe. I mean, very briefly, I will develop these funds. But let me make one initial comment. First of all, what is institutional investment? Institutional investment is basically, I mean, what institutional investors do for retail, investor for retail clients, it may be insurance companies, it may be pension funds, it may be funds. I mean, mutual funds, usage, as we call them, at European level, but the important thing is most of them act for retail clients. So most of them have a fiduciary duty to basically act in the best interest of their retail clients. Do they do? One can raise the question. I mean, MIFIT 1 has already, or even the predecessor of MIFIT 1 had already this concept in there, but I mean, that it should be the best execution you should strive to, I mean, to get no conflicts of interest and to strive, let's say, to have the best returns for your clients. But of course, if you look at what I will develop in a moment, for example, at the investment fund business, you can raise many questions about this. So to start with, and final point probably also, of financial education, I think is extremely important in the sector, it was already highlighted by many people, it was highlighted by Philippe, by Monique, and others. One extremely important thing which you'll see if you look at Europe is there's an extremely different perception of risk. Many people think, let's say, it's best to help assets in a deposit, which is seen to be the least risky. However, apart from the regulatory issues, you can have much better performance, as was indicated this morning, by investing in equity markets. But people are afraid of this. And that's what I've also shown. So meaning, financial education is extremely important, and I think it's one of the biggest challenges for the next 10 to 20 years for Europe. If you want to integrate, it's just to say to consumers, look guys, you have to know what you're doing with your money, you have to well diversify, as you were saying, Bruno. Otherwise, basically, you will have less money after inflation than you thought you had once you retire. So that is, I think, extremely important. To start with regulatory convergence, I mean, there is not something at European level like European framework for institutional investors. There are many different frameworks which depend on what kind of license you have, as a bank, as an insurance company, as a pension fund, or what kind of products you sell. And I have tried to summarize it in this table, which you have in front of you, where you have different rules applicable. And we have, during the financial crisis, tried to complete this. There are some things which have come in between. For example, hedge funds now have European framework. We have a better framework for disclosure in the Prips. But overall, it remains a very complex framework. Also, it depends, let's say, whether the assets are on balance sheet or off balance sheet. That's why, for example, I put CRD-4 between brackets, because basically, if you do private banking, the CRD-4 rules do not fully apply, let's say, to what you have off balance sheet for a bank, if it's doing private banking, where solvency too applies for a life insurance company, if you have, for example, a long time life insurance product. And then you have on the usage side also things which have developed during the financial crisis. For example, with usage 5, with the separation of the custodian and the asset manager, because there was also on that side some problems. So that's on the regulatory side, a fairly diverse framework, which, I mean, that is only the European picture. This is not the national picture. You also then have the supervisory side, let's say, which I think is even more complex. And it's sometimes underestimated. We know here a lot of calls in Brussels, not only in Brussels, but also by many different groups, also other think tanks. We're saying, we need more powers for ESMA. But this is not so easy. I mean, not so easy as, I think, even creating the SSM in banking, because securities market supervisors in the member states have different competences. And their reach of their competences is different. They often share competences with other entities, like the ministries of finance, for example, for supervision of CCPs. But on top of that, you have it even within member states, and I should say this country, or this state, state of Hessen, for example, is the supervisor of Deutsche Börse. So you want to integrate ESMA, give ESMA more competences, and say ESMA will be the sole entity to authorize prospectuses. You will not only have a problem with Germany, but also with the state of Hessen, who will say, oh, no, I don't want this. And this is just one example. Let's say there are many more of this I can give. So before you say, look, give more powers to ESMA, it is extremely difficult, let's say, to do this, because capital markets supervision is a complex business. On top of that, what I heard this morning, there's somewhat of a inconsistency in saying we need to develop local capital markets, like, for example, in Central and Eastern European countries. And on the other hand, we say we need to have the bottom, the top-down approach, and have more competences for ESMA. I just do not exactly see how to reconcile this, and that's what I would call, for example, if the next commission will take it up again, which I think we'll certainly do, to have a much tighter definition of what is capital market union and what are we exactly doing. Because what we have today, basically, is my last point on that slide, is there's too much regulatory competition. And there is what Monique said this morning. There is some form of, I mean, basically, a leveling down process which we have. And there are some members states which are certainly, can be mentioned as this, let's say, which do approval processes extremely rapidly. But have they read the perspectives of the uses or of the perspective of an issuance very carefully? That is certainly doubtful. So that about regulatory convergence. Let me move to integration of capital markets in Europe. I said already some points on capital markets union. First of all, we also need to know that if you want to do something on capital markets in Europe, it is extremely difficult because there are different perceptions, as I said, on risk. And there are different roles which are seen to be performed by capital markets. If you want to know, for example, after Brexit, move the clearing market from London to Germany, I personally don't think it will work because the attitude towards derivatives in this country is entirely different than it is in the UK. That will not work. So I mean, if you then want to have capital markets union initiative with different perceptions of risk and different perceptions of what is the need of a capital