In the context of some rumbling concerns, the European Commission has been trying to progress Capital Markets Union (CMU). Recent updates highlight the amount of work happening across a wide range of issues: an upbeat speech from Commissioner Hill to industry talks of knocking down the barriers to cross border investments and the need for regulation to recognise that without risk there will be no growth; a confident and comprehensive CMU status report shows developments across a broad range of issues; and a summary paper on responses to the call for evidence; and a report on crowd funding recommends continued observation rather than regulatory intervention at this stage.
CMU was launched in June 2014 as the Commission’s flagship initiative to better link Europe’s savers to investment needs by increasing the financing options for businesses and creating more opportunities for investors. In a break from post-crisis rule-making, there is a focus on non-legislative measures. The CMU Action Plan, published in September 2015, sets out an ambitious programme of activity until 2019 (see KPMG summary). Critics have said there was a lack of ambition and doubted there was political support, but evidence of progress is being made by the European Commission.
Commissioner Hill has outlined key areas of progress, including on venture capital, securitisations and the Prospectus Directive. Next on the Commission’s list is reviewing insolvency regimes, simplifying the system for reclaiming withholding tax and proposals for a European personal pensions product.
A major piece of work will be the response to the Call for Evidence on financial regulation, on which the Commissioner has said that the three areas of focus are proportionality, financing the economy and regulatory burden. Changes he trailed included:
Further changes are likely to come from reviews to be launched on fund passporting issues and corporate bond market liquidity. In a further indicator of the change of tone, Commissioner Hill spoke about feeding the lessons on the review of EU rules into global debates and, going forward, that the regulatory framework needed to deliver financial stability while recognising that without risk there will not be growth. At the public hearing in Brussels there was near consensus between speakers that the regulatory framework must support both stability and growth. However, there are also voices expressing concern about any retrenchment from the post-crisis reform agenda. The accompanying summary paper (PDF 618 KB) shows the size of the task, with most regulations cited as having issues. The most referenced rules creating problems were CRD IV/CRR, EMIR and MiFID II/MiFIR.
The report covers actions taken since the launch of the action plan, key initiatives planned by the end of 2016 and preparation for actions in 2017 / 2018. It also highlights where actions lie with others and where non-legislative measures are being taken.
Actions already taken include:
Actions of note for the rest of 2016:
Looking ahead to 2017/2018, preparations include:
Finally, the Commission has issued a report assessing national regimes, identifying best practices and presenting the Commission’s observations on the evolution of the crowdfunding sector. This follows a European Parliament resolution in January that stressed the need to streamline regulatory requirements.
The report states that crowdfunding could contribute to the CMU objective of helping mobilise capital in the EU. It notes that Member States have begun to put in place national frameworks to support the growth of the sector and ensure that investors are protected. It concludes, however, that as crowdfunding remains largely local and the sector is changing rapidly, an EU level framework is premature at this stage. The Commission will keep market and regulatory developments under review, and encourage alignment of national approaches and the sharing of best practice.
Taken together these developments on CMU show that the European Commission is being true to its word of tackling significant barriers, consulting more with industry, and not rushing to regulate. However considerable challenges lie ahead to progress new initiatives through a European Parliament which is still dealing with the backlog of proposals from the previous Commission.