PRESS RELEASE
Bucharest, June 3, 2022 - What needs to be done to have a strong capital market? Is the new legislation a guarantee that the Bucharest stock exchange will reach its potential? How can the Romanian economy more easily overcome the crises caused by the pandemic or the war in Ukraine? Answers to all these questions, as well as many other topics on the public agenda, were provided by ministers of the Romanian Government, prominent representatives of public institutions, and business community figures during the conference “Capital Market: Regulations and Facilities Aimed at Developing the Capital Market,” organized by the Institute of Financial Studies and DC News Media Group.
ASF President Nicu Marcu delivered a message reminding that one of the major objectives of the Financial Supervisory Authority is the sustainable development of the capital market in our country, and to achieve this goal, ASF aims to identify all the tools and activities that ensure the premises for increasing the attractiveness of Romania’s capital market for investors and issuers.
Nicu Marcu emphasized that ASF is working on the “National Strategy for the Capital Market,” a project supported by the Organisation for Economic Co-operation and Development as a consultant. The project aims to develop a national strategy that includes regulatory principles and measures to establish a coherent framework for the development of the capital market and facilitate access to financing for all categories of investors.
The Minister of Public Finance, Adrian Câciu, stated that the evolution of Romania’s capital market is slow, and this needs to change, especially in the current international context.
“Romania’s capital market has developed slowly. It had very good results in 2021. It is a market that, from my point of view, has a series of very strong anchors. Obviously, like any capital market, in a situation like the one we are experiencing now, it faces major challenges given the uncertainties in global markets. But what I see in the capitalization area of the Bucharest Stock Exchange can only encourage us to keep working. We are discussing with Mr. President Nicu Marcu, but also with the BVB President, Mr. Radu Hanga - there are certain elements we need to accelerate - the strategy for the capital markets, which, in two weeks, will be established as a draft normative act, so that we have predictability in the development of the capital market. There are a series of elements through which we are trying to diversify the offer or offers, as well as comprehensive support from the perspective of the state and institutions that can help attract investors,” stated Adrian Câciu.
An example is the adoption of the Law on reducing taxes for investors in the capital market.
The beneficial effect of the Law on reducing taxes for investors in the capital market was also discussed by the initiator of this legislative project, the current Minister of Research, Innovation, and Digitalization, Sebastian Burduja.
“This is the best thing that has happened to Romania’s capital market in many years. This legislative project is a project of the market, a project requested for years by almost everyone, and what we managed to do until its submission was to bring all relevant stakeholders around the table and generate a common vision and a normative text endorsed by everyone: we are talking about BVB, the Romanian Banking Association, ASF, the Ministry of Finance, where we had the longest and most complex discussions, we are talking about all the actors in this market who have requested a way to stimulate retail investments, individual investments in the Romanian capital market. I have said it, I repeat, it is a win-win-win legislative project, on the one hand, ordinary Romanians, retail investors in the capital market benefit because they have a much better return there than if they kept their money in a bank account in the context of quite high inflation or, worse, at home under the mattress. Also, these Romanian companies benefit, as they can now finance themselves through the capital market at a much better cost than if they resorted to traditional banking-financial instruments, and, of course, the state budget benefits because through all these mechanisms, on the one hand, we generate investments, jobs, prosperity, and, indeed, better budget collection,” stated Sebastian Burduja.
ISF President Valentin Ionescu provided new perspectives on the evolution of the capital market. He introduced financial education into the equation, showing that it is a fundamental element in building a high-performing economy.
“Once again, the Institute of Financial Studies manages to bring together important people from Romania’s economic environment. I thank Mr. Nicu Marcu because, for over a year, ISF has changed its strategy, has more meetings of this kind, has a much greater focus on financial education and research, and we have seen very important feedback from all our stakeholders. We offer many free financial education seminars and have many initiatives that we voluntarily provide to all Romanian citizens, from students, pupils, employees, to those in the financial market,” said Valentin Ionescu.
The ISF President also spoke about external challenges and trends regarding the appetite for investments in the coming period. Thus, he believes that people will look for options that involve low risks. In this regard, he even recommended government bonds issued by the Ministry of Finance, which offer very attractive returns.
“We can listen to what is happening domestically, but we must not forget what is happening at the European and global levels. Romania is part of the European Union, part of these financial and other circuits, and we have seen that, after this pandemic, other crises have emerged. We are facing crises that are occurring simultaneously, all of which have led to very high volatility in capital markets globally, in Europe, and, implicitly, in Romania. Investors have sought safer assets, as is normal, and have turned to bonds. Now, more recently, I am one of the investors who wishes to buy government bonds issued by the Ministry of Finance. I don’t want to advertise, but I recommend them to anyone. 7.2% for one year and 7.8% for three years is a very good interest rate. No bank offers such a good interest rate for any type of deposit. Starting from the idea that investors are looking for safer assets, we are trying to find solutions. But, very importantly, these overlapping crises make our search very limited; the solutions are very limited in protecting against all the volatility affecting multiple asset classes. When we talk about the capital market, we must also consider involvement in other financial markets, such as the insurance market or the private pension market. The turbulence in financial markets has somehow forced most investors to rethink their investment strategies and how they will invest in the future, although it is very difficult to make an estimate in the medium and long term that is as close as possible to what will happen. Last but not least, the war represents a risk that is hard to insure, so it is expected that as long as this conflict continues, investors will keep retreating to safer assets, naturally causing an increase in volatility in other asset classes,” Valentin Ionescu added.