market, that is very difficult. Secondly, I think, as Bruno said, but I will not develop that further, there is a very strong home bias. Look at the newspapers in 25 years after a single market. Look at the capital markets page and most of our national newspapers. They all speak about national stock markets. I mean, like I live in Belgium, I should live in Weston. Belgian stock, is this well diversified? No, not at all. But they continue to do like this, like us if there is no European Union. And then thirdly, we have, as Hartfried was saying this morning, a multiplicity, continue to have a multiplicity of actors in the infrastructure of capital markets, meaning we speak about trading, clearing, settlement, and custody. There is a multiplicity, which of course leads to enormous costs, costs for essentially households and firms. I think on the whole side, some progress has been achieved over the last 25 years to integrate this a bit. We've seen it at the exchange level, a bit at the clearing level, probably not sufficiently at the settlement level, but probably at the custody level, but certainly far from sufficient to speak about really an integrated capital market in Europe. At the retail level, on the other hand, you see a high degree of market fragmentation, as I said already. And overall, we know in Brussels, this figure that only 1% of, basically, of assets are sold on a cross-border basis at the retail level, only something like 1%. So what is this? It's of course related to home bias. It's also related to distribution networks. It's related to tax. It's related to habits, different habits and different member states. There are many reasons for that. But one of the things is that there is also a very high cost for investors to go into, certainly, retail investors into investment funds. And I think, let's say, the commission should take initiative on that, let's say, and it's doing to that. But I will come back to that in a moment. I think related to that is that what the EU should do is just to see, and that's what I put on in this chart, is that Europeans, as compared to Americans, have far too much in deposits and have far too little in something which performs better over time. And again, this is related to these reasons, which I mentioned before. But it's also, I think, related because the consumer is not stupid and sees, let's say, that the returns on investment funds is not sufficient for him to find a reason to diversify his assets into, for example, investment funds. I mean, the commission has just this week published a study on this. But also, before that, ESMA has done work on that. These data are really a bit terrifying and really show that some action should be taken. But I think, let's say, the broader issue is that we have a far too fragmented market, a far too diverse market, and basically a market where the choice is left to the consumer to say, look, what product do you really want? But we do not as legislators, as policymakers, do not help a consumer to say, look, we have designed a nice product for you, which gives you a good return over time. And some examples of that exist in some member states, like there is something like what is called the Swedish investment account, or in France, we have something like le pardon salariel. Let's say, but overall, something European doesn't exist. There is no the peps, which is on the table, which is a proposal to fill that. But I think it would be extremely important for the commission and also for the legislators now, the European Parliament and the council, to strive for a instrument which will be portable, which will have sufficient size, and which will not be too costly. And of course, that will be extremely difficult to design, because I think most of you know that overall in Europe, we have something like 36,000 funds for an average size of 200 million. In the US, we have something like 8,000 funds, mutual funds for an average size of 2 billion. Of course, it's not difficult to calculate, let's say, what is the effect of that. The costs are much higher in Europe than they are in the United States. Which then brings me to this point of, I will not dwell into that, on the distribution networks of funds. I mean, if you look at Europe overall, let's say, what have we done? We have stimulated competition in equity and bond markets. And overall, the spreads certainly in the equity markets have come down. I mean, the spreads are wafered in if you do a transaction on an equity market, even as a retail investor. Bond market is not following with the implementation of MIFI 2. But we haven't seen the same end to the fund markets. And why is this? Because funds are essentially distributed by banks. I mean, to distribute funds, you need to have a large distribution network. But the cost of funds are enormous. I mean, the commission has recently commissioned a study which was published last week. But let me first, let's say, dwell on the data which were published by ESMA last year, last year in September. The reduction of a return of a fund can be, in my country, Belgium, up to one third of the absolute return, which is enormous. I mean, that's why I say, look, a consumer who sees this is not stupid. And I say, look, I keep my money on the deposit. And hence, the money doesn't go to the equity markets, to the corporate bond markets, et cetera. But the EU average is basically 20%, which is a lot, which includes the total expense ratio, as well as the low charges. So I think, let's say, this is called for action. Of course, this does not make a distinction between the charges for retail and the charges for wholesale. Overall, the wholesale user, which is about three quarters of the fund market in Europe, manages to negotiate with a bank with an insurance company to have lower charges because they know. And retail does not know this. He's about one quarter of the fund market in Europe. Hence, he pays a huge cost. Hence, he may not go into the fund market at all. So these are the figures which were published by ESMA last year in September. These are part of the figures which were published by the Commission last week. You'll see here on different countries which were analyzed in this study, which was done by the Lloyd Ford European Commission. I mean, the spreads between the highest and the lowest recurring fee values, as they are disclosed by distributors for a certain product. And you see it for bond products, equity products, mixed funds, equity funds, all these kind of products which exist. So it goes from, I mean, low fees. And certainly, certain countries have much lower fees than others. And I think the ones with the lowest fees overall were, if I remember, the Netherlands and Sweden because they have regulators which are looking after this very carefully. But there are others where, I mean, these fees are very high. And