FEE CMU Policy Update

November 2015

European Commission

Commission contacts EIOPA for further advice on Solvency II – 14 October

The European Commission has requested further advice from the European Insurance and Occupational Pensions Authority (EIOPA) with regard to the treatment of insurers’ investments in infrastructure corporates under Solvency II. In its letter to EIOPA, the Commission states its intention to consider the possibility of removing barriers to insurers’ investment in infrastructure corporates, and requests therefore further technical advice from EIOPA. It asks for the final advice to be submitted for the Commission at the Board of Supervisors meeting taking place 28-29 January 2016.



White Paper outlining a new funding model for EIOPA in 2016 – 20 November

According to IPE, the European Commission intends to publish a White Paper proposing a new funding model for the European Insurance and Occupational Pensions Authority (EIOPA) in 2016. Commissioner Jonathan Hill has sated earlier that he would “eliminate” EU funding of the organisation.



Call for applications for a European Post-Trade Forum (EPTF) – 23 November

The European Commission has launched a call for applications for a European Post-Trade Forum (EPTF). The purpose of the advisory Group will be to support Commission’s work in reviewing developments in “post-trading, including collateral management services”, as well as to assess “the extent to which the Giovannini barriers have been removed or remain in the EU, or new barriers have arisen”. The deadline for applications is 21 December 2015.



Commission proposals to amend the Prospectus Directive – 30 November                     

The European Commission (EC) has published its anticipated proposals for the review of the Prospectus Directive in the form of a Regulation. The review will attempt to address shortcomings and improve rules for SMEs, as flagged by stakeholders in the 2015 consultation on the Directive. According to the received feedback, the current rules constitute significant amounts of legal paperwork often extending to hundreds of pages. The provided information is frequently in the form of complex and technical legal terminology that is difficult to understand for investors, thereby generating additional uncertainty. The following are of particular interest:  increased thresholds for small capital raisings (€500,000, from €100,000 previously); Member State higher thresholds for domestic markets increased from €5m to €10m; simplified prospectus for smaller companies, and the threshold for SMEs to which the lighter regime applies will be increased from €100m market capitalisation to €200m; overall shorter prospectuses and better investor information; simplified prospectus for secondary issuance for listed firms; fast track and simplified frequent issuer regime; a free online access point for all EU prospectuses; and a number of documents may be incorporated by reference.

The specific format and information requirements of the different prospectuses, including simplified prospectuses for SMEs as well as secondary issuance, will be specified in subsequent delegated and implementing Acts. The Commission will draw on the technical expertise of ESMA and propose by the end of 2016 a detailed proposal for how a simplified SME prospectus should look like. The Council and the European Parliament will then have three months to submit any objections, in the absence of which the delegated and implementing Acts will be incorporated into the requirements of the Regulation.



European Parliament

Italian Right-wing MEP criticises Commission plans on securitisation and CMU – 1 October 


An Italian Lega Nord MEP Gianluca Buonanno (ENF/ITA) has expressed strong criticism against Commission plans for securitisation within the frames of the CMU. The criticism comes in the form of a Motion for Resolution, which notably brings up the role of mortgage securitisation in the financial crisis, attacks the plan to establish STS Securitisation in Europe as a threat to financial and economic stability, and refers to the CMU as a whole as “yet another gift to the city of London”. Mr. Buonanno consequently calls for an overall rejection of the CMU.



European Parliament votes on its report on stocktaking of financial sector regulation – 1 December

ECON Committee of the European Parliament has voted on its draft report Stocktaking and challenges of the EU Financial Services Regulation: Impact and the way forward towards a more efficient and effective EU framework for Financial Regulation and a Capital Markets Union. The vote saw a number of amendments adopted that will be introduced into the Committee report version that will be submitted for the Plenary’s attention. The Committee adopted the report with 48 in favour, five against and five abstentions. Of particular interest, the adopted amendments notably welcome the review of the Prospectus Directive, call for a “considerable reduction” of the debt-equity bias, call for reinforcing the role and mandate of European Supervisory Authorities (ESAs), and call on the Commission to assess the impact on financial stability of IFRS fair value accounting in comparison to prudent accounting. In terms of next steps, the Plenary will vote on the report on 18 January 2016. The report does not commit the Commission or the Council to legislative action, but does give some early indications of MEPs’ positions with regard to the CMU.

