The role of financial innovation in EU Market integration and the Capital Markets Union: A re-conceptualisation of policy objectives

Research output: Chapter in Book/Report/Conference proceedingChapter (peer-reviewed)peer-review

Abstract

This chapter offers a critical discussion of the challenges the European Union 27 (EU27) will face in the context of making proper use of financial innovation to further market integration and risk sharing in the internal financial market, both key objectives of the drive to build a Capital Markets Union (CMU) for the EU 27. Concurrently with the challenge of implementing the CMU and actions to cover, in part, the EU investment gap, the EU 27 is faced with two other important developments. First, there is the prospective loss of seamless access to the City of London’s wholesale financial markets. It is unclear what is going to be the impact on risk premia of the dual advent of Brexit and EU plans on CCP supervision which could reduce the clearing volume contracts denominated in euros by the London Clearing House/SwapClear. Secondly, there is the important paradigm shift that is signalled by a technological revolution in the realm of finance and payments which also combines advanced data analytics and cloud computing (so-called FinTech). By advancing the cause of disintermediation FinTech has disrupted old investment business practices (including trade brokerage and investment advice) and lucrative income and profit lines. Namely, financial markets in the EU and elsewhere are on the cusp of an industry-wide paradigm shift. The EU legislative initiatives wrapped together under the brand of CMU are the latest and possibly the more drastic in a number of (mostly centrally driven) EU market integration initiatives. But financial market integration in the EU not only lags behind the USA but also in actual fact it has stalled following the stagnation of intra-EU trade in the post-2008 period. There is, however, a potent key that may break the deadlock in the medium to long- term: FinTech. But this comes with several safety and privacy risks, setting aside any financial stability risks that may follow when FinTech firms/activities build size and scale. So for FinTech to play a potent integrative role in the EU, as it is certainly capable of, careful planning by regulators will be required.
Original languageEnglish
Title of host publicationCapital Markets Union in Europe
EditorsEmilios Avgouleas, Danny Busch, Guido Ferrarini
Place of PublicationOxford, UK
PublisherOxford University Press
Pages171-192
ISBN (Print)9780198813392
Publication statusPublished - 1 Mar 2018

Keywords

  • Capital Markets Union
  • fintech
  • crowdfunding
  • P2P lending
  • sandboxes
  • EU financial integration

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