these are, say, the recurring fee values. There is another chart in the same study which looked at the one-off fees which were the difference as even going to 7% or 8%. So enormous. With this, I mean, I just want to show there is a big issue. If you see overall, let's say that retail investors have reduced their exposure, for example, to directly investing in equity, have increased their exposure eventually to investment funds. But overall, to get retail investors to step into the fund markets, we need to do something about funds and about the cost of stepping into funds and about the high degree of fragmentation which we have in European markets. Well, as Bruno mentioned a moment ago, the robot advice, digitalization, and the fund products markets changed something about this. I personally don't think so. I mean, of course, it made things much more transparent. You can do like with a mortgage loan, you can directly compare, I mean, on five different providers what is the cost of a product. But basically, you have to do with the same distribution networks that they're only digitalized and the way you perceive it as a consumer as compared to as you were sold by an advisor before. So let me conclude. I think there is an initiative needed to go, as I think also, the vice president was saying, let's say, to do something more deeply onto a capital markets union. What is capital markets union? And what do we want to achieve at capital markets union? We need to be more ambitious, as you were saying. Secondly, we have to, I mean, there is much more to be done to really integrate capital markets. And again, let's say we'll have to do something and disinstitution and do something, for example, on the settlement side. Doing something through T2S to say, look, we need to have a much more integrated settlement platform because basically now, again, a national operator works through a national settlement entity which settles against T2S. At the retail side, I think the big issue is even if there is, I mean, the cost for directly investing in equity or in bonds has declined. The big issue is the cost for investing in funds. But basically, the cost is dissuasive for going into funds and to have basically a better return. In this context, I think, let's say, what the commission has proposed for PEPs is a very noteworthy and important initiative. But I wonder whether it will be achieved within this legislature or whether it will have to be taken up by the next parliament. Thank you very much. Just a clarification question on your last point, which is the PEPs, I mean, is your concern that PEPs might take too long to be implemented or are you dissatisfied with some of the features? Would you like it to be different? I think it raises many issues for certain countries and also for certain actors. There are certainly many demanding elements like for insurance companies. I remember they need to be active in 27 or 28 member states to be able to develop the product. But also, I mean, there is a guaranteed element in PEPs. So the default option is a guaranteed product which raises some questions. There is not one of these investment funds which I have presented, which is, of course, apart from the live insurance funds, which is guaranteed. If you want to develop a European-wide guaranteed product, I mean, if I was a consumer, I would be happy. But if I'm an insurance company, I do not know, let's say, whether it would be feasible. So meaning, it depends on the takeoff of such a product. OK, thank you very much. I'm sure we'll come back to the discussion. And the last speaker is Nils Lemmers. Well, thank you for having me here. I think that, starting by introducing the European Investor Association, we represent both institutional investors and mostly asset owners and hybrid asset owner, asset managers, and the retail investor. What we do actually is representing them in the public debate. We engage on their behalf with listed companies. And sometimes we have to step up for them and defend their rights in court. Today, I will put some effort in the institutional investor perspective, but mostly on the retail perspective, because as Lawrence already did and also Professor Gerard did about institutional investors, there's more data available than on retail. And what we do with European investors, sometimes we do a survey on a larger group of investors. And sometimes we do a targeted annual survey on a specific group. And then we ask questions directly. And we go into contact. And we dive deeper into what those retail investors do and think. For many reasons, that's very interesting. The first thing is these are investors. These are the people that really know that they're investing something. These are the people that decide to buy equity, ETFs, funds, or real estate. These are not the people that are investing through their organization they're working with or through a pension fund. Or those are the people that are really, as we call them, active investors. They're actively doing something. And what we'll try to do is, when I saw the title of the conference, I thought, yes, it is top-down or bottom-up. Shouldn't it be top-down and bottom-up? Shouldn't we all work together by creating a sort of an integration European capital market? And it's not only public authorities. It's not only government and regulators that has to do with it. It's also about the market participants. So in my final sheet, which I hope you will get there very quickly, I will get some of the points to my colleagues in the market as well. So if we want to have a capital markets union, it's not only top-down or bottom-up by legislators and regulators. It's also about our own behavior. And Monique said it very nicely, if there is an active commhumor action to open up a bank account, that might put a very little snowflake falling down, which creates an avalanche on the end. And I think that what we've seen over the last three to four years, it is slightly happening. Not a way around. This is the latest very broadly surveyed question on our members, 41,000 and investors in Europe, asking them, okay, if you are actively deciding on where to invest, what is your final decision? And you see that more than 50% are sticking equity. But these are the people that already know their differences between equity and ETFs and funds. But they know in this low-interest rate environment that equity on a long run is the best investment. Of course, I should have said in a diversified portfolio, equity has to take a big part of it. And they know. And also, they said you see that people choose for ETFs much, much more, almost once. The nicest thing of our survey is that if you take a look at what comes out of it, you see two things. One, you see the overall European quest for yields. So people are always looking for yields. So in the tax boxes, people