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European Capital Market Union: new perspectives

Eugene Eteris, European Studies Faculty, RSU, BC International Editor, Copenhagen, 13.06.2017.Print version
After almost two years since the launch of the Capital Markets Union (CMU) Action Plan, the Commission published some new initiatives in the mid-term review. Reforms include: pan-European personal pension plan, proposals for a EU-wide framework on covered bonds to help banks finance their lending activity, and a proposal on legal certainty on securities ownership in the cross-border deals.

The CMU’s initial idea is to strengthen the flow of private capital to growing businesses, to infrastructure investment, to sustainable energy transition and other vital projects to increase jobs and growth. Removing obstacles to the free flow of capital across borders will strengthen Economic and Monetary Union by supporting economic convergence and helping to cushion economic shocks in the euro area and beyond, making the European economy more resilient.

In September 2015, the Commission adopted an Action Plan on Building a Capital Markets Union (CMU), which set out a programme of actions to establish the European-wide integrated capital market by 2019.

 

CMU will make a stronger capital markets, which is better connected to productive investment, while creating better investment opportunities for pension funds, institutional and retail investors saving for the long-term and retirement.

 

In January 2017, the Commission launched a consultation on the CMU mid-term review, creating an opportunity for stakeholders to provide targeted input to complement and advance actions put forward in the CMU Action Plan.

 

The Action Plan is built on four key principles:

- connecting financing to the real economy by developing non-bank funding sources;

- creating more opportunities for investors;

- fostering a stronger and more resilient financial system; and

- deepening financial integration and increasing competition.


CMU as part of the EU’s Investment Plan

The CMU is a key pillar of the Commission's Investment Plan for Europe, which through a mix of regulatory and non-regulatory reforms would seek to better connect peoples’ savings to investment structures. The CMU aims at strengthening EU’s financial system by providing alternative sources of financing and more opportunities for consumers and institutional investors. The Commission thinks that the CMU means accessing more funding opportunities, such as venture capital and crowd funding for small and big companies and start-ups.

CMU plan puts a strong focus on sustainable and green financing; in this way the EU financial sector would help sustainability-conscious investors to choose suitable projects and companies.

 

Concerning the mid-term report, the Commission Vice-President Valdis Dombrovskis, responsible for Financial Stability, Financial Services and Capital Markets Union underlined that “CMU remains at the heart of EU’s efforts to boost European investment and create jobs and growth”. He argued that with the departure of the largest EU financial centre in the UK, the Commission is forced to step-up efforts to strengthen and integrate the EU-27 capital markets.

 

The Commission Vice-President Jyrki Katainen, responsible for Jobs, Growth and Investment, mentioned that Commission had given already decisive impetus to the CMU. For example, Commission has delivered two-thirds of the initial CMU’s commitments. Besides, it is expanding its efforts in order to meet new challenges, e.g. funding sustainable investment and harnessing the potential of FinTech; these new measures, he added would renew and reinforce the Commission's commitment to a progressive CMU.  


Two years’ progress

The Mid-Term Review underlined good progress made in implementing the 2015 Action Plan, with around two-thirds of the 33 actions delivered in twenty months. Recently, the EU co-legislators (Parliament and the Council) agreed in principle on two major proposals:

- securitisation package (to free-up capacity on banks' balance sheets and generate additional funding for households and fast growing companies) and proposal on venture capital funds (to facilitate investment in innovative SMEs.


In 2016 the Commission agreed on new Prospectus regime that would allow easier access to public markets, especially for SMEs.


The Mid-Term Review also sets the timeline for the new actions; they will include a pan-European personal pension “product” to help people finance their retirement. Furthermore, the Commission will continue its work on enhancing the supervisory framework for integrated capital markets, increasing the proportionality of the rules for listed SMEs and investment firms, harnessing the potential of FinTech and promoting sustainable investment.


The Commission is also unveiling measures to encourage long-term investment through a review of prudential calibration for investments in infrastructure corporate entities. Commission proposes reducing the amount of capital that insurance companies need to hold when they invest in infrastructure companies. These targeted changes to the Solvency II Delegated Regulation will further support investment in infrastructure.


The Mid-term proposal in detail

The CMU Mid-term review sets out nine new priority actions:

  1. strengthen the powers of European Securities and Markets Authority to promote the effectiveness of consistent supervision across the EU and beyond;
  2. deliver a more proportionate regulatory environment for SME listing on public markets;
  3. review the prudential treatment of investment firms;
  4. assess the case for an EU licensing and pass-porting framework for FinTech activities;
  5. present measures to support secondary markets for non-performing loans (NPLs) and explore legislative initiatives to strengthen the ability of secured creditors to recover value from secured loans to corporate entities and entrepreneurs;
  6. ensure follow-up to the recommendations of the EU Expert Group on Sustainable Finance;
  7. facilitate the cross-border distribution and supervision of UCITS and alternative investment funds (AIFs);
  8. provide guidance on existing EU rules for the treatment of cross-border EU investments and an adequate framework for the amicable resolution of investment disputes;
  9. propose a comprehensive EU strategy to explore measures to support local and regional capital market development.

In addition, the Commission will put forward 3 legislative proposals:

  1.  On a pan-European personal pension “product” to help people finance their retirement; 
  2. On the EU-framework on covered bonds to help banks finance their lending activity; and
  3. On increased legal certainty on securities ownership in the cross-border context.

 

More information on the following websites:

- MEMO;

- Factsheet;

- Communication on Capital Markets Union- Accelerating Reform;

- Action Plan on Building a Capital Markets Union;

 - Mid-Term Review main page;

- EPSC Strategic Note on Financing Sustainability; and

- Study on tax incentives by DG TAXUD, in:  https://ec.europa.eu/taxation_customs/sites/taxation/files/final_report_2017_taxud_venture-capital_business-angels.pdf

 

References: European Commission, press release IP-17-1529 “Completing Capital Market Union: building on the first round of achievements”, Brussels, 8.06.2017. In:

http://europa.eu/rapid/press-release_IP-17-1529_en.htm?locale=en and copy in Latvian:

http://europa.eu/rapid/press-release_IP-17-1529_lv.htm  






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