Capital Markets Union – Unblocking Europe’s savers

Capital Markets Union – Unblocking Europe’s saver...

KPMG offers a summary and key considreations for the CMU green paper.

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Head of Public Policy, EMA Regulatory FS Centre of Excellence

KPMG in the UK


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The European Commission has published its Green Paper on creating a Capital Markets Union (CMU), one of the core elements of President Juncker’s ‘jobs and growth’ agenda for the EU. The new Commission wants to bring some of the vibrancy of the US capital markets to Europe and this Green Paper begins an engagement with industry and stakeholders on how to achieve this. This is a wakeup call to an industry more used to reacting to regulatory proposals. Some have expressed disappointment with the paper – this is wrong in our view. The Commission are giving the industry the opportunity to shape the answer. It is in our hands to respond and tell the Commission what is needed to make CMU work.

To be a success, the CMU should break down the barriers that are restricting growth by preventing the efficient matching of investors and borrowers. Some questions we think need to be addressed include:

  • How do we better link savers and investors with the investment opportunities?
  • How do we foster ambition for cross-border investments?
  • How do we create a tax regime and legal protections that incentivise savers across Europe?
  • How do we make data on SMEs and infrastructure transparent, comparable and available to all participants?
  • How do we restore investor trust and confidence across Europe?

The Green Paper does not have the answers to all these questions but is inviting interested parties to contribute ideas. The Commission has also launched high-level consultations on securitisations and on prospectuses. Responses are invited by mid-May on how to put the building blocks of CMU in place by 2019. This provides stakeholders – from across all sectors – with an opportunity to contribute to market-led initiatives for change, and to seek the removal of barriers to market access for investors and enterprises seeking finance.

Of particular interest to the Commission is:

  • access to financing for start-ups, SMEs and long-term projects;
  • diversifying the sources of funding from investors within and outside the EU; and
  • making markets work more effectively for investors and those who need funding.

The Commission is seeking to create an environment rather than to prescribe rules – a deliberate break from the past ‘regulate everything’ approach. This approach reflects ideas the CoE put forward in our New Commission New Parliament (PDF 320 KB) report in August 2014.

Why is this so important?

The Commission has provided some helpful data points that highlight:

  • Europe’s total stock market capitalisation has fallen to 64.5% of GDP (compared to Japan at 94% and the US at 138%);
  • Venture capital could have contributed €90 billion of investment if Europe’s markets were as deep as the US;
  • European securitisation of SME loans is at half pre-crisis levels at €36 billion;
  • 80% of Europeans would not consider buying a financial product outside of their own country (because of a lack of information, uncertainty over rights and language).

Implications for firms

Asset managers, insurers and banks should all benefit from larger, more efficient and more effective capital markets. Asset managers are a key part of the investment chain, on which CMU is focused. Insurance companies have funds to invest. Banks could provide non-capital intensive intermediation services. Reopening the securitisation market would bring benefits to the banks as it will free up some balance sheet capacity and provide assets that match the long term aspirations of pension funds and insurance companies. It could also help to develop the bond market, where investors may want some activity.

Some of the particular opportunities and challenges include:

  • Investment managers – the EU’s asset management industry is already a major enabler of investment in the economy. Existing frameworks through UCITS and AIFMD have been successful, but costs and barriers can be further reduced and variations across the EU eliminated. There is potential to increase investment in a broader range of assets, including long-term projects, start-ups and SMEs.
  • Insurance and pensions – Solvency II will help remove national boundaries and increase potential for long-term investments, but more could be done to remove barriers including reviewing capital requirements for lower-risk infrastructure debt and/or equity investments. New rules on occupational pensions could also be used to incentivise long-term assets.
  • Banks – given the breadth and extent of Europe’s banking network, banks are ideally placed to act as intermediaries. There is also the potential for simple securitisations and technological and digital advances to support financing to SMEs if barriers are identified and removed.
  • Private equity/venture capital – despite some national successes the overall scale of these sources of finance across Europe is limited. There is the potential to address some barriers in regulations, widen the range of market participants, and broaden the public-private collaboration in risk finance markets.

Further insights

More detailed analysis of the Commission's proposal (PDF 268 KB). To discuss the implications further, please contact Clive Briault or Jon Hogan.

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