say, yeah, we need to have some investment that comes when in return, because otherwise in 20 years we'll be lost. The second thing is that there is a very big home-based bias. The bias is on investment, but the bias is also on problems. You know, it's about the structure of the market. It's about the way of the point of sales. It's about advice. It's about, is there corporate bonds available, yes or no? So, you know, as we represent the European investors, I have to admit that people are still thinking first as a national investor and then as a European investor. Second, if you go to equity and we question them about, OK, where is that equity investment taking place? And we ask them not to, you know, not to grant if there is 90% in their home state or otherwise. In 2017, we asked that in the annual survey and there it was 60-40. So 60% of the investment was domestic, 40% was foreign. And where is that now? Mostly it's in Europe and of course people are diversified also, so the states, the UK. You see that people tend to see the UK already as different than Europe. And under the others, very importantly to mention is Australia, very big. And I think that is based because people come from. In ETFs, it's different. ETFs, people tend to go to the US more. And I think that if we put the same slide up as Carol Anode went with the fees, the main reason people take the US state ETFs is because of the fees. The fees are lower. But from this stage here, we have experienced many, many return investors from the 3rd of January on when PRIPS became into force are no longer able to invest in US ETFs anymore because they are under the AFD and the AFD is not compatible with the PRIPS and in this transition phase from usage. There is this translational issue and if you don't have a full license in the national competent authority phase, you are not allowed to sell this product. So for instance, people that bought an US ETF in December 2017, the only thing they can do from the 3rd of January on was selling it. So we have created something which is contrary to what those people say they want to do, which is investing in US ETFs. And this is from the 2017 survey and I think that what Carol and I say here is quite the same. Cost is the main factor in decision making how to invest and where to invest. You see that constantly coming up in our annual survey. And liquidity, so exit possibilities you know which we try to translate for people. The liquidity is also very important. And although the European Parliament didn't want to listen and past performance is not part of PRIPS kit, people do tend to believe that past performance is giving them extra information on where they are going to invest in. So people want to have a kind of a benchmark when they are investing and you see further on. Which brings me to this two-way street. And I think that if you take a look at the market where both institutional and retail investors are in, there is a high fragmentation. There is a high fragmentation in markets, in funds, in non-listed investment opportunities like energy, like real estate, like infrastructure. And I echo what Karol just said. We need a consolidation in the fund industry. We need to have bigger funds that have bigger powers to create lower fees, to create better investments in centers and to make a real difference in the investment projects. It's not only listed, projects are listed, equity and funds. It's also about, are they capable of helping, taking up that fiduciary duty of you, Karol, by investing in ESG-positive investment projects. So if you ask asset owners and asset managers to take their responsibility and try to do good, you have to give them also the size and the opportunities to do that. And one of the things that's missing is a corporate reporting framework on ESG. It's on sustainability. The other thing, as Androide was mentioned also in the morning, the bank dependency is still very large. And that is a cultural issue. We need financial education. We need equity investment to be promoted. One thing that might help very quickly, and I know that European Commission is not really wanting to discuss tax with the national countries, but that code of conduct on withholding tax was a very, very good step forward. But now, the countries have, till the end of 2019, to implement that code of conduct. So please put pressure on your local government, your national government to get that tax reclaim going through. And the home state bias, the European Mark, we already talked about that very much. Then to public authorities. And I think this is one of the things that people in the room do know, but maybe be a little bit hesitant to act upon. We have to monitor a recent implemented regulation, like PRIPS, Lux Me Fit. We have to be aware that then when in 2019, usage has to be transformed into the PRIPS framework. I mean, PRIPS actually, and this is said by a representative of an investor, actually PRIPS is getting messier and messier every day. There are flaws in the methodology. There are flaws in the calculations that are in PRIPS. And now we are already thinking about putting them, usage products also in PRIPS. I see you're smiling, so I think I'm telling nothing stupid. So, you know, let's be quick on repairing those things. Tackle the flaws, you know. Take away the unintended consequences, because PRIPS in the beginning was a very good idea. Me Fit is a very good idea. Usage is a very good idea. PEP is a very good idea. But by trying to get it on a European level, but leave the room for all kinds of amendments, let's call them positively amendments, those first objective might flow out of the window. And the third one, and that's especially for regulators, there are some very powerful new measures to be taken by ISAs. And I congratulate ESMA. I haven't seen many ESMA people here, but they were the first to take the opportunity to ban products from the European market. And that is really helping, because I know that central banks are always looking at the loans that our households have and that the bigger the loan is, or the bigger the loan is with low interest rate, the bigger the problem will be in the future. But from my perspective, in this low interest rate, environment, and the yord for yield, people are very vulnerable for bad products, for products that do sort of guarantee a return on investment. And there we need ISAs, there we need the regulators to say, look, I don't want these kind of bad products. So we ban them, we make them possible to sell, and then we see if the market comes up to a new idea. And if the market doesn't come up with a new idea, we're going to force the market to come up with a new idea. And I will go and ask my constituents, my retail investors, and institutional investors, to not come up and do not step in those bad products. Thank you. Thank you