FEE CMU Policy Update

November 2016

European Commission

Dombrovskis delivers speeches on CMU priorities – 5/6 October

The Commission Vice-President Valdis Dombrovskis has delivered additional speeches in which he sheds further light into the Commission’s CMU priorities. In his speeches (see here and here) to the Securities Industry and Financial Markets Association (SIFMA) and the Peterson Institute, Vice-President Dombrovskis states that the subsequent priorities will be to dismantle longstanding barriers to the free flow of capital in the EU, as well as further widening and deepening the scope for action. This will entail addressing the myriad of insolvency regimes across Europe (proposal currently expected for 22 November), addressing burdensome withholding tax reclaim procedures (Code of Conduct expected for 2017), addressing the debt-equity bias (see article below on CCCTB), the possible creation of a cross-border personal pension product (in 2017), supporting sustainable finance, looking into the potential of fintech and “digital innovation”, improving the conditions for retail financial services, and addressing mismatches and overlaps in existing financial sector legislation.

European Commission publishes Work Programme for 2017 – 25 October

The European Commission has published its Work Programme 2017. The Commission has grouped its work in 21 new initiatives which fall under the 10 priorities (see also 2017 EC Infographic). The set out priorities are mostly based on the Commission’s previous work as well as the current political and financial crises that need to be tackled. It appears that the Commission has strategically prepared the working program in joint meetings with the Council and the European Parliament to avoid unpleasant surprises. Overall, there are on big surprises on the proposals. Of interest from the CMU perspective, the Commission will conduct a mid-term review on the Action Plan’s implementation in order to identify remaining obstacles or additional measures required. This is expected to come in the form of a Communication and is scheduled for the Q2 of 2017. Moreover, the Commission has prioritized the pending proposals on the Prospectus Regulation for 2017 adding further pressure to the Council and the European Parliament.

Commission re-launches CCCTB, wants to foster equity financing – 25 October

The European Commission has published its long-awaited corporate tax package which, amongst other things, entails the re-launch of the Common Consolidated Corporate Tax Base (CCCTB) proposal in two separate Directives. The Commission’s intention is to push for an agreement on the ‘common’ element first, and only then address ‘consolidation’. This approach is the outcome of feedback that the Commission received from a number of Member States with regard to the initial 2011 proposal – i.e. that there was, simply, too much to digest at one time. This is also a pragmatic solution after a number of Member States expressed their strong objection to the proposal, especially the consolidation element. Of CMU interest, the ‘common’-Directive proposes to address the debt-equity bias as announced in the Commission’s CMU Action Plan. This would be done through a so-called Allowance for Growth and Investment (AGI) which enables to deduct notional interest corresponding to the cost of equity. More specifically, the provision states that an amount equal to the notional yield on the AGI equity base increases shall be deductible from the taxpayer’s tax base. If there is an AGI equity base decrease, an amount equal to the notional yield on the AGI equity base decrease shall become taxable. the notional yield must be equal to the yield of the euro area 10-year government benchmark bond in December of the relevant tax year, as published by the European Central Bank (ECB), and increased by a risk premium of 2%. A floor of 2% applies where the curve of the annual yield is negative. In terms of next steps, all EU Member States will have to unanimously agree on the proposal before it can become EU-law. The negotiations are expected to be difficult – the initial CCCTB proposal from 2011 got stuck in Council negotiations. The AGI will undoubtedly be subject to significant disagreements and amendments.

European Commission to establish an expert group to develop a comprehensive European strategy on sustainable finance – 28 October

The handprint of Vice-President Dombrovskis is already visible on the CMU agenda. The latest demonstration of this is the Commission’s announcement that it will establish a High-Level Expert Group on Sustainable Finance in the CMU context, as announced in the follow-up CMU Communication published some weeks ago (please see FEE CMU Policy Update from September for further details). The Expert Group will bring together a number of relevant experts from a variety of backgrounds (industry, academia, civil society) to feed into the Commission’s work on a comprehensive EU strategy on sustainable finance to be published during 2017. A call for expression of interest was also published, and interested stakeholders are invited to submit their application by 25 November.

European Parliament

ECON Committee debate on STS securitisation – 11 October

The ECON Committee of the European Parliament has held a hearing on the Commission proposal for a Simple, Transparent and Standardised (STS) securitisation framework. The European Parliament’s work on the dossier is led by the MEP Paul Tang (S&D/NLD), who together with a number of other MEPs especially from the Left spectrum have expressed caution towards the Commission proposal, pointing to the role of subprime mortgage securitisation in the 2008 eruption of the financial crisis that has reached global proportions. At the same time, MEPs from the Right-wing Groups (EPP, ECR) are growing impatient at the opposing MEPs’ uncompromising views on issues such as the risk retention requirement threshold on banks. Member States have already reached an agreement on the Commission proposal. There is currently no confirmed schedule for any votes at the European Parliament.

Other News

“Do the member states even want a Capital Markets Union?” – 12 October

Michael Collins, the CEO of Invest Europe, has published an opinion article on Euractiv in which he questions the determination of EU Member States for achieving a true single market for capital in the EU. He argues, in particular, that progress on the CMU Action Plan’s points has been disappointingly slow, and that the greatest threat to capital markets integration in Europe are various barriers that either prevent or otherwise deter cross-border capital movement (e.g. barriers related to national fees and tax regimes). At the end, Mr. Collins calls on the EU Member States to strengthen their support for the Commission in its CMU efforts.