19 January 2017

英国のEU（欧州連合）離脱後の資本市場同盟

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 for 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.

So the IN tray of the CMU process is bulging but there is a key question: Is there the political will to move forward on the proposals? Commission Vice-President Dombrovskis is now in charge of the dossier and his intentions are quite clear. In September, he launched a Communication  to lay out the steps needed to make sure the CMU has a “tangible impact on the ground as soon as possible” and will rapidly take forward the next phase of other key CMU actions.

But this is not seen as the end of the process as the Commission is planning further priorities such as personal pensions and other retail financial services to “encourage Europeans to put their savings to better use” implicitly criticising the tendency to  invest only in “safe” bank deposits. However, for Brexiteers there was a sting in the tail: “The Commission will consider, in close consultation with the European Parliament and the Council, the further steps in relation to the supervisory framework that are necessary to reap the full potential of CMU.” Moreover, the mid-term review of the CMU Action Plan will soon be launched.

 In a recent speech, Dombrovskis re-stated powerfully the stark rationale for pushing ahead with CMU: “develop stronger and deeper capital markets in the EU to allow funds to flow to European companies to the benefit of the real economy, growth and investment. This is a much needed initiative… European SMEs still depend heavily upon bank financing.” The economic consequences of the EU’s over-dependence on banks were all too apparent in the aftermath of the 2008 Crash. So all the evidence points to the EU-27 moving strongly ahead on CMU in the next few years.

But there remains a cultural rather than `credit’ risk to this process: Europe’s savers have to be convinced that capital markets are safe places for their life savings. Actual credit risk from economic cycles is one thing but the risks of mis-selling, rigging of markets and a long list of etcetera’s is another matter altogether. The tragic consequences of the Monte dei Paschi mis-selling of its own risky bonds to naïve citizens is just the latest example. So a key part of a successful CMU will come into force in just less than a year when ESMA will require sales staff of MiFID-authorised firms to be “knowledgeable and competent”. The UK will surely still be in the EU so firms will have to demonstrate compliance.

In years past, this author has extolled the huge benefits that could flow to the UK financial services industry as the world’s second largest capital market crystallises on our doorstep. In the years ahead, the Brexiteers may yet have to answer the question of why little benefit accrues to the UK.

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© Graham Bishop