very much. We had a very rich set of presentations and plenty of time for a discussion, actually, which is good news. But let me start by turning back to the panelists to ask them if they have any reaction or comment on each other's presentation. And I would like to abuse of my position to ask the first question, which is actually related to something Laurence said very early on, which is about Brexit. And the very simple question is, do you see Brexit as an opportunity for Europe to get its act together and move forward in completing the Capital Market Union? Or do you see impediments in terms of regulatory fragmentation, different competences across the world in different countries, et cetera? So how do you see the dynamics that is created by Brexit here in the discussion we're having today? I would say that the equity culture in the UK is something that is not quite there in the rest of Europe. And that part of Brexit might be hampering the development of the culture and the simplification of the rules. Thank you. Perhaps. Perhaps I can follow up. So I think Brexit should be an opportunity for the EU to put its act together in terms of the single market for financial product and solution. Because a couple of things. First, today we don't have a financial single market. I think somebody was referring to ISMA, for example. And unlike what was from a different angle, it's actually welcome for us to have more power into ISMA and to have perhaps less power at the national level. If we tended towards something like the ECB or the SSM with a strong center and then a network that can understand this national feature, but where at least the rule of law is the same from one country to another, it would be a gigantic step in favor of consolidating the continental EU financial market. And somebody was mentioning prospectus. When you look at it, it's a bit puzzling that within a EU single financial market, you need a prospectus per country, a local agent per country to distribute a local fees to the regulator to distribute. All these very concrete things are a bit awkward in what should be a unified market. So effectively, it should be an opportunity to actually move forward and eliminate some of the things. The SSM under Daniel Newey presidency and with the support of the ECB identified, if I'm not wrong, 150 exemptions at the national level and decided to tackle them one by one. And perhaps the Brexit is an opportunity to do the same on the buy side of a financial market. And one specific point on this is the CCPs where effectively with clearing, we have an issue about the depth and liquidity of what we can do on the continent. But yet again, it's not a reason to say stop. Let's not do anything. It's a reason to say stop. Let's do something. And we have some time to actually consolidate that and all the setup of the CCPs and the clearings for all the derivatives is actually in the making. So it's the opportunity to complete it. Thank you, Lawrence. Yeah. I think that Lawrence is making a fair point here. I mean, for prospectuses, from an investor perspective, you say, look, I want better information, not more information. I want information that is helping me at the investment decision making moment if this equity or this bond is putting a sort of a revenue or return in my portfolio. And for institutionals, of course, you have all these waivers and rebates and it's in English. It's fine. The discussion always goes about language. Should a prospectus also be in the national language? I would say, could we just talk about the summary of the prospectus or maybe even the marketing material? That will be in the national language. The rest could be in English. I'm a very, very big fan of incorporation by reference. Everything that's already there. Do not put it in a prospectus. I mean, that's only debt by paper. And I prefer debt by chocolate. Thank you, Kyle. On the overall, on the Brexit, your Brexit question was it. I mean, I'm still hesitating. I think on the political decision making side, we may make progress and we may do things which we couldn't do before. I mean, we've seen this clearly in the easier of you, I think. But I think on the market development side, I think it's more of a loss, a big loss for the EU than the benefit. But you have to imagine, say, in three, four years from now, let's say there will be this huge capital market living just next to the EU and there will be these continuous tensions, which we, by the way, have already between what will be equivalent, how far will it go, how far will there be kind of back offices basically developed on the basis of front offices in the EU and who will stay basically with the most capacity, most people, biggest balance sheet in the UK. I mean, this tension, continuous tension between the EU and a huge capital market next to it, I think won't be beneficial for both sides. And this tension will remain, I think, for the next 10 to 20 years, unless we find a very good way of working together. But I don't see this happening just because we need to protect our system and they want to protect their system. Can I ask Carol a question? Sure. This is, of course, the hot debate. Should we go for equivalency, should we go for free trade or should we go for a completely separate third country rule for the Brexit? I mean, there are arguments for everything, but if you take a look now at the discussions, it nowhere near a soft Brexit. It all turns, looks to me at least as we're going for a hard Brexit. Personally, I think let's say that for certain things where equivalence exists today, like for financial infrastructures, we will rapidly come to some form of equivalence. Like for CCPs, it's obvious this business will continue to be in the UK not only because, I mean, you have the biggest CCB there today, but also they have the entire infrastructure around it, they have the legislation around it, they have the wiring around it, say they have the microcosmals around it. But for other elements like, for example, private banking, trading, operations, it will be much more difficult because we see that, for example, MIFIT is already very restrictive where you can have equivalence. It's at the wholesale side, it's not at the retail side. So that means that all these front offices have to come to the EU and that's what is already happening today. You see the big institutions, the big institutions move 200 people out of 6,000, you know, the 5,800 stay in London and the rest goes to Ireland or Luxembourg. Or to the Netherlands, to Amsterdam, for example, where you see it. I mean, what you see is the development of bilateral regimes, meaning where there was before they were doing business from London to an EU country today, they go to an EU country and the UK concludes a bilateral deal with that country in question. So it doesn't fall under the