Verena Ross, the chair of the European Securities and Markets Authority, Esma, has laid out a robust European framework for improving financial markets, boosting trust and transparency. But in a speech in Germany on Monday, she also identified the industry’s sluggish response to digitalisation and “greenwashing” as barriers to progress.
Addressing a largely derivatives-focused audience at the forum of German derivatives association DDV, Ross outlined Esma’s proactive approach to revamping the European financial landscape. The focus is on enhancing investor experience through digital capabilities, promoting transparency, and cracking down on the insidious issue of “greenwashing.” She questioned why hasn’t the industry been quicker to adopt these seemingly straightforward principles.
Fundamental precondition
Ross was unequivocal about the value of technology in modern financial markets. “It cannot be emphasised enough that trust in the presentation of financial products and trust in financial service providers continue to be a fundamental precondition for long-term stable markets. Effective financial markets cannot exist without the trust of investors,” she said.
Ross highlighted Esma’s European Single Access Point (Esap) as a vital step towards building a more transparent market. Esap serves as a digital hub where investors can access mandated disclosure data. However, despite this move to modernise European markets, many industry players are still lagging behind, failing to fully support or integrate into this digital ecosystem. Market players who resist this transition do a disservice to investors and impair market efficiency, it’s argued.
“Greater transparency is an opportunity. And this opportunity lies in fully utilising our digital capabilities to improve the investor experience in European financial markets and make markets more effective and efficient,” Ross pointed out, asking why the industry isn’t scrambling to leverage these digital capabilities.
Another pressing issue that Ross tackled head-on is “greenwashing,” where financial products are deceptively marketed as more sustainable than they are. This has been a longstanding issue that, frankly, the industry has not done enough to combat, according to Ross.
ESG products need to meet standards
“Given the steadily growing EU market for sustainable investments, it is of critical importance that financial products and services marketed as sustainable actually meet the relevant standards,” Ross said. The industry’s sluggishness in meeting disclosure obligations concerning environmental, social, and governance (ESG) criteria is increasingly indefensible and stands as an obstacle to genuinely sustainable investment.
In coordination with other European authorities, Esma has even developed a joint definition for “greenwashing,” aiming to protect investors from misleading claims. Yet, despite this concerted regulatory effort, the financial industry seems lackadaisical in policing itself, essentially leaving the burden of compliance on the shoulders of regulators.
Innovation and protecting investors go together
Ross ended her speech on a hopeful note, emphasising the importance of a balanced approach that fosters innovation while protecting investors. “Only financial market rules based on these values can effectively contribute to the stability and integrity of European financial markets,” Ross said. Her words, although encouraging, underscore the financial sector’s lag in adopting a future-ready approach to market integrity and investor protection.
Ross may be making all the right noises about the pathway for European financial markets, but until the industry heeds these calls, they remain just that — noise. It’s time for financial players to align their practices with these emerging frameworks, making sure that the future they’re shaping is both secure and inclusive for investors.