Jacek Jastrzębski, Chair of Komisja Nadzoru Finansowego (KNF), appeared at the opening of the 24th Capital Market Conference of the Chamber of Brokerage Houses (IDM), taking place in Bukowina Tatrzańska. In his address, Jacek Jastrzębski said that the ability to arrange a business that earned profits to the owners but delivered good value for the client, where the products were appropriate for the client’s needs and expectations, and there was a balance between the risk and the benefits to the client was a measure of professionalism and development in the market. The expertise of professional participants in the financial market should express itself in their ability to generate profits expected by the owners but in a way that also brings benefits to the client. You can be a professional market participant and earn profit in the capital market over a long period of time only if your client earns money as well.

Jacek Jastrzębski stressed that the dialogue that the financial supervision authority had maintained over recent years with representatives of the capital sector focused on how to enhance the role of the capital market in financing the Polish economy. ‘There are many ways and ideas how to do that. The key is to make sure that corporate governance serves as a guarantee for minority shareholders to be treated properly by majority shareholders. It’s very important. A year ago, I spoke here about creating the culture of risk acceptance. This topic is inextricably linked with financial education. Education is a prerequisite but is not enough for market development and will not save the market alone. Other actions are needed, too’, Jacek Jastrzębski said. 

‘When we talk about searching for development opportunities for the capital market, it’s necessary to stimulate and increase the interest in investments in this market. In particular, the offer should be addressed to retail investors. This is a universal observation, of course, because the efforts to boost the interest in looking for both funding and investment opportunities on the stock exchange can also be seen in the initiatives of the EU legislator. Therefore, these are universal issues. I don’t think that legislative measures are the only solution to these problems. Legislation, just like education, can be a prerequisite but it’s not the only requirement. This framework needs to be completed and involve market participants’, Jastrzębski said.

The Chair of the KNF pointed out that the challenge that must be faced was the task to expand the range of investment products that would be available to a wide group of retail investors. ‘On one hand, these products could be an attractive alternative to treasury bonds but, on the other hand, they could be used as an arrangement for redirecting the savings to investing activities. The PPK is an interesting example. We’re very happy about the success of this scheme as it has developed in extremely unfavourable external circumstances but still allowed the accumulation of impressive sums of money, which are now working for the economy. They’re also working for the beneficiaries of these funds. Our homework is perhaps to figure out what elements of the PPK scheme could be used to promote the idea of long-term saving on a massive scale, including outside the retirement provisioning system. It may turn out that some elements which have become the key to the success of that programme could be transplanted into other instruments of long-term investing’, Jacek Jastrzębski said.

‘Minister Andrzej Domański mentioned REITs and ETFs. As the UKNF, we declare that we’re willing to cooperate to diagnose the needs, look for the best model and create regulatory framework, both for REITs and ETFs. Personally, I see ETFs as a source of synergies with our other strategic projects, such as initiatives aimed at extending maturity of liabilities in banks’ balance sheets. A proper design and promotion of ETFs can translate into, for example, a greater demand for instruments that would allow banks to extend the maturity of their liabilities. These topics are relevant for the whole financial market, and we’ll be very happy to work on them’, the Chair of the KNF said.

He also mentioned innovation as a way to make the market more attractive for potential investors. ‘Innovation helps attract new clients and sweetens the offer for the existing clients. Innovativeness in the context of capital market can be reflected in many aspects. It can be defined as an innovative business profile of issuers, which in turn may translate into a greater interest on the part of investors. It can also be reflected in a design of financial instruments that appeal to investors through the attractiveness of such instruments. We’ve seen examples of such success. However, we’ve also seen cases where innovativeness wasn’t a success but led to catastrophic effects for the financial sector. It’s a factor that involves both opportunities and risks’, Jastrzębski said. 

‘The third aspect of innovativeness, which in my view is the most interesting in our discussion today, is the use of innovation in the processes or relations between investment firms and their clients regarding customer service or client fund management. It can be both sales processes, CRM processes, and the entire relationship with the client. The firms we supervise are very willing to use those innovative tools and technologies. We can see their interest in algorithms and artificial intelligence. It's something that should be very high on our agenda: technology and innovation in the area of relations between brokerage houses and their clients’, the Chair added.

