19 January 2017

State of Play for CMU – Now in a Brexit World

Back in the now-distant days when UK’s European Commissioner Hill was in charge of financial services, his concept of Capital Market Union was widely seen as a major benefit to Britain. Now that the UK is about to serve notice of its intention to quit the EU, what is the outlook for progress on CMU?

Hill triggered a deep and comprehensive review of the post-Crash legislation with a major Call for Evidence on its functioning – as well as proposing several specific pieces of legislation. The bureaucratic machine has continued to grind forward – and will continue to do so unless there is a new political impetus to halt it in some way. The list of measures actually agreed, or progressed substantially, under the Slovak Presidency is impressive, especially the low-hanging fruit:

·        The Prospectus, Shareholders Rights, Money Market Funds and Venture Capital Directives are now `politically’ agreed.

·        On STP securitisation, ECON has adopted its position ready for trialogue with Council this year. Eight leading European trade associations have highlighted the importance of securitisation for jobs and growth in Europe, and underlined their commitment to supporting a safe and sustainable market that serves the real economy.

·        The Commission completed the endorsement of IFRS9 - applicable from 2018 but immediate adoption is “encouraged”. This moves banks’ loan loss provisions from an “incurred” basis to “expected”.

Then comes some of the proposals tabled recently:

·        The `banking package` that amends CRD IV, CRR, Bank Recovery and Resolution Directive (BRRD) and the Single Resolution Mechanism Regulation (SRMR). The primary purpose of the package is to facilitate the role of banks in achieving deeper and more liquid EU capital markets to support the creation of a Capital Markets Union. The package featured three specific adjustment to achieve this: Avoiding disproportionate capital requirements forhttp://www.grahambishop.com/ViewArticle.aspx?ID=33579&CAT_ID=64&Search= the trading book; reducing the costs of issuing/holding various instruments; and avoiding potential disincentives for institutions acting as intermediaries for client trades cleared by CCPs.

·        CCP Resolution: This is likely to be seen in the UK as the `hottest of hot potatoes’ in the Brexit negotiations – See GPB article in September – but the reality seen on the other side of the Channel looks rather simple.

·        Business insolvency – see GPB article of June edition - one of the key deliverables for CMU to make it quicker and cheaper for entrepreneurs to deal with debt. 

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Full article available for consultancy clients here

 

© Graham Bishop