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:
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:
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.
The Commission has provided some helpful data points that highlight:
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:
More detailed analysis of the Commission's proposal (PDF 268 KB). To discuss the implications further, please contact Clive Briault or Jon Hogan.