He stressed that undoubtedly the main theme in this area was artificial intelligence. ‘Artificial intelligence is a technology that has a potential to be a revolution similar to the emergence of the internet. Whether it will be such revolution or not is difficult to predict, as we’ve already seen technologies being presented as a breakthrough that was supposed to lead up to a revolution but ultimately did not. Or it did, but on a smaller scale than it seemed it would. Artificial intelligence has such potential and we believe it’s a topic worth following. However, innovation obviously entails threats’, Jastrzębski said. 

He mentioned analogy to the ESG rules: ‘When talking about the ESG rules, we refer to sustainable development but we see it mainly through the lens of climate-related, social and governance-related goals’, Jastrzębski said. 

‘I believe that the concept of sustainability can be applied also to the approach to innovation. We should note that the meaning of the Polish words “zrównoważony” or “zrównoważenie” is in a sense distant from the meaning of the English words “sustainable” or “sustainability”. A literal translation of “sustainability” or “sustainable” would rather lead to the conclusion that these words mean something that can continue over a long period of time. We’re talking about measures and solutions which can be effective over a long period, with no collapse and no depletion of resources, or termination for other reasons. The official Polish equivalent, the word “zrównoważony”, is not a literal translation but in my view, despite that inaccuracy and lack of literality, quite a good one. That ability to maintain a certain model over a long period will be achieved if that model properly balances potentially conflicting or complementary factors. It’s an observation regarding business activities and financial market but it probably also applies to our every day life, perhaps all its aspects’, the Chair added. 

‘I’d say that so defined sustainability, that is the balancing of risks and benefits, should be the main theme when it comes to the use of technology. This is the sustainable innovativeness we’d like to call for’, the Chair stressed.

The Chair of the KNF noted that the matter of sustainable approach to innovativeness was the first point of his speech, but there was another one, a crucial and probably more important one. 

‘The other point is a sustainable approach to relations with clients. Relations with clients must be arranged in a way that is sustainable, meaning a way that can be maintained over a long period of time. As we all know, relations with clients in the brokerage industry or asset management industry are based on trust. Trust means that investment firms must act for the benefit of the client. Otherwise, if we’re being brutally honest, there is betrayal of trust, which is the foundation of the relationship’, the Chair said.

‘Now let me tell you something, I believe, is important and should be made very clear. I think that the ability to arrange a business that earns profits to the owners but delivers good value for the client, where the products are appropriate for the client’s needs and expectations, and there’s a balance between the risk and the benefits to the client is a measure of professionalism. It’s also a measure of market development. To put it simply, you could say it’s easy to earn money while exploiting information asymmetries, exploiting the client and the weakness of their cognitive or decision-making processes, or just deceiving the client. It’s easy money. However, apart from its legal or regulatory consequences, such conduct is not sustainable, which means it can’t be continued over a long period of time. A market based on such conduct has no prospects of development. It wouldn’t be sustainable because it’s not balanced and doesn’t ensure the balance I described earlier’, the Chair said. 

‘That’s why, I believe, the professionalism of the financial market or the expertise of professional participants in the financial market should express itself in their ability to generate profits expected by the owners but in a way that also brings benefits to the client. In other words, I’d say, you can be a professional market participant and earn profit in the capital market over a long period of time only if your client earns money as well. Such approach ultimately serves not only the same investment firms but it also serves the purpose that is the main theme of our discussions. In fact, using the journalistic jargon, satisfied clients, that is those that gain benefit from participating in the capital market, will always be the best ambassadors of the capital market. And in my opinion, this is the key. That’s why these priorities are reflected in our supervisory actions. These are our expectations and this is our vision for the actions that are available to professional capital market participants and, regardless of any legislative changes, can increase the interest in the capital market’, the Chair said.

Jacek Jastrzębski also stressed that Urząd Komisji Nadzoru Finansowego was open to dialogue with market participants aimed at searching for sustainable arrangements, both in relation to technology and client relations. The supervisory authority is also prepared to engage in joint activities, under the leadership of the Ministry of Finance, to create an optimal legal framework for such arrangements.