passport. Aren't you talking about the banking sector? Because on the asset management side, I don't think things are moving that fast. I was more thinking about the asset management side, the trading side and about the banking side. Okay, I had a trading unit and I can tell you we haven't changed one single thing. What we are looking at is the legal and fiscal framework but at this stage there's enough discussion with at least the UK supervisor, at least as well as the EU one to make us consider that it's not necessary to change this and that affects trading, securities lending, repo, as well as asset management. And by the way, in terms of asset management, the UK is probably the closest market of all the EU and I don't think that is likely to change. But your front office is according to myth, I mean, if you deal with clients, you cannot keep it in the UK. That was always the case that you need local front office. Even now. But no, it's very clear, your brokerage can no longer be in the UK. But it's never been like that anyhow. Can I ask a question? Yeah, you can. Well, first it's fantastic that the discussion takes its own life without needing me, which is exactly what I hoped for. So please carry on like that. I need a little bit of time also to give a chance to the audience to react and ask questions. But I think it's good if you can interact. Second, as a general remark, I think it's fair to say that the answer to the question will depend on market segments. There is no single answer. So for CCPs, we have a third country regime being discussed today under MR2 and that will, whatever the final outcome, there will be a third country regime for clearing. In banking, there is no such thing as a third country regime and there won't be such a thing as a third country regime. And in some other areas, I guess the discussion is still open. So personally, I would tend to think that for instance, once we have a third country regime for CCPs, we should also have a third country regime for settlement finality, just out of consistency. Otherwise, MR2 will just not work. So that's about the consistency. Should we have a third country regime for payment service providers under PSD2? I don't think so. I don't think so. PSD2 is very clear. If you want to be a payment service provider, you've got to be located in the EU and abide by PSD2. I think that's very simple. So I'm just saying that we may not agree on all these dimensions. But the point is that the answers would be different across industries and market segments. But Lawrence, please. No, I'm fine. OK. I had two questions. One is for you. Bruno, on the chart you were showing in terms of diversification, I wasn't sure to understand if you were focusing on the US. Because if you're focusing on the US, then there has to be a marked difference with the EU in the sense that the US is the largest capital market. People in the US tend to invest in the US quite easily because they've got depth, liquidity, volume. It would be a very different picture, I believe, from Europe where it's a lot more fragmented or segmented in terms of buyers. So that was one thing. And in terms of PEPs, since we were talking about this, so that's something that in practical matter, we look to see what will be developed because at the moment the target scope is quite limited. There are not that many people who actually are mobile across Europe and need to have a portable pension fund. You're talking, perhaps, 2% to 3% of the EU population. So in terms of clients that an institutional investor can address, it's limited at this stage. That's one thing. Then the other one is obviously when it comes to discuss practical matter, level of guarantees, whether you pay an annuity or cash format, whether it's shaped as an insurance product, but not necessarily. It can also be shaped as an asset management product and it has very different implications. So at the moment people are looking at it and the same with the tax treatment. If we inform correctly, we have an issue to decide what will be the tax treatment and the European Commission recommends that it's the most favorable existing for similar product. But again, we have to see how this fits with local regulation and it's probably worth trying with this product to have something common to all member states rather than falling back into what data flows we have today. Given that the session started 10 minutes later, we may take five, 10 minutes to take questions from the audience. And please identify yourself. Yes, Édouard. Thank you. Édouard Vidon, Banc de France. I would like to get back to Carol Lano's point that there is probably too much regulatory competition, but if I understood correctly at the same time you're saying it's actually difficult to make a stronger ESMA because there are many layers and national habits and things like that. So my question is would you still accept the Vice President's proposition that at the end of the day eventually we still need a single security supervisor for Europe and if yet what are the intermediary steps that you see in terms of convergence of standards and practices? Thank you. Édouard. I mean I'm a fan let's say of having more power for ESMA but basically if you look back the last 10 years initially in 2010 the commission said very clearly we give it five, seven, six, seven different competences like for example for benchmarks for prospectus for supervision of CCPs then the commission took back gets attitude and at the moment they only have two additional competences which supervision of rating agencies and trade repositories and now in the easier view they want to expand this again. If I were to be an ESMA I would say should I trust the commission this time let's say is it true what they want us to do? So that's only from the political perspective but I'm personally let's say very much in favour let's say they should do this but they have to look at it very carefully segment by segment because the capital market is something so complex where should we do it and what can be done. For example if I think now about CCPs which is on the table and EMEAR 2.0 I think that the structure of supervision which we will have basically will say we will supervise third countries operators much more tightly than EU 27 operators and the EU 27 operators will be supervised together with national competent authorities and with the ECB. I think that's the very dangerous structure meaning that is very unclear for my part that reminds me of 2008. So we have an clarity of who's finally in charge. If you look at for example benchmarks obvious it should have been done already before so the commission would never have retrieved the position on that subject. Prospectus I think the commission should do should just go much further. I mean and that was the example which was mentioned this morning by