How to make the Polish capital market more dynamic?

• Financial instruments/products
• Institutions/supervision
• Values/codes

Below are three topics that form the basis for discussion on changing the dynamics of the Polish capital market and increasing its efficiency:

1. Financial instruments/products – identifying/proposing instruments and products missing from the market.
   The Polish financial market is a relatively new market. We have been operating for only 35 years. Despite the huge leap made during this time, still in many aspects our market does not match the wealth of deeper markets in terms of financial products and instruments. In this part of the discussion, we will try to analyze what products the Polish market lacks, and which ones, if introduced, would bring about the greatest changes in the flow of capital to Poland.
2. Institutions – a discussion of how the regulated market is supervised and how disputes are resolved.
   The financial market is a place where various entities and interest groups clash: from banks, institutional investors, individual investors, companies i.e. providers of various products and services to consumers. The efficiency of the market depends both on its liquidity, which is the resultant of the number of players, the value of turnover, the openness and speed of information exchange, the strength of competition, and the quality of regulation and supervision of the market.

This last element is crucial. Both under- and over-regulation can harm. Unfortunately, the most common mistakes made in the area of regulation are attributed to market failures. This increases the scope of ineffective regulation and throws the economy into further turbulence. This was the case after 2008, when non-compliance with rules on financial product creation, risk estimation and rating caused the biggest global financial crisis in decades. Many new regulations and restrictions were introduced. Interventionism blossomed to cause another crisis as early as 2012, this time having its basis in excessive sovereign borrowing.

The Polish financial market is, in its essential part, a regulated market. It is supervised by the Polish Financial Supervision Authority (KNF), the Office of Competition and Consumer Protection (UOKiK), GiODO, GIF or NBP. These institutions should interact with each other, on the one hand guarding the compliance of all entities with the rules defined by law, on the other hand ensuring their consistency and flexibility. In reality, all the energy of regulators goes into collecting huge amounts of data, which these institutions are not even able to process. Meanwhile, the essence of regulation lies not in collecting data but in processing it and intervening quickly. But reprocessing requires interpretation of both the data and the regulatory rules themselves. The regulator should talk to the market and intervene at an early stage, seeing a threat, and not only when a crisis situation arises. To put it from another perspective: in Poland there is strong control at the entrance to the system, and then basically no supervision of compliance with the rules. The GetBack affair was a perfect example of this. Thus, we will discuss the thesis: wouldn’t less regulation but better methods of enforcement produce a better result.

The second major issue concerning the functioning of the market is the system of resolving economic conflicts. The market is not a “safe” place. Competition inherently generates conflicts, and these should be resolved quickly and efficiently by the judicial system. Who cares about resolving a dispute over, for example, the integrity of financial statements after 10 years? After such a period of time, it is no longer relevant. Dispute resolution is either quick or none at all. Dragging out disputes in the courts actually causes the market to act as if the law does not apply. And this is the most serious threat to the functioning of the market economy.
The business judiciary needs fundamental changes, the scope of which we will discuss as part of this panel.

3. Values/codes – functioning in the market requires both adherence to state and customary law.
The market itself does not possess ethical qualities. These are possessed by people. What should be done so that ethical actions are promoted in the market and non-ethical ones eliminated? One of the basic principles in civilized markets is to protect the rights of minority shareholders. How does this look on the Polish market?
The weakness of Polish business law is the lack of sanctions for completely basic offenses. Added to this is the domination of literal interpretation of the law by the courts over expediency, which causes the law to lag even further behind economic life. Protection of the rights of minority shareholders is becoming completely illusory. What should be done to change this?
The fish spoils from the head. Not only, SOEs are not an example of following the best market and corporate practices, but conversely an example of the worst ones. Should SOEs continue to participate in regulated trading? If so, shouldn’t appropriate statutory restrictions be put in place to provide a mini¬mum of protection for minority shareholders? How about completing privatization and limiting the state’s presence only to precisely defined strategic sectors? These will be the issues for discussion in the third part of the panel.