On behalf of the Council, EU ambassadors today endorsed targeted amendments to the EU capital market rules provisionally agreed with the European Parliament last week to support economic recovery from the COVID-19 crisis.
Negotiations on the so-called Capital Markets Recovery Package took
top priority in the Council and in talks between the EU co-legislators
in order to provide immediate support for the economic recovery by
facilitating access to finance for EU companies and, in particular,
SMEs. The Council and the Parliament reached an agreement less than five
months after the presentation of the legislative proposal by the
European Commission in July.
The legislative changes include amendments to the markets in
financial instruments directive (MiFID) II, the prospectus regulation
and the EU securitisation framework.
For a swift and sustainable economic recovery from the
COVID-19 crisis we need to enhance public and private investments. The
Capital Markets Recovery Package will make a major contribution to this
end. The package makes it easier for capital markets to support the
economic recovery. It will facilitate the recapitalisation of companies,
support bank lending and boost investment in the economy while
maintaining high levels of investor protection.
Olaf Scholz, Germany's Federal Minister for Finance and Vice Chancellor
Changes to the MiFID II regime
As part of amendments to the MiFID II rules, the Council and the
Parliament have agreed to simplify information requirements in a
targeted way, for instance on costs and charges disclosures. These
amendments will facilitate the provision of investment services and
investment in the EU economy without compromising investor protection.
In addition, a targeted exemption has been agreed to allow banks and
financial firms to bundle research and execution costs when it comes to
research on small and mid-cap issuers. This will increase research
coverage for such issuers, thereby improving their access to capital
market finance.
The position limit regime for commodity derivatives will also be
adapted to help European businesses to react to market volatility and to
support the emergence and growth of euro-denominated commodity
derivatives markets. The changes do not affect agricultural products, in
particular products used for human consumption.
A new type of prospectus
The EU co-legislators have also agreed to establish a new ‘EU
recovery prospectus’ – a shorter prospectus – to make it easier for
companies to issue capital.
The EU recovery prospectus will be available for capital increases of
up to 150% of outstanding capital within a period of 12 months. This
will avoid highly dilutive issuances, while ensuring that the new
prospectus may be used as a basis for a meaningful recapitalisation of
companies. The new regime will apply until 31 December 2022 to allow
issuers to raise the necessary additional equity to overcome the
COVID-19 crisis.
During the negotiations, the Council and the Parliament have also
fine-tuned the requirements regarding the minimum information to be
included in the recovery prospectus, so as to provide adequate
information to investors.
Targeted adjustments to facilitate securitisation
To facilitate securitisation, the existing EU framework for simple,
transparent and standardised (STS) securitisations will be extended to
cover synthetic securitisations. Synthetic securitisations are an
important credit risk management tool for banks as they enable them to
transfer the credit risk of a set of loans, typically large corporate
loans or SME loans, to investors.
The agreed changes will free up bank capital for further lending and
allow a broader range of investors to fund the economic recovery from
the COVID-19 crisis. In order to encourage the use of the STS label,
preferential risk weights are introduced for senior tranches retained by
the originator, while the European Banking Authority will closely
monitor the market for such products to ensure that this does not lead
to excessive leveraging of banks.
The new rules also remove regulatory obstacles to the securitisation
of non-performing exposures (NPEs). This is done by broadly aligning NPE
rules with international standards and ensuring their prudential
soundness, while at the same time allowing originating banks to use
risk-sensitive modelling practices.
This will help banks to better manage their balance sheets when
dealing with the economic fallout from the COVID-19 pandemic, to secure
their lending capacity in the medium term and to share risks more
broadly with the non-bank financial sector.
Next steps
The Parliament and the Council will now be called on to formally
adopt the amendments without further discussion, possibly in February
2021, after the usual legal-linguistic revision of the text.
European Council
© European Council
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