Source: N/A


MEP Questions & Answers

MEP oral question: Access to finance for SMEs – 13 October/28 October

In mid-October, a large group of MEPs from EPP, S&D, ALDE and ECR groups asked an oral question from the Commission with regard to SMEs’ access to finance. In their question, the MEPs list a range of measures already initiated by the European Commission (EC) aiming to foster financing for SMEs. In this regard, they ask the EC for further clarifications with regard to CMU, and in particular: (1) whether the EC will conduct a thorough assessment of the impact of EU financial regulation on access to finance for SMEs as well as banks, (2) how the EC assesses the benefits of financial regulation in the area of improving SMEs’ access to finance, (3) whether the EC intends to strengthen alternative forms of lending, and (4) how the EC evaluates the Basel Committee proposal for the Review of the Credit Risk Approach, published in December 2014.


The Commission replied to these questions at a European Parliament hearing on 28 October. During the hearing, the Commission represented by Vice-President Dombrovskis provided a list of initiatives and proposals that the Commission is planning to undertake with the view of improving SME financing. There were no surprises, and many of the mentioned initiatives such as fostering new sources of funding (e.g. crowdfunding), improving SME access to capital markets (e.g. revision of the Prospectus Directive) and alleviating regulatory burdens were mentioned. In their reactions, MEPs majoritarily welcomed Commission proposals with regard to the CMU, but additionally emphasised the need for appropriate information provision to SMEs on financing possibilities, liquidity challenges, continuing relevance of bank financing to SMEs across Europe as well as the need for the public sector to step in more significantly.



Aims of Capital Markets Union – 16 October

The European Commission has replied to a question asked by MEP Matt Carthy (GUE-NGL/IRL) in late-July with regard to the CMU. In his question, Mr. Carthy argues that there is a contradiction between the Banking Union aiming for greater stability of the banking sector, and the CMU which arguably aims for the development of the European shadow banking sector. He consequently asks the Commission how it plans to reconcile these seemingly contradictory aims. In his reply, Commissioner Hill states that whereas the Banking Union aimed to restore financial stability in Europe, CMU is complementing it by taking steps towards “jobs and growth”, by exploring new sources of non-bank financing and by directing funding to infrastructure projects.




Capital Markets Union and SMEs – 26 October

The European Commission has replied to a question asked by MEP Hans-Olaf Henkel (ECR/GER) in late-July with regard to the CMU and SMEs. In his question, Mr. Henkel asked the Commission whether it has conducted any impact assessments on the effects of the “euro rescue policy” on the access to finance of SMEs in southern Europe in particular, or if not when it is intending to conduct such an assessment. In his reply, Commissioner Moscovici lists a number of periodic country-specific reviews, including on access to finance, that the Commission is already conducting.




Capital Markets Union – 28 October

The European Commission has replied to a question asked by MEP Matt Carthy (GUE-NGL/IRL) in late-July with regard to the CMU. In his question, Mr. Carthy argues that the CMU goes against lessons learned from the crisis by promoting a “banking model that proved most fragile and the financing channels that generated ‘domino’ effects”. He asks the Commission therefore how it will address concerns of the CMU proposals arguably re-establishing such risky models. In his reply, Commissioner Hill points out that the CMU proposals are aiming to diversify sources of financing, thereby making the economy more resilient against banking shocks. Moreover, he lists a number of measures that the Commission has taken to preserve financial stability.





