BR INTERVIEW. Romanian financial regulator ASF looking actively at risk and FinTech, planning to implement Cloud Computing integrated system

The president of the Romanian Financial Supervisory Authority (ASF), Leonardo Badea, said in an interview with Business Review that the regulator is currently developing several important projects for the local markets aiming to consolidate and strengthen the supervision function, especially related to transparency, conduct and risks, and plans to modernize the IT infrastructure by implementing a „Cloud Computing” integrated system.

1. What are the main projects for ASF?

We continue to work towards achieving strategic objectives that address primarily: the sound and healthy functioning of markets, the stimulation of the development of financial markets, and last but not least the protection of consumers. With this view in mind, we are currently developing several projects with a high importance for our markets. We are working closely with our international partners such as World Bank, EBRD or the European Supervisory Authorities to consolidate and strengthen the supervision function, especially related to transparency, conduct and risks and to increase the efficiency of markets infrastructure by solving some old issues, such as dormant accounts or CCP creation. From an institutional point of view, we aim at modernizing and improving the IT infrastructure by implementing a „Cloud Computing” integrated system.

Finally yet importantly, we aim at keeping up with the fast pace of innovation. We are involved in an international FIN-TECH project in collaboration with Romanian Academy of Economic Studies, with the purpose of developing a training platform in the field of financial innovation to bring together regulatory authorities and FinTECh companies from different Member States. We assess the opportunity to develop a regulatory sandbox. We are also working closely with market participants to create an InsurTech Hub to facilitate sharing relevant information.

2. What is your view on the international markets?

Recently, European equity markets continued their decline in a moderate volatility environment, based on international trade concerns between US and EU, which aims at reducing the trade deficit with euro area. Contagion on European markets has risen sharply in May, due to these concerns, and it is expected to increase further. It is possible to assist to a temporary tightening of global financial conditions in the near future, as confirmed also by the evolution of financial markets turbulence indices.

3. How would you comment the markets supervised by ASF?

In the first quarter of 2019, Romanian nonbanking financial system assets were aprox. 12 percent of GDP, with investment funds industry and private pensions holding together 9.8 percent of GDP.

The first five months of 2019 brought a positive evolution on Bucharest Stock Exchange, which had a strong increase and made a full recovery after last year’s winter corrections in a low volatility climate. The average volume this year is below the one registered in 2018. Local market capitalization was about 33.9 bn. EUR at the end of May, while the average daily turnover was 10.30 mil. EUR. There are currently 85 companies with listed shares on the main segment and 29 intermediaries, banks and independent brokers. The size of the local capital market reported at the scale of the Romanian economy shows there is still a good potential for development.

The investment funds industry had a strong and healthy development in Romania, with net assets representing 4.05 percent of GDP (March 2019). There are currently 109 investment funds (79 UCITS with aprx. 295 thousand investors and 24 non-UCITS with aprx. 89 thousand investors). Alternative Investment Funds sector in Romania shows good opportunities for financing the economy. The UCITS invested a large part of their portfolios in bonds and deposits, while AIFs listed on Bucharest Stock Exchange invested mostly in equity and usually have a significant NAV per unit discount. Romania developed an AIF project law, to create the structural framework for the close-end funds to become AIFs, also allowing more funds types to develop and making market rules more transparent.

The insurance market is resilient under Solvency II regime, as shown by aggregated indicators. Although the motor segment is still dominant, the industry had a strong increase in health insurance and we expect this trend to continue, while also stimulating the development of other insurance segments, such as agriculture.

The private pensions system continues to grow in a healthy manner, with assets over 11.2 bn. EUR and more than 7.32 mil. Participants Pillar II and assets over 464 mil. EUR and more than 484 thousand participants in Pillar III at the end of last month.

4. What are the most important events where ASF participated or organized this year?

2019 has been so far a rich year in terms of reunions and I am excited that the context of the Romanian Presidency to the EU Council provided us with excellent opportunities for holding financial industry events in our country. ASF was in May 2019 host for both ESMA Board of Supervisory meetings and EIOPA Strategy Day, following a tradition of these organizations to convene reunions in the countries of their members holding the Presidency to the EU Council. We arranged along with Ministry of Finance and Bucharest Stock Exchange for the informal meeting of financial attaches of Brussels representing all member states, with an agenda dedicated to non-bank financial market topics.

Industry was also active, besides having EUROFI in Bucharest where I was honored to contribute to a DLT panel discussion, we had a number of events in Bucharest such as Insurance Europe and Better Finance where consumers protection issues are high on the agenda of both regulators and industry, it is also a good occasion to outline developments on the Romanian market to an important audience of senior industry representatives, consumers associations, public authorities and institutions from EU and Romania. And I believe, like almost all the rest, that we have a very good outcome for our Presidency, ASF is contributing in 12 financial market dossiers, out of which 8 were finalized having a significant implication of our ASF experts.

5. What do you think will be the future of Pillar II private pensions?

After 10 years of continuous and stable growth in assets and number of participants, Pillar II private pensions system entered into a redesigning process. Although there were some emotions involved, in the end, the adjustments made have proved to be beneficial for all parties involved. This are translated into overall lower fees for consumers, of which some relate to the pension funds’ performance. The investment policy and capital requirements were also updated to facilitate and support financing public private partnerships. Overall, even if we are not directly involved in public policies, since we do not have the power to initiate primary legislation, I consider we fulfilled our role indirectly, by actively supporting the market, acting promptly to update and consolidate the secondary legislation framework and taking part in discussions with stakeholders.

I am now confident that Pilar II will continue to evolve in a stable and predictable manner and will fulfil its fundamental role of supplying additional pension income to participants. In the same time, it will continue to develop as one of the most important local capital long run investors in the Romanian economy.

6. How would you comment the CCP project?

The CCP project is one of our main priorities for developing the local capital market. We are working closely with the market participants to support the creation of a local CCP, which we expect to have many advantages for Romania in terms of reducing the costs for the industry, increasing the liquidity and the intermediation activity and relaunching the derivatives regulated market. The CCP is expected to help increasing efficiency and stability on the markets, having the fundamental role of reducing counterparty, operational, settlement, market, legal and default risks for traders and brokers.

7. How did the markets adapt to the main European regulatory changes, for example MiFID II, IDD?

The sustainable development of financial markets is a very important aspect for Romania in the long run. It does not only contribute to a steady economic growth, by accumulating and investing local institutional capital, but it can also help retail consumers to take better and informed financial decisions regarding their future. However, trust and developing a strong infrastructure is necessary. The main European regulatory changes, implemented also by ASF, are submitted to a better consumer protection and strong resilient financial markets. We did our best to support the industry in adapting to the new challenges imposed by the new regulatory framework and I believe this effort benefited all parties involved.

For example, in light of the new MiFID II & MiFIR regulation package, financial market participants are also evaluating how they can optimize their business model regarding capital markets and how to exploit the new opportunities designed for market infrastructure. Implementation of the EU regulation is still very challenging and needs a good understanding and efficient national transposing.

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