Luc FRIEDEN, Minister of Finance, Luxembourg
Luxembourg is this week without any doubt the best regulated place on the planet – with all of you, regulators and supervisors, having gathered here in my country which hosts a most prominent international financial center!
Connecting global finance is indeed the challenge of our times. That finance is global is today an undisputed fact. The interconnectedness and interdependence within the world of finance is one of the cornerstones of globalization. This process of globalization has borne a lot of fruit but, at the same time, we have also become more aware of the asymmetries and inequalities that we witness in the world. The financial crisis that erupted 5 years ago has sharpened those contradictions and it is today our task, mine as a Minister of Finance, yours as regulators and ours together within IOSCO, to rebalance global finance and to channel it more properly towards economic growth.
When we talk about connecting global finance, we need to look at two aspects. One of the challenges is linked to the notion of “global”. It is to keep advancing in the process of globalization and not to halt nor hesitate. We should not disconnect the “global” from the “finance”. The challenges, some more complex than others, such as the euro crisis – that we faced due to the interdependence of finance should not lead us to more protectionist patterns. Global finance is not the issue at stake – but the conceptual framework we define is paramount. It is precisely this framework, embedded in the process of globalization that must be our primary concern. And it is also what IOSCO stands for.
The second aspect I want to touch on tonight is about the element of “connecting”. If we continue to assume that finance must be global and thus refrain from hampering the dynamic of globalization, what is it that we need to connect it to? Finance is by definition a means to an end and not an end in itself. This assumption was challenged during the recent past decades through a phase of deregulation and sophistication that propelled the world of finance with growing complexity away from economic reality. We need to bring it back to its primary purpose which is to establish prosperity by fuelling economic growth.
In order to ensure sustainable growth, we need to allow for access to cost-effective capital. Traditionally, the banking sector offered this type of financial intermediation. In this after-crisis period which we witness today where banks need to redefine themselves in the face of ever-increasing regulation, more thorough supervision and still have not been able to completely win back the trust they lost, economic actors are also turning to market-based financing or, as some call it, shadow banking. It will be a particular challenge for regulators to deal with this trend and to keep markets open, fair and transparent without slowing down innovation and access to capital which effectively are the key parameters for growth to kick in. I would add to this that investor protection must also be part of this conceptual framework. Complexity that is solely created by financial innovation is not sustainable and investors must on the one hand be better informed and on the other hand better protected.
The financial crisis has impacted the world – at a global level. And it impacted all of us in our countries. Luxembourg has been able to weather the consequences of the crisis quite well and the financial sector managed to remain resilient – as many rating agencies have also confirmed ever since. Adequate and careful regulation and supervision has always been an essential dimension of our financial sector strategy. We continue to believe that growth can only occur in an environment that is steady and trustworthy. So I embrace the worldwide movement – as encouraged also by IOSCO – to further strengthen our regulatory and supervisory framework in a manner that is both fair and conducive to growth.
Discussing these very important issues in Luxembourg is for me of particular importance. Your presence this week, the quality of your discussions and our interactions together will reflect the care we in Luxembourg attach to excellence in our financial sector. Often inadequately represented to the outside world, Luxembourg has a long tradition in financial services. As I told you, we know about regulation and supervision. And we understand the business of financial services. We have a largely diversified scope of products to offer, a highly skilled workforce, an international orientation and outlook as well as a great attachment to global standards. We believe that global finance is a reality and an opportunity that we can all tap into by developing a balanced approach to regulation, supervision and growth.
Sustainability and responsibility must become the driving forces for global finance to benefit all economies and ensuring level playing field between all the players – whether large or small, specialized or not, emerging or mature – is in fact the key to success and real efficiency in “connecting global finance”.
The tools are necessary, the structure must be adjusted and most importantly the spirit must be fair. Luxembourg wants to make its contribution by developing all three pillars – through financial expertise, as a member of regional and international institutions and as an actor in an era where values and principles are identified as pivotal in defining global finance.
I am confident that your contributions will help us shape ours and I am grateful that IOSCO enhanced our international dimension by holding its conference in Luxembourg in 2013!
Luxembourg, 18 September 2013