Council conclusions on the Commission Action Plan on building a Capital Markets Union – 10 November

EU Member States (the Council) have adopted their conclusions on the Commission Action Plan on building a CMU. The Council’s conclusions contain no particular surprises. The Council in particular calls for increasing the variety of financing sources particularly for SMEs; advancing workstreams such as the Prospectus Directive, Venture Capital, SME growth markets and credit information; increasing investments and choices for retail and institutional investors; dismantling unjustified cross-border barriers to capital markets; finding pragmatic solutions to long standing tax obstacles such as double taxation; the European Supervisory Authorities (ESAs) to strengthen supervisory convergence, and the Commission should also assess their governance and financing by mid-2016; Member States to discuss the Commission’s proposal to address the debt-equity bias in taxation; the Commission and Member States to address the issue of financial literacy of future investors and other market agents; and finally, the Commission to develop a strategy for providing technical assistance to Member States where necessary to reinforce capacities of financial markets.  When it comes to the procedure, the Council wants to ensure that progress will not lag behind (or better deviate from its control) and has asked from the Commission to report back on CMU “at least every 6 months“.



Letter by the High-Level Group Chair on the Capital Markets Union: Competitiveness and access to finance aspects – 13 November

The Chair of the High-Level Working Group on Competitiveness and Growth (HLG) has forwarded a letter on the CMU for the attention of the Chair of the Permanent Representatives Committee. In the letter, the HLG Chair states that the Group would like to contribute to the CMU proposal notably by identifying the principal issues for competitiveness and access to finance, in particular for SMEs, and gathering intelligence and understanding of individual financing markets in Member States and of the needs of SMEs.




OECD report on SME financing – November

OECD published a report on SME financing earlier in November. The report focuses on alternative non-banking sources of financing for SMEs, and puts forward a set of recommendations to address challenges and issues related to these alternative channels. The recommendations include addressing SME skills gaps in finance, development of information infrastructures for credit risk assessment, and implementing policies that leverage private resources and develop appropriate risk sharing mechanisms.



Other News

“A scammer’s charter for European capital markets” – 9 November

David Daniel writes in an opinion piece for the Financial Times (available to subscribers) that there are risks related to the reduction of red tape and overall deregulation in the context of the Commission plans for the establishment of a Capital Markets Union (CMU). Of particular interest, he is concerned by the potential weakening of the rules in the Prospectus Directive, to which the Commission has now published its proposals.



Event reports

Policy Network: A European Capital Markets Union: Supporting investors and growth firms – 13 October

On 13 October Policy Network organised a CMU-focused event.  Attendance was limited, with the majority being mainly business representatives. Martin Merlin, Director for financial markets from the European Commission and Markus Ferber (EPP/GER) were among the speakers. During his intervention, Mr. Ferber pointed out that the CMU plan lacks any immediate impact to the economy. Perhaps this is the purpose of prioritizing securitisation as it will in all likelihood allow further cash liquidity in the market. All panellists agreed that the EU lacks tax incentives for equity investors when compared to the US (e.g. no tax return from venture capital). However, they also acknowledged the difficulties of doing this considering the non-harmonized EU fiscal policies. The panellists moreover stressed the need of modernizing business insolvency law across Europe. This would make investors less reluctant to take risks. Just to recall, the latest Regulation was in 2000. The Commission issued a Recommendation on modernizing the rules in 2014. It would be interesting to see whether this would be a new point to be addressed in EU Company Law. With regard to SMEs and securitisation, Mr. Gerhardt Huemer, Economic Policy Director from UEAPME pointed out that interest rates for loans will increase should all stakeholders expect to gain from the SMEs’ portfolio. Retail investing was also at the centre of attention. However, both the audience and panellists raised concerns over possible risks. They added that there is no need to develop financial education as well as regional and national responsibility for better protection of retail investors.


