FEE CMU Policy Update

March 2016

European Commission

Commissioner Hill delivers several speeches and refers to the CMU timeline – 2/4/18 March

Commissioner Hill delivered a number of speeches in March in which he provided insights into upcoming Commission plans on the CMU agenda, most of which however is already known. In his first speech from 2 March, Commissioner Hill focuses on the results received from the public consultation on retail financial services, including insights into the various priorities indicated by consumers as well as conventional financial institutions alike.

In the second speech delivered on 4 March, Commissioner Hill re-confirms well-known anticipated initiatives (for venture capital, business insolvency etc.), but also goes into more detail with regard to the call for evidence and its results. He brings up the main concerns expressed by stakeholders from the banking and financial sectors, and summarises them into three categories of unexpected interactions, duplications and inconsistencies. A number of stakeholders for example expressed concerns over the burden imposed by the quantity and duplication of reporting requirements, as well as inconsistent reporting requirements and standards across legislation.

Finally, in his third speech from 18 March Commissioner Hill amongst other things re-iterates arguments warning against the threat of over-reliance on bank financing. He moreover outlines well-known CMU plans and projects for 2016, including improving finance for start-ups. With this regard, he refers to ongoing Commission work on ideas to strengthen venture capital markets. The Commission will amend this year existing legislation governing venture capital funds in order to increase scale, diversity and choice. The Commission will moreover look at how public money can be harnessed to attract private investment with a pan-European venture capital fund of funds. The Commission will also assess whether and how to support the development of industry-led business growth funds to support equity in SMEs.





Commission publishes insolvency roadmap – 3 March

The European Commission has published a roadmap on business insolvency which is in line with what has been previously anticipated widely amongst stakeholders. In particular, the roadmap sets out the background, purpose, objectives, priorities and the process leading to the insolvency legislative proposal currently expected for autumn. The roadmap identified the lack of an efficient restructuring framework, inefficient insolvency proceedings at the EU-level and differences between national insolvency regimes as key challenges to be addressed by the future proposal. It argues that these, and especially discrepancies between national regimes, pose a serious obstacle to the free movement of capital, goods and services. The Commission states that three options for insolvency reform have been considered, namely minimum harmonisation (1), a “full harmonisation instrument (2) and an optional 29th insolvency regime (3). The Commission is to launch an impact assessment on the effects of the various options, to feed directly into its thinking while drafting the legislative proposal itself.


Commission launches consultation on business insolvency – 23 March

The European Commission has published its long-awaited public consultation on business insolvency, in preparation for a legislative proposal in autumn. The questions of the consultation are broadly linked to the CMU agenda, focusing on issues such as providing a second chance to entrepreneurs, overcoming obstacles to the Single Market in the form of barriers generated by fragmented insolvency regimes, identifying best practices in Member States, and identifying common principles and standards which could ensure that national insolvency frameworks work well, especially in a cross-border context. The deadline for contributing to the consultation is 14 June.


Venture capital proposal out in summer – 31 March

According to Agence Europe (article only available to subscribers), Commissioner Moedas (research and innovation) has provided additional details on the upcoming proposal on a pan-European venture capital fund-of-funds, currently anticipated for the summer. He provided the comments during a conference in The Hague on innovative enterprises. The fund should have a size of at least €500 million, and should entail investments in early-, late- and expansion-stage venture capital funds. Venture capital funds in Europe are still relatively small, and fail to attract sufficient funding from institutional investors. Indeed, the Commissioner highlighted that currently over 30% of venture capital in Europe is funded by the public sector.


Agence Europe 01/04

Commission launches public consultation on business environment for start-ups – 31 March

The European Commission has launched a public consultation on improving the business environment for start-ups. Although the consultation does not link directly to the CMU agenda, it is of interest due to its thematic parallel to the CMU Action Plan’s priority to improve SMEs’ access to finance. According to the Commission, the consultation’s aim will be to help identify solutions and design new policy and support measures at both EU and Member State levels in order to address start-ups’ needs throughout their life cycle. The deadline for providing responding is 30 June.



