Innovation and Regulation: What Inspiration for Europe and Japan?

Illustrative Cases: Accounting Framework

INTRODUCTION

• GLOBALISATION IS A REALITY, IT IS A SOURCE OF GROWTH FOR THE WORLD

• THE CRISIS IS NOT JUST THE RESULT OF AN ECONOMICAL CYCLE, IT TRIGGERS:

- A NEW GOVERNANCE MODEL FOR THE WORLD

- A NEW FINANCING MODEL vs REAL ECONOMY

TO FACE THIS REALITY OUR INDUSTRY NEED:

INNOVATION

« SMART » REGULATION

3

I- GOVERNANCE ISSUES /: A MULIPOLAR DIVERSIFIED WORLD

G20 Pinciples

3

US

CROSS BORDER CROSS BORDEREU

ASIA

OTHERS…

…27

1

COMPATIBILITY HARMONISATION

2ITS BACKBONE:- GOUVERNANCE- SINGLE RULEBOOK- REGULATION COMMUNE AUTORITES (ERA) + ECB- RESEAU DES CENTRES FINANCIERS- INFRACTRUCURES DU MARCHE COMMUN. PAIEMENTS. CSD. CCP. ECHANGES

Critical mass +competitiveness

4

A TOP DOWN COHERENT GOVERNANCE FROM G20 to INSTITUTIONG 20

FSB

FMIBANQUE MONDIALE IOSCO

CE

ESB

BCE

ESMAEBA EIOPATRESOR

BDFACP AMF

CONSEIL D’ADMINISTRATION

COMITÉ DES RISQUES

DIRECTION DES RISQUES

DIRECTION OPÉRATIONNELLE

PRINCIPLES WORLD

CONTROL TOWER « TOOLS »

REGION ASEAN / EUROPEAN Framework

EU « Banking Union »REGULATORS

NATION LEGAL / TAX Framework

Local supervision

INSTITUTIONRisk culture / manegement

A Robust risk chain from top to bottom -Risk appetite-Risk coverage-Risk monitoring

THE RISK CHALLENGE vs INNOVATION

• COMPLEXITY IS A GIVEN IN MODERN SOCIETIES : IT WILL INCREASE THROUGH TECHNOLOGY AND GLOBALISATION

• FINANCIAL INDUSTRY’S MISSION HELP THE REAL ECONOMY TO HEDGE RISK

• YESTERDAY’S PARADIGM: COMPLEXITY COMPLEX FINANCE PRODUCTS

EXPLOSION & VICIOUS INTERMEDIATION

• POST-CRISIS PARADIGM: COMPLEXITY SIMPLICITY (+TRANSPARENCY)

VIRTUOUS INTERMEDIATION more research & innovation5March 30, 2012

THE RISK MACRO HEDGING CURVE

THE RISK HEDGING TUNNEL •MACRO PRUDENTIAL SURVEILLANCE•BANKING STRUCTURES + RESOLUTION PLAN•MARKET STRUCTURES REGULATED OTC BASED ON LEVEL OF LIQUIDITY•ACCOUNTING RULES

SOCIETAL COMPLEXITY =

RISK

SOCIETAL COMPLEXITY =

RISK

HOW TO FOLLOW THE CURVE ?HOW TO MAKE THE NEXT CRISIS LESS PAINFUL OR SYSTEMIC

HOW TO FOLLOW THE CURVE ?HOW TO MAKE THE NEXT CRISIS LESS PAINFUL OR SYSTEMIC

INNOVATION or NEXT CRISIS ?INNOVATION or NEXT CRISIS ?

6March 30, 2012

II- A NEW FINANCING MODEL FOR THE REAL ECONOMY

• THE B20 RECOMMANDATIONS : priority to growth via SMSs & INFRASTRUCTURES

• WHY TO RECONSIDER POST CRISIS PRIORITIES ?

• AS FOR OTHER INDUSTRIES, WHY INNOVATION IS KEY?

- structural innovation conditions for a robust competitivity

- Strategical innovation what format for the financial industry, robust and safe ? How to optimize capital allocation , prudential vs production? Why universal banking model ?