Spotify. Why is Spotify going to the US? Because as Lorans was saying it cannot do a single issuance in Europe and even on the recurrent proposal of the commission the four areas where you could do a single prospective issuance in Europe are very specific entities like for example for real estate entities or for shipping companies imagine. This is one of the four. So I mean the commission needs to think look for blue chip companies we should think about the way but which you can do a single issuance even towards retail investors. Think about another example which I mentioned this morning National in Netherlands and Dutch insurance company went to the market to retail it couldn't have a European wide retail offering even if it were to mean has an European wide or say at least a many different countries knowledge it couldn't do that because authorities didn't allow this and as Lorans said let's say there are fees there is authorization and so on. So I mean I would go through all these different I mean aspects of capital market supervision much more carefully look what can be done say make a matrix what can be done better at European level at local level and then take into account what I said during my presentation earlier where do we still need to have this local element the main reason why national supervisors are opposed to the ease of view today as they say we can do it much better what could Esma do much better than what we can do because we have the local competence and that is of course a very difficult debate and Luxembourg is saying this Belgium is saying this France is saying this I mean every country is saying this we know what local market but in the meantime we're in a chicken and an egg situation of which we never get out and in the end we have regulatory competition and we have cost of capital which is higher in Europe than it is in the United States and that's why Spotify is going to the US even if for example litigation costs for a company like Spotify are higher in the US than they are in Europe because whatever they say they are going to court I mean which is the mentality in the United States by an investor. I think also what you're saying here speaks to the point that we need to be very precise and focused to identify where harmonization is needed before we move towards a single supervisor system because coming back to the example of the SSM which was raised I think what has been identified by the SSM as the main hurdles for them to do single supervision is not about the different mandates of the institutions composing the SSM which are diverse, we have NCA's which are central bonds, we have NCA's which are standalone institutions with very different mandates across the board and that is not the main hurdle, the main hurdle is about different national laws and their directives being goal-plated into national laws and national options and discretions as Lawrence highlighted earlier but it's not necessarily about the different mandates of the institutions sitting around the supervisory board so that's an interesting example to start from also to identify what's important here. Let's say to do banking supervision and capital markets the mandate of capital market supervisors goes from a very narrow approach to a very broad approach and you know what from CCPs which are often supervised by ministries of finance and benchmarks which were also somewhere outside. Well Emir too will take care of CCPs hopefully. Let me take another question no Philippe did you want to ask a question earlier or no? Sorry I thought you had raised your hand. No? Victor please. Yes to just give powers to husband and the legislation being so different is a problem but the question is that the harmonization of legislation should be achieved and it's not achieved because in the end the vested interest of national institutions that deal with the local markets have prevailed. It's pure and simple. They don't want to disappear they want to keep their positions, their jobs, their powers but that has to be broken by a European legislation that for instance in banking of course was the banking directives already harmonized a lot of the legal environment for banking activity so that is needed but it has to be done what we see there is no willingness to do this because in the end what matters is that national governments do not understand the benefits that would be behind the capital markets union. They don't see the problem they don't see the benefits whereas in what regard banks yes there were problems with banks and so they saw the need to go into an European initiative because there was a banking crisis at that moment so but it is a matter of understanding the benefits and of basic political will so we have to press and indeed to make a lot of push to see something meaningful comes because you just also illustrated very well the limitations of the prospectus initiative yeah it's there but Lawrence also explained with so many difference and national fees and this and that that indeed there is no harmonization even of the simple prospectus. One last question Philippe yeah sure. I was actually intrigued by one of the very first remarks about obstacles to diversification because when we did the last year our work on CMU and we looked for all types of regulatory reasons why there would be constraints to diversification across asset classes for pension funds for insurers for all types of things and across countries and as a matter of fact for pension funds there was and there is actually notes by the commission that actually working groups who have worked on that the actual regulations that say you cannot invest so much more across borders within Europe in the EU or your area or OECD or you can as a pension fund not invest more than 5 or 10% into equity or something we found this to be extremely limited so what you said is mentioning Germany so I'm not interested in specific countries saying is that certain features of defined benefit contributions limit that's what I understood to actually diversify and so the first thing I would have is that sort of I would have I'm sorry for my ignorance expected that first of all the defined benefit problem and the constraints that it takes gives sets on risk taking is a general one there's in Europe it's not only Germany's like in many countries there is I think Carol mentioned it kind of preference for safety and risk list things and then people prefer to be sure I get the defined benefit but it will be very low interest rate it goes down, down, down with low interest rates but at least I know what I get or something in the equity I don't know so and but I would expect that for different providers this kind of first of all I wouldn't expect that the relevant universe of different asset management intermediaries that you had in your first chart actually Carol I