Building a capital markets union

The European Commission announced the first set of measures to integrate capital markets across the EU, as part of the much lauded CMU. As part of its plans, the Commission intends to kick-start high-quality securitisation and promote long-term investment in infrastructural projects across the EU.

The CMU will be built around the following key principles:

  • Creating more opportunities for investors: the CMU should help mobilise capital in Europe and channel it to companies, including SMEs, and infrastructure projects that need it to expand and create jobs. It should give households better options to meet their retirement goals.
  • Connecting financing to the real economy: the CMU is a classic single market project for the benefit of all 28 Member States. Member States have a lot to gain from channelling capital and investment into their projects.
  • Fostering a stronger and more resilient financial system: opening up a wider range of funding sources and more long-term investment, ensuring that EU citizens and companies are no longer as vulnerable to financial shocks as they were during the crisis.
  • Deepening financial integration and increasing competition: the CMU should lead to more cross-border risk-sharing and more liquid markets which will deepen financial integration, lower costs and increase European competitiveness.

The EC has decided to take a conservative and slow-burn approach to CMU initially by addressing the following areas: venture capital, securitization, Solvency II, venture capital, covered bonds and the impact of cumulative regulations. In addition, the Commission will announce proposed changes to the Prospectus Directive before the end of the year, with a view to making it easier and less expensive for SMEs to raise capital on financial markets.

In terms of stimulating venture capital, the Commission is looking to reform EU regulations (EuVECA and EuSEF) to make it easier and more attractive for private savers to invest in unlisted SMEs. The Commission has launched a consultation which will ask whether targeted changes to these regulations could boost the take-up of these investment funds.

The Commission is proposing a regulatory framework for securitisation which promotes ‘simple, transparent and standardized products’ which are subjected to adequate supervisory control.

The Commission is also looking at introducing new rules on Solvency II’s treatment of infrastructure projects. The Commission wishes to remove “unjustified prudential obstacles” so that insurers play an important role in European infrastructure projects.  It is proposing to introduce legislation that creates a distinct infrastructure asset class and reduces the amount of capital which insurers must hold against the debt and equity of qualifying infrastructure projects.

The Commission is seeking feedback on a pan-European framework for covered bonds. This would build on national regimes that work well without disrupting them and it would be based on high-quality standards and best market practices.

Finally, the Commission is launching a call for evidence to gather feedback and gauge the cumulative impact and interaction of current financial rules. Through the consultation, the Commission is seeking to identify possible inconsistencies, incoherence and gaps in financial rules, as well as unnecessary regulatory burdens and factors negatively affecting long-term investment and growth.

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