QED: Capital Markets Union – Next steps – 15 October

The event brought minor substance into the ongoing digestion period following the publication of the Action Plan (AP), and many of the messages remained vague. The speakers emphasized the importance of maintaining momentum and Member State interest in the CMU to 2016 and beyond, given that the EU is currently tackling with a number of other challenges (e.g. refugee crisis, external relations) and priorities (e.g. tax, digital single market). Niall Bohan from the European Commission (Head of Unit on CMU, DG FISMA) emphasised the need to break the existing debt-heavy culture and bring some more equity into the mix; he furthermore re-iterated that proposals for the Prospectus Directive are expected imminently (November 2015); that further regulatory simplification and coordination are required, and for this purpose EC will notably investigate how the ESAs can be used for this purpose through the White Paper on ESAs in Spring 2016; that the Commission will look into assisting Member States bring down harmful barriers to the flow of capital; and with regard to SME information there is a need to help them to find alternative financing, but there should be no mandatory reporting to a central database/register. Instead, we need to create something that people will buy into. The MEP Pablo Zalba Bidegain (EPP/ESP) for his part emphasised that the CMU should enable SMEs to raise finance as easily as larger companies, and that key areas of the CMU Action Plan include STS Securitisation, Solvency II, as well as public consultations on venture capital and covered bonds.


ECMI-CEPS: Navigating the storm: Setting long-term goals in volatile market conditions – 20 October

On 20 October a conference co-organised by ECMI and CEPS took place in Brussels, titled Navigating the storm: Setting long-term goals in volatile market conditions. The event was a landmark occasion bringing together policy-makers, academics and international experts to discuss challenges of capital markets integration and financial reforms. Of particular interest, the first session focused on the Capital Markets Union (CMU) and discussed various options faced by EU institutions  in building true European financial markets, as well as distinctions between what elements should be part of the CMU and what would be best left to competition between Member States.


During the event, Commissioner Jonathan Hill notably stated that bank-based financial systems have benefits, but the crisis demonstrated the need for capital markets capable of filling the gap left by a banking sector unable to lend at previous levels; that the CMU Action Plan (AP) has received extensive support from the European Parliament (EP), Member States and the industry; that he is very much looking for a bottom-up step-by-step approach and the AP’s priorities and timeline is based on where potential for faster progress was identified; that it is important to look into tax incentives for venture capital (VC) and business angels in a bid to foster investment into SMEs; that in order to foster retail investors’ investments on capital markets, there must be a provision of better and comparable information; that next year (2016) work will start on establishing a European market for simple personal pensions and assess the need for EU legislation in this area; that the Commission wants to address the current debt-equity bias and cooperate with ESAs to strengthen supervisory convergence; and finally, that reforming the Prospectus Directive will ease SME access to capital markets financing. Prospectuses must be affordable for SMEs to produce, and a radical review of the Prospectus Directive is expected for later this year (probably November).


EPC: Breakfast briefing on the CMU – 5 November

On the morning of 5 November, a breakfast policy briefing organised by the think tank European Policy Centre (EPC) with a particular focus on the Capital Markets Union (CMU) took place. Commissioner Jonathan Hill attended the event, providing keynote comments as well as replies to open questions from the audience. Overall, little new was said and most questions concentrated mainly on the banking-side of things. Commissioner Hill was cautious and did not deliver new content of particular interest, but one can assess the prioritisation of the various proposals by their consistent re-emergence in the statements of key EU officials, including the debt-equity bias.


Cambre: CMU: what’s in it for you? – 18 November

On Wednesday 18 November a CMU-related event organised by Cambre took place, poetically titled CMU: what’s in it for you. The event brought together a wide range of private sector stakeholders with an interest in the CMU, including from conventional industry, SMEs, banking and finance. As the name implies, the event aimed to provide an overview of the concrete impacts of the planned CMU proposals. A representative from the European Commission attended, but provided no new revolutionary information of interest. He confirmed that the EU will play a coordinating role in tax and insolvency, both of which conventionally fall under Member State competence. With regard to insolvency, the Commission might be looking at a legislative proposal (e.g. touching on second chance, early re-structuring), and this is likely to come from DG JUST. With regard to the Financial Transactions Tax (FTT), the speaker from Invest Europe, Michael Collins, stated that is the last thing that a CMU needs. This view was later re-iterated and supported by members of the audience representing banking and insurance sectors. The Commission representative made no normative comments in this regard, merely stating that the role of the Commission is to support and coordinate the work of the 11 Member States currently negotiating and preparing the FTT.


Upcoming events