think are all limited by that regulatory constraint neither there must be other intermediaries that I are not constrained by that and then the question is why don't they compete for different products somehow and then the second was that I thought that it wasn't the particular German problem I thought it was like it's not every European countries but it's a number of European countries where there's still this very strong preference for defined benefit where the system doesn't get rid of in somehow having diverse products but tell me where am I wrong so where are the regulations that actually really effectively constrained asset allocation and cross border investment that you meant I think when where I where perhaps there is a misunderstanding is it's Bruno who talked about defined benefit and defined contribution and pension I was focusing on insurance so what I can tell you is for insurance for example the type of guarantees as I think as I'm sure you know was higher in Germany than elsewhere but everything related to defined benefit versus defined contribution is it's Bruno who was talking about that so perhaps you want to answer. Well I didn't really specify defined well in terms of the defined benefits those were the large pension plan and they were heavily diversified in terms of defined contribution they were not and there I want to answer your question as well the interest in looking at the sample of American beneficiaries is that it includes future pensioners that would not normally invest but are forced to invest and the second thing is not a survey of active investor which would actually be very well diversified but it's revealed preferences what they actually do so in that sense it's very instructive about the behavior of people that are faced with a choice that they would not have to be faced in the defined benefit situation and invest in it but if in terms of defined benefits they are not constrained as a life insurance and so they do invest in equities much more. Let me give a chance to Caroline and Niels if you want to say one last word before I close. I was thinking about the question and I know from many asset managers that I talked to throughout the year that when they renegotiate the mandates but maybe Laurence can elaborate a little bit on that the asset owners that are taking those, signing up those mandates are more demanding about specific investments or specific constrained on investment for instance on sustainability, for instance on duration, for instance on allocation in certain areas and if you cannot call that regulatory constraints but at least this is done contractory constraints which happen more often because the asset owners where we first had of course the credit agencies then we had the asset managers now asset owners are on the more scrutiny to take up their responsibility and invest responsibly and I think there you see that was the kind of thing. Basically conclusion I would say as first of all I mean try to make the best of peps which I think could be very important I mean if you want to have a portable European wide sizable product with probably low cost and there are certainly examples as the ones I mentioned which could be used from national environments how to structure it for example there could be an annual meeting between the supervisor and the manager to say look how will you diversify this year let's say what is your asset allocation, what is the return you envisage and then secondly I think let's say they also initiated by the commission to look into the cost of funds which has led to a proposal which was issued at the end of March by the commission to basically try to standardize cost of funds which will probably help us to see that basically all this diversity and cost is also related to this huge fragmentation of framework which may lead probably the next commission to take initiatives we have to do much further be much more ambitious as the vice president said to create a really integrated market which basically we pay all of us the cost of this today. Thank you very much. I think you've done a wonderful job in first describing what Bruno Gerard very aptly called the symptoms of suboptimal resharing and suboptimal capital allocation and also identifying some of the hurdles we have to overcome. I believe that was a positive discussion also because you could identify some low hanging fruits or less relatively low hanging fruits less highly hanging fruits such as the peps such as maybe some aspects related to taxes which are where there are political hurdles but the technical hurdles are probably less but you've also identified some of some deep complementarities with other areas and that was I think a very fascinating part of the discussion complementarities between market structure and the structure of the investment community and the structure of institutional investors. Also going even deeply into the social and political fabric you've identified some what I would call cultural driver of the financial structures we are seeing in terms of different preferences of investors but also in terms of different preferences and cultures of regulators which also have to be overcome when if we want to move on towards unifying the market and that of course extends much deeply further way of capital market unions and into other dimensions and something we haven't discussed which we could have discussed if we had more time was complementarities between capital markets union and banking union which of course is at the intersect between our two sessions. For instance can we produce the kind of investment banking actors in Europe that can support capital market union which is an issue which stands somewhere between the discussion on banking union and capital market union. So that was a very rich discussion and it complemented very useful discussion we had this morning on progress needed on banking integration. You can be assured that first we've listened very carefully and the ECB will also draw on what has been said today this morning and this afternoon to deepen our understanding and also maybe made our proposals more granular and I'm glad that we share the same conclusion that we had to move forcefully and more boldly to implement capital market union project. You may have not noted that I guess what was the last sentence of the introductory statement of the ECB governing council last week when we met was that the governing council urges specific and decisive steps to complete the banking union and the capital market union. So you have the full support of the governing council of the ECB. Let me thank all the both on the European commission side and also on the ECB side who have been involved in preparing this conference and I would like to thank you very much for participating and I hope that we'll meet again next year in Brussels.