- Entrepreneurial innovation : clusters & innovative SMEs

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VIRTUOUS BALANCE & CHALLENGE (« 9 » 3+3+3) !

Growth

Stability SolidarityEntreprises

RégulatorCountry 1

« Régulated »

Trust

Savings/ investors

Financial intermediaries

Corporate / SMEs

3

3

3

RégulatorCountry n

Smart reg

Mutual recognition

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FINANCING THE ECONOMY

I/ Investors: deep liquidity

II/ Corporate: value creation

III/ Credit Intermédiation & market risk

« Transformation « 

REGULATION

INFRASTRUCTURES

Domestic SavingsGlobal savings - Assets

- Pensions- Deposit

State/ municipalities

locales

Productive assets Prudential assets

Alternativefinance

Regulated Transformation

SUPERVISION

A STOCK EXCHANGE AT THE CENTER

• BLUE CHIPS vs SMEs• PRIMARY vs SECONDARY• CAPITAL FLOW vs LIQUIDITY• EQUITY vs BONDS

• DOMESTIC vs FOREIGN • INDIVIDUALS vs INSTITUTIONS• LT FUNDS vs MUTUAL FUNDS

• DVP • CSD

• RULES• MARKET PRACTICES• SUPERVISION• TECHNOLOGY

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STRUCTURAL CONDITIONS : KEY QUESTIONS

• MARKET STRUCTURE• IS FRAGMENTATION AN ISSUE ? FOR France, YES• REINFORCEMENT OF STOCK EXCHANGES• PROPER BALANCE vs MTF & OTF….

- TRANSPARENCY• PROPER BALANCE vs LIQUIDITY• BUT PROGRESS ARE NEEDED IN POST TRADE EVEN FOR BONDS• INNOVATION in BOND TRADING : A BALLANCED ORDER BOOK for LOW LIQUID

INSTRUMENTS the CASSIOPEA project

- LIQUIDITY / COLLATERAL CHALLENGE

- THE UNIVERSAL BANKING MODEL: WHY IT IS STILL GOOD FOR EUROPE.• THE CRITICAL MASS & COMPETITIVE ISSUE• THE CUSTOMER SERVICE ISSUE• THE PRODUCT ISSUE STONGER LINKS BETWEEN CREDIT & MARKET WORLD, A

COMPLEMENTARY CHAIN OF SERVICES

- IMPROVEMENT OF THE RISK MANAGEMENT CHAINE IS MORE EFFICIENT THAN JUST CAPITAL BUFFERS

WHY ACCOUNTING RULES ARE STRUCTURAL ?

• ACCOUNTING IS ABOUT VALUES = MEASURE OF ECONOMICAL SUCCESS

• IT IS A « TOOL » FOR MULTIPLE PURPOSES - CORPORATE MANAGEMENT- LONG or SHORT TERM INVESTORS- TRADERS- REGULATORS ( PRUDENTIAL)• DEEPLY LINK INTO LOCAL PRACTICE & CULTURE• BUT GLOBALISATION IMPLIES SOME CONVERGENCE• TO FIND A COMPROMISE • IASB CONCEPTUAL CONSULTATION vs EU ACCOUNTING

GOVERNANCE / the « EFRAG » ISSUE

FINALLY TOWARDS A LONG TERM INVESTMENT STRATEGY

• TO REBALANCE SHORT vs LONG TERM HORIZONS• A L T INVESTMENT STRATEGY RAPS UP

COMPETITIVE CONDITIONS FOR THE REAL ECO• A NECESSARY DEFINITION

• INSTRUMENTS : EQUITIES, BONDS….• ENVELOPES: PENSION FUNDS, LIFE INSURANCE,

EMPLOYEES SCHEMES, MUTUAL FUNDS…

- IT IMPLIES ALSO SHORT TERM COMPONENT TO GUARANTEE A FAIR EXIST PRICE AT THE END, AN EFFICIENT MARKET PLACE IS A TRUST COMPONENT & CONDITION….

In EUROPE A GREEN BOOK TO FIX ORIENTATION FOR THE NEXT LEGISLATURE 2014- 2019….