30 April 2015

ICMA responds to European Commission Green Paper on Building a Capital Markets Union

ICMA’s response to the Green Paper focuses on specific questions relating to fixed income. It develops in more detail the broad themes set out by ICMA in Issue 36 of the ICMA Quarterly Report (pages 6-12) on Capital Markets Union: a Discussion Paper, published in January.

There is a strong case for the creation of a sub-asset class for infrastructure investments which should benefit from recalibrated capital requirements to reflect that these assets are held to maturity and their low loss-given default. An up-to-date transparent pipeline of information on infrastructure projects on a national basis would highlight investment potential. Efforts to create an up-to-date credible and transparent pipeline in the form of a European Investment Project Portal, and the potential creation of a comprehensive technical assistance programme to channel investments where they are most needed under the coordination of a European Investment Advisory Hub, are both welcome.

Investors’ concerns over the regulatory risk associated with project revenues need to be addressed by a transparent and consistent approach by the authorities.

According to ICMA, the two taxation barriers identified by the Giovannini Group – barrier 11 relating to domestic withholding tax regulations and barrier 12 relating to the collection of transaction taxes through a functionality integrated into a local settlement system – still need to be addressed fully. The effect of implementing a Financial Transaction Tax would clearly run directly counter to the objectives of Capital Markets Union.

Some of the existing obstacles to cross-border operation of ELTIFs are:

·         the inability of funds to originate loans;

·         the need for a banking licence to originate loans;

·         the fact that bank liabilities are preferred in bankruptcy;

·         the lack of standardised procedures for taking security, enforcement and for creating loans/bonds, like EU company registers for registering and enforcing pledges and similar charges;

·         the restrictions on the availability of credit data, which can be restricted to only actors with banking licences; and

·         the different tax treatments of funds: for example, withholding tax on interest.

ICMA recommends that the European Commission should examine these obstacles to loan funds to determine whether they can best be addressed at national level by Member States, or whether the Commission needs to play a coordinating role by introducing a “29th regime” for loan types of asset to allow cross-border funds like ELTIFs easier access to such assets.

Full response

© ICMA