17 Nov Investment watchdog draws pathway for Slovenia’s success
Anka Čadež, Director, Securities Market Agency, addresses current challenges the Slovenian capital market faces and outlines key steps to unburden the local investment climate.
How significant is the Slovenian Presidency of the Council of the European Union for the country?
The presidency is very important for the entire nation, and we are actively involved in it. Experts from Securities Market Agency (ATVP) are closely involved in financial services dossiers that are currently being discussed, such as the Digital Operational Resilience Act and Markets in Crypto-assets regulation. We hope that we reach a compromise with the European council and successfully conduct trialogues with the European Union during our presidency. Experts from ATVP also chairs two dossiers in the field of investment funds, known as Alternative Investment Fund Managers Directive and European Long-term Investment Fund. We will play an important role in the creation of new legislation.
What historical challenges has Slovenia faced in terms of attracting investment?
The Slovenian capital market was established at the same time as our new state in the first half of the 1990s. Our capital market is quite small and young. There have been ups and downs in the last 30 years. We reached a peak in 2007 before the global financial crisis. Some factors have had an impact on the trust of investors in our capital market. The stock exchange plunged significantly in the first period of 2008 during the global financial crisis and consequently many retail investors lost more than half of their investments and never came back to the market. We had an initial public offering of our second largest bank and many retail investors decided to buy those shares. However, the shares were written off in the 2013 banking crisis. The same happened with subordinated bonds issued by banks in Slovenia, which at the time was an attractive investment with yields of 6-10 percent. In 2014-2016, the government decided to sell its stakes in state-owned enterprises to strategic investors rather than the public market to maximise price. However, these entities were delisted after the sale, which decreased supply in the market.
Now, our capital market is very safe and stable. All necessary infrastructure and regulatory frameworks have been transposed from relevant EU directives to ensure a high degree of protection for investors. We are aware that a well-functioning capital market is in our common interest and hope that high-level commitment will be forged. Last year we took part in a project that showed that taxation was our main problem. New tax incentives are planned for digital transformation and green investment. Slovenia has the potential to create a successful capital market, especially now with upcoming regulatory changes, EU requirements and the possibilities offered by technological investments. Investors should take our country into account; the Slovenian market enjoys very high dividend yields.
What major challenges does Slovenia face in attracting investment and how can it overcome these hurdles?
Traditional mindsets are a problem in our country. We must do something to change them and give opportunities to new products on the financial market. Another problem is the lack of government direction and institutional support. The capital market is not a high priority for the government or part of the national strategy. The Slovenian financial market is mainly banking oriented, and this needs to change to make the capital market attractive to investors. It would be wise to perform an analysis of tax legislation in areas where it has been established that Slovenia is uncompetitive, as this may be stricter than general EU standards. Capital gains taxation has also been identified as an issue by the EU. To avoid tax havens, we should establish a global minimum standard in taxation, which would ensure the same tax environment throughout the world. Another challenge is our low liquidity; in our market we have only a few blue chips, but they pay out among the highest dividends. In 2020, exchange-traded funds were promoted in our market for the first time, which is of interest. Compared to foreign stock exchanges, our blue chips are among the cheaper ones, which is reflected in the interest shown by foreign investors.
What role does ATVP play in bolstering Slovenia’s economy?
The biggest success of ATVP is a stable capital market, indicated by the fact that foreign investors make 40 percent of the transactions on the Ljubljana Stock Exchange. The stable capital market is not self-evident but is the result of consistent supervision by the ATVP to ensure deliverable targets are met and complied with and that there are no irregularities and abuse in the market. We carry out our tasks with limited human and financial resources and have been quite successful. In 2021 we are planning to organise a workshop for small and medium-sized enterprises. We want to encourage them to access capital market financing to initiate public offerings over the issuance of corporate bonds on the stock exchange. This will enable them to diversify their funding sources. In the future we plan to enhance our activities in the field of financial literacy. We also hope to take a more active approach in promoting the Slovenian capital market and emerging markets.
How important is sustainable finance to ATVP and Slovenia’s capital market?
ATVP is committed to the important issue of sustainable financing, which will represent a new opportunity for the Slovenian capital market. If Slovenia manages to develop a trading venue that focuses on financial institutions that practice environmental, social and corporate governance (ESG), this will bring new investors and issuers into Slovenia. However, to successfully fulfil this goal, all stakeholders need to cooperate. We must do something to attract ESG issuers and investors by creating sustainable policies at a government level to promote greener and sustainable products that meet the European Green Deal targets. For example, Slovenia could introduce tax incentives for issuers and investors. ATVP will do everything it can to prevent greenwashing.
How have new digital technologies changed the playing field in terms of finance and trade?
Digitalization brings many new questions into ATVP’s supervisory parameters. One of the main benefits of digitalization is that it enables cross-border activities. The use of a cloud computing system is unavoidable; cyber security is of utmost importance. Blockchain will be instrumental to our capital market infrastructure designs and will facilitate trade between financial instruments. Blockchain may also be used as a tool to enhance communication between users and investors. It will provide us with novel ways to conduct general meetings of listed companies, which could make meetings easier to attend. However, we must be careful with these new technologies. Unfortunately, cryptocurrencies are currently used as a highly speculative investment. They need to be regulated to stop them from being misused. Virtual asset service providers need to be licenced or registered and supervised, which is being negotiated in the Markets in Crypto-assets regulation. This should be adopted as soon as possible. We recommend caution in trading in these products.