European Parliament

“European parliament puts brake on plan to boost capital markets” – 3 March

As reported notably by the Financial Times (article only available to subscribers), the European Parliament (EP) will probably not advance at the pace desired by the Commission and stakeholders with regard to the proposal on Simple, Transparent and Standardised (STS) Securitisation. The leading MEP on the dossier, Paul Tang (S&D/NLD) is envisaging an EP position by late 2016 only. Mr. Tang argues that the securitisation dossier should advance in parallel with other EU provisions aiming for the establishment of a euro area guarantee scheme for bank deposits, as he sees the two as belonging to a broader whole. The European Commission put forward a proposal on STS securitisation in September, at the same time as the CMU Action Plan was launched, and Commissioner Hill has been hoping for swift progress as he maintains that the new securitisation regime could greatly benefit the European economy in a time of sluggish growth and meagre investment.


European Parliament draft report on prospectus reform published – 16 March

The European Parliament (EP) has published its long-awaited draft report on the Commission proposal for a Prospectus Regulation. The EP report has been prepared by the MEP Philippe de Backer (ALDE/BEL). The report is of particular interest given the fact that EP has co-legislative powers with the Member States on this dossier. This means that the Commission proposal cannot become EU law without approval from both EP and the Council. Inter-institutional negotiations will take place once both institutions have formed their respective opinions, possibly by July in the case of the EP and May for the Council.

Of particular interest, the draft report proposes to establish an EU Growth Prospectus (EUGP) to replace the Commission’s proposed lighter disclosure regime for SMEs. The EUGP would apply to all offers of securities (both within a single Member State as well as across the EU) between €1 and €20 million, and benefit from passporting throughout all 28 Member States. After consulting relevant stakeholders, Mr. De Backer has evidently concluded that the Commission proposal offers insufficient flexibility and simplification for companies, in particular SMEs and mid-caps. To re-iterate, Mr. De Backer has consistently emphasised the need for proportionality, simplification and reducing costs, which explains his proposal for an alternative approach to that proposed initially by the Commission. The draft report moreover proposes additional political guidance (“level 1”) for the Commission and ESMA to figure out details such as the format and information requirements at a technical level (“level 2”).


IMCO Committee opinion on prospectus reform – 22 March

The European Parliament IMCO Committee (internal market and consumer protection) has published a draft opinion on the Commission proposal for Prospectus Regulation. ECON Committee has the lead in this dossier with the report by the MEP Philippe de Backer (ALDE/BEL), however ECON will give due consideration to the opinions provided by other Committees such as IMCO.

The leading MEP for the IMCO Committee opinion is Vicky Ford (ECR/UK). Of particular interest, her draft opinion calls for the obligation to draft a summary only when securities are offered for retail investors, whilst arguing that the summary regime proposed by the Commission is too prescriptive (in particular with its six page limit). Ms. Ford moreover expresses particular concerns from the consumer protection angle (in line with IMCO Committee’s mandate), especially when it comes to the threshold changes proposed by Mr. de Backer in his ECON Committee draft report. Having said that, she does not believe that these changed thresholds will have a material impact on consumer protection. Overall, Ms. Ford is broadly in line with the amendments proposed by Mr. de Backer, including on the EU Growth Prospectus (EUGP) where the IMCO draft report makes no specific provisions on.


CULT Committee opinion on draft report regarding SME financing – 22 March

The European Parliament CULT Committee (culture and education) has published a draft opinion on the ECON Committee report regarding SMEs’ access to finance (see CMU Policy Update from February). The lead rapporteur for the CULT opinion is the MEP Luigi Morgano (S&D/ITA). In line with the mandate of the CULT Committee, Mr. Morgano’s draft opinion has particular focus on facilitating financing for SMEs active on cultural fields. The report consequently calls on the EU to broaden the range of financing instruments available to