The Securities and Markets Stakeholders Group (SMSG) is an advisory body to ESMA, the European Securities and Markets Authority. I participated in its work for five years (2019–2024), and in January I was appointed again. The SMSG consists of representatives of financial institutions, market infrastructures, companies, investors, financial services consumers, and academia. We consult on draft acts issued by ESMA and advise representatives of supervisory authorities from individual Member States.
Of course, we deal with many topics, and sustainability and sustainable finance are just one of them. However, earlier - particularly in the years 2021–2024 - this topic clearly dominated. No wonder: this was the period when the main regulations shaping the sustainable finance system in the European Union were being developed. Today the system is complete: we have Level 1 acts (regulations and directives) and the implementing acts issued on their basis (delegated regulations, standards, and guidelines).
The deregulation carried out through the Omnibus does not apply to financial institutions. In fact, I should put it differently: it does apply, but only with regard to the availability of primary data, i.e. data originating from companies. Institutions have reacted to this rather indifferently. They need specific data from companies, and since most companies will no longer publish it in mandatory reports, it will have to be provided in other ways, most often by filling in various questionnaires or via professionally data providers.
So what are institutions interested in? More or less the same as before: climate-related risks, emissions and decarbonisation, the application of due diligence processes, and impact on nature. From conversations with my colleagues in the SMSG, I get the impression that the last two topics are gaining importance.
Two other topics arouse much stronger emotions. One of them is the integration of European capital markets, which, despite reforms carried out for years, remain highly fragmented, making it difficult for European companies to raise capital. We keep going around in circles with this integration: Member States demand that the Commission present proposals that would effectively integrate the European market; the Commission presents such proposals; and then they are rejected or diluted in the legislative process by the very same Member States that called for the reforms. And we are back to square one 😉
The second topic is newer and therefore much more interesting: the role of artificial intelligence in capital markets and the associated risks and opportunities. It is more interesting because it is, in principle, almost unexplored, and yet it raises many questions:
- To what extent are companies’ annual reports produced using artificial intelligence models?
- Is the supervision exercised by management and supervisory boards over published data still real, or has it already become merely symbolic?
- How effective is auditing carried out with the use of AI?
- What do the models used by investors read from reports, and how do they make decisions on that basis?
- Who bears responsibility towards retail investors for investment decisions made by artificial intelligence, and how are those investors informed about the associated risks?
- To what extent can AI help supervisory authorities detect crimes in capital markets committed using AI?
Artificial intelligence in capital markets is an extremely dynamic field (which is somewhat a truism, because the pace of change in AI models is generally very high, not only in this particular industry). From a sustainability perspective, this topic falls within the areas of governance and consumer relations. And from the perspective of all of us, it concerns the safety of our savings and investments 😊
P.S. If the changes resulting from the Omnibus interest you, and you are particularly curious about what has changed in the simplified ESRS standards, we at MATERIALITY ACADEMY have just A new, super condensed and, as usual, very specific course titled... Simplified ESRS Standards 😊
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