Marian Siminică, the executive director of ISF, presented a survey regarding the financial behavior of Romanians.
“We initiated a research project at the institute level, based on an opinion survey conducted with the support of Inscop Research, with a sample of 1,303 people, with national coverage, targeting all individuals over 18 years old. We selected a series of interesting results (...) and there are some conclusions that I believe will help us calibrate our financial education projects. It is concerning that only two-thirds of the study participants said they have knowledge and have heard about stocks, bonds, and investment funds. Can you imagine how much room there is for financial education if a third have not heard of such financial instruments? Not to mention that they are not even ‘eligible’ to invest in the capital market as long as they have not heard of such instruments. Paradoxically, in terms of socio-demographic categories, older people have more knowledge - 73% of people over 60 years old stated they have such knowledge, while among young people aged 18 to 29, the percentage is around 63%,” said Marian Siminică.
Gabriel Grădinescu, vice-president of SIIF within ASF, discussed the authority’s achievements in regulating the capital market. He presented, among other things, the conditions necessary for long-term success.
“At the beginning of this year as well, the authority (note: Financial Supervisory Authority - ASF) has been actively involved in regulating the investment area, in the spirit of developing the local capital market. We are in the midst of a process of inventorying and reconfiguring the regulations with a real impact on the size and complexity of the local industry. Therefore, we are constantly consulting with representatives of our industry in all priority development areas. I want it to be known that we do not regulate from an ivory tower, but we always keep our eyes on the market and regulate for the capital market. We have continued the process of quickly authorizing local funds, especially through the new legislative packages we are promoting or working on. The authority’s capital market staff developed regulation number 11 last year, a more streamlined framework for the organization and operation of registered F.I.A. administrators. Based on this new legislative package, three new A.F.I.A. (alternative investment fund administrators) have already been authorized, and we are confident that other administrators will follow suit and witness the creation of another segment of the capital market,” said Gabriel Grădinescu.
Ovidiu Petru, director of the SIIF General Directorate within ASF, spoke about the draft normative acts and regulations that the institution is preparing for the coming years.
“We have an ongoing dialogue with the market and the European supervisory authority on certain projects we are working on in Romania. Among the main projects are those for harmonizing, improving, and standardizing secondary and primary legislation. We have had many regulations in public consultation. We are also working on many laws, some of which we will soon see in force, such as the prudential supervision law, the crowdfunding law, a very important law for us. ASF will authorize these platforms. Regarding the major regulatory directions, we have this direction of sustainable finance, and we have a large package of regulations on everything related to green financing. Work is underway on the digital finance package - we are talking about several regulations for distributed ledgers, which will come into force next year, and we would be pleased if it were tested at the level of Romania’s stock market. Another important direction is data collection. Here too, things will change. The first effect we will see from 2025 will be the European Single Access Point system, in which all authorities will transmit data to ESMA, a platform that will be accessible to all analysts and investors, and we will be able to see data from all European Union countries,” explained Ovidiu Petru.
BNR Vice-Governor Leonardo Badea reviewed the main challenges that the Romanian economy must overcome during this period. He pointed out that businesses in Romania need strong financing to recover from the shocks they have experienced and are still experiencing.
“I believe we all agree that we are going through a complicated situation for the economy and society, characterized by increasing risks and uncertainties, and in the coming period, the chances of this situation being resolved are relatively low due to the overlapping crises we are facing. That is why the economy needs to continue to be supported by all available means, considering the generally limited resources available. We know that access to financing is particularly important for the evolution of the economy, and it can be ensured through a mix of bank financing and capital market financing. Romania, like most European countries, has an economy where bank financing predominates today, but capital market-mediated financing has gained ground in recent years and, in my opinion, must continue to represent an increasingly important complementary source, especially in the context of a low degree of intermediation, which places us among the last in Europe,” said Leonardo Badea.
About ISF
The INSTITUTE OF FINANCIAL STUDIES (ISF), founded by the Financial Supervisory Authority, is a center of excellence in the study of related markets and the implementation of financial education programs to ensure the skills, abilities, and knowledge of the staff of financial institutions and ASF personnel, as well as to increase the level of financial education of consumers of non-banking financial services and products. In the long term, ISF aims to align its activities with European requirements, transitioning from knowledge accumulation to the accumulation and evaluation of skills, providing professional training programs for the non-banking financial sector adapted to new organizational processes determined by legislative requirements, market dynamics, and the European framework, contributing to the maturation of Romania’s non-banking financial market, its ability to face competition induced by globalization, or the effects of economic crises.