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[...]So starting with companies in their start-up phase - for entrepreneurs with innovative ideas – we're working on ideas to strengthen venture capital markets. We’ll begin this year by amending existing legislation governing venture capital funds to build up scale, diversity and choice. We’ll look at how we can use public money to attract private investment with a pan-European venture capital fund of funds. We are keen to encourage the development of crowd-funding as a source of financing for start-ups. And I want to see whether we can support the development of industry-led business growth funds to support equity in SMEs.
We also want to free up more bank lending to smaller companies. That's why we've made a proposal to restart Europe's securitisation markets. Our proposal sets out criteria for simple, transparent and standardised securitisation, with reduced bank capital requirements for securitisations that qualify. Council reached an agreement on this in record time as governments know how important it is to free up the supply of bank lending. The onus is now on the European Parliament to take this forward. Every extra day that this proposal takes to pass into law is one more day of a missed opportunity for growth.
For companies that are growing, I want to look at existing private placement markets that work well and see whether we can build on them. They're now well-established in France and Germany, and it's a market that's taking off in the UK. Based on this experience, these markets could be a powerful source of funding for medium sized companies when they want to raise amounts above twenty million euros from institutional investors.
To make it easier for companies to tap public markets, we’re overhauling the Prospectus Directive to create a simpler, faster and cheaper prospectus regime. I want to streamline the process for companies which have already issued a prospectus and want to raise capital again: that's currently about 70% of all prospectuses. And we're proposing to get rid of the prospectus requirement completely for companies that only want to raise small amounts, under 500,000 euros. Next year we'll complete a wider review of regulatory barriers that SMEs encounter when they want to list.
To deepen financial markets for companies of all sizes, we are also working on knocking down barriers to cross-border investment. For investors to enjoy more choice, I want to improve the passport system we have for investment funds so they can offer their services more easily and compete in different markets. This year we’ll launch a consultation to identify the main barriers to funds operating in other countries than their own. I want a system where investors can get hold of enough information, where they’ve got more choice, and where investment funds can genuinely compete with each other across borders.
By the end of the year we’ll bring forward proposals to try to reduce differences between national insolvency regimes. We want to try to make company restructuring easier, and to increase certainty for those wanting to invest across European borders. Our proposals will seek to address the most important barriers and again, build on national regimes that work well.
We’ll look to see whether we can make cross border investments easier by simplifying the system to reclaim withholding tax when these are subject to double taxation. At the moment, cross border investments are penalised by double taxation on dividend income, interest payment and capital gains. The process for reclaiming these withheld taxes can be complicated and off-putting. The cost of reimbursements foregone for this reason is estimated at around 8 billion euros a year. We want to make make the whole process simpler.
And to inject more savings into capital markets we’re considering proposals for a European market for simple personal pensions. This could provide the economies of scale we need to reduce cost and increase choice for savers who are putting money aside for their retirement. So this year, we’ll work out exactly what steps might be needed to make this happen.
While we work to develop Europe's capital markets, I also want to understand the impact that the legislation passed in recent years might have had on funding the economy. To get the crisis under control and safeguard financial stability, we passed a whole raft of laws. They've made our financial sector stronger and more resilient. But now, as we work to support investment, it makes sense to review those rules, to check they're working as intended, that they're as growth friendly as possible and that our system's not silting up, like the Zwin did centuries ago.
To do this, we launched our Call for Evidence. It's just ended and we're working through the hundreds of responses we received. It's too early for any definite conclusions. But three themes are emerging. Respondents have said that in places our legislation is not proportionate enough; that it could be weighing down the amount of financing available to the wide economy; and that the compliance burden is too high. We'll continue working through the evidence and come forward with our thinking this summer. If there's evidence that the same prudential objectives can in places be achieved in a more growth friendly way, we’ll give careful consideration to how this this might be done. [...]
Since then the UK has greatly benefited from being part of the Europe Union’s single market, particularly when it comes to financial services. Financial services are the UK’s most important export, and the rest of Europe their first destination. Over the past decade, the surplus from Britain's trade in financial services has more than doubled, from £23 billion in 2004 to £58 billion in 2014. Last year, London was once again rated by the Global Financial Centres Index as the world's most competitive financial centre. So I think it's quite hard to argue that London is being "strangled" by regulation as is sometimes claimed.
This success obviously owes much to London's intrinsic strengths. But it is also linked to membership of the Single Market. That's what's helped UK banks lend over 1 trillion euros and take over 1 trillion euros in deposits across the EU last year. Passporting, whereby any financial service business established in one EU country can do business in all 28, is one of the reasons that the British fund management industry can look after a big chunk of the 8 trillion euros market in Europe's globally successful investment product, UCITS. [...]
I do think the settlement reached recently at the European Council helps address some of those concerns. Its focus on competitiveness, on proportionality and subsidiarity is important to the whole European Union. In the area of economic governance, the settlement recognises the need of the euro area to integrate further, for the deepening of economic and monetary union. But it also enshrines for the first time the principle of non-discrimination against businesses on the grounds of currency. And it confirms the integrity of the single market, giving both euro ins and outs the assurance that their companies will be able to compete on a level playing field. I believe these new arrangements will help build trust on all sides so that financial services inside, and outside, the euro area can thrive.
As the person who is responsible helping to draw up the rules for Europe's financial services, one thing is clear to me: if the UK were to vote to leave, it's fantasy to suggest it could quickly secure access to the single market on the same terms as it has today.
If it followed the existing models for countries outside the EU, the UK would still have to pay to have access to the single market, it would still have to accept free movement of EU migrants, and it would of course still have to follow EU rules. The difference would be that it would have no say over the rules it would have to obey. Or it could ask the EU to have its rules recognised as being equivalent - a long and uncertain process - and even then businesses such as banks and insurance would have to set up a separate base in the EU to do business there. As is becoming increasingly clear, there is no convincing answer to how arrangements outside the EU would be better. Only one thing is certain: everything would be uncertain. And uncertainty is usually the enemy of investment.
Meanwhile I am focused on building the Capital Markets Union. A single market project for all 28 Member States, but from which the UK certainly stands to benefit. [...]
The difference we can make is real. If we could reform the Prospectus regime we could save listed companies alone up to 100 million euros a year. If we could grow equity markets across the EU to bring the smaller ones up to the European average, 25 billion euros of additional capital could be raised each year. If we could restart our securitisation market, we could free up 100 billion euros of extra credit to the private sector. [...]