Key elements of the European Commission’s action plan for the capital markets union (CMU) are beginning to take shape; the key challenge now is to keep the scale of ambition while making concrete deliverable actions. In its Green Paper on CMU, the Commission set out a compelling case to meet the challenges around jobs, growth and competiveness by better linking Europe’s savers with investment needs.
Speaking in Brussels, Commissioner Hill told a capacity audience that during the CMU public hearing he was pleased by the positive response that the Commission’s initial ideas received from both industry and wider stakeholders. In his speech, Hill reinforced his commitment that CMU should be done 'with' industry and not done 'to' it – a call to action for those still waiting for the details of CMU to be spelled out for them.
Key themes and developments that will be central to how CMU are:
- Increasing access to finance
- Bank lending will remain key for SMEs but the ‘funding escalator’ needs to improve for all sizes of business, especially high-growth/high-risk businesses.
- Action areas will include changes to EUVECA venture capital regulations to allow more funds to participate and remove passporting barriers, also boosting the role of ELTIFs while maintaining investor protection.
- Consider how to build on success of private placements in France and Germany, reviewing Solvency II and where treatment of withholding tax creates a barrier.
- Maintain prior approval of prospectuses but lighten the burden for secondary issuance and for SMEs and smaller countries.
- Keep principle of ‘skin in the game’ for securitization, but make more transparent with lower CRR and Solvency II requirements.
- Creating opportunities for investors
- Fix disincentives which have built up against insurers and pension funds investing in infrastructure, equity and venture capital.
- In the short-term we will see amendments to Solvency II delegated acts to incorporate ELTIFs and include infrastructure as an asset class.
- Consider the 29 regime for European personal pensions.
- Devoted to less established technologies such as offshore wind and biomass CHP.
- Review consistency and impacts of disclosure requirements across retail investment products.
- A green paper on EU retail financial services is expected later in 2015.
- Removing barriers to cross-border investment
- Stimulate cooperation for barriers linked to national laws – insolvency, collateral and securities law, find solutions to structural issues such as access to credit data, pragmatic on issues of tax.
- Maintain current supervisory architecture but more focus on supervisory convergence.
- Alignment of macro prudential rules to needs of capital markets.
An action plan in September will provide further details, followed by specific proposals. Early action on securitizations will include recalibrations for CRR and Solvency II and also changes to the Prospectus Directive. More challenging issues including fixing the patchwork of retail investment rules and challenging some of the deep rooted national barriers are likely to take longer but could be the most significant for CMU.
The critical issue now before the Commission and industry is to work together to get the right balance between legislation and market-led solutions. The new Commission is trying to move away from the 'regulate everything' approach of the past; industry needs to properly engage in the dialogue and address some of the hard-wired vested interests.
Further details on CMU including responses to the Green Paper consultation are available from here. Read KPMG’s response here (PDF 285 KB).