28 January 2015

European Commission launches work on establishing a Capital Markets Union

The orientation debate in the College was very positive and supportive of the concept, and focused on the key challenges and priorities for the integration of capital markets. The College concluded that a Green Paper should be adopted next month to consult all interested parties on the way forward and concrete areas for potential action.

"A Capital Markets Union will ensure greater diversification in the funding of the economy and cut the cost of raising capital for companies. It should open up new funding avenues for all of Europe's businesses, be they big or small. As such, the Capital Markets Union will help support and extend the Investment Plan for Europe, one of our top priorities," said Vice-President Jyrki Katainen, responsible for Jobs, Growth, Investment and Competitiveness. 

"One of the key challenges Europe faces is to get investment flowing to support jobs and growth. A true single market for capital in all 28 Member States would help support that goal by linking savers and investors with businesses, big and small, that want to grow. It would also help broaden sources of funding, complementing the important contribution already made to our economy by the banking system. We need to identify the barriers that are stopping capital from flowing and work out how to knock them down one by one. That will be the purpose of the Green Paper we will launch in a few weeks' time," said Commissioner Jonathan Hill, responsible for Financial Stability, Financial Services and Capital Markets Union.  

In many parts of Europe, especially SMEs remain heavily reliant on banks for their funding needs. A key objective of the CMU will be to diversify and extend sources of funding so that businesses have easier access to credit through capital markets as well as banks, and we need to boost the cross border dimension of access to funding.

The Commission aims to make its consultation phase broad and inclusive: it will call for input from the European Parliament, national parliaments, Member States, citizens, SMEs, the non-governmental sector as well from as the financial sector.

Based on the feedback it receives, the Commission will unveil an Action Plan on the CMU during third quarter of 2015. 

Full press release

Reuters: EU aims to complete capital markets union by 2019

An EU document seen by Reuters, co-written by EU financial services chief Jonathan Hill, sets out a timetable for the first time on a core policy of the European Commission to help revive the bloc's flagging economy.

The European Union will put in place its "capital markets union" by 2019, starting with quick wins like encouraging direct investment in businesses, an EU document seen by Reuters showed.

Harmonising rules for capital markets to increase the trade in stocks, bonds and other securities is an important goal for the EU. Many countries on the continent have historically relied more on bank loans than on traded securities to fund their businesses, which can make them vulnerable to shocks to the banking sector. The EU's executive Commission is due on February 18 to publish three papers to kick off its plans.

Sceptics say a fully seamless union of EU capital markets is impossible to achieve. Persuading the 28 EU member states to harmonise their tax and insolvency laws would be politically impossible. Britain, which supervises the EU's biggest capital market in London, has made clear it will not hand over full supervision of the industry to Brussels.

But Brussels believes there are a number of important steps it can take to boost investment and make the continent less vulnerable shocks to its banking sector.

An initial "Green Paper" will set out several short-term initiatives for coming months, such as making credit information on smaller companies more easily available for investors.

A second paper will outline proposals to encourage high-quality securitisation of debt based on pooled loans, making it easier for banks to free up their balance sheets for more lending, the document said.

A third paper will look at how EU rules on prospectuses published by companies to solicit funds will be reviewed to make it easier for smaller companies to raise capital on markets.

An "action plan" will be published in the second or third quarter of this year.

The commission will also "work with the industry to develop a pan-European private placement regime to encourage direct investment into businesses," said the document, co-written by commission vice president Jyrki Katainen.

Longer-term measures would include changing rules for asset management or pension funds and measures to boost household investment into capital markets, it said.

Investment levels in the 28-country bloc are 230 billion to 370 billion euros below the historical norm and spurring small changes in stock, bond and other markets could lead to significant benefits over time.

The EU document says there is a need to identify priorities for the medium to long term, "bearing in mind the need to balance ambition and political realism".

The document makes no mention of changes to how EU markets are supervised, as Britain resists any attempt to create a new super-watchdog that would hold sway over London.

Policymakers in Britain are touting the CMU as something that London's expertise in finance can exploit and provide a compelling reason for the UK to stay in the EU as it faces a possible referendum on membership of the bloc.

The Bank of England has described the CMU as a marathon rather than a sprint, but it could bring very large benefits if carefully planned.

Banks are already arguing that if Brussels needs their help to get the CMU underway then plans by 11 EU countries to tax financial transactions should be scrapped to avoid crimping the same markets policymakers now want to raise funds for growth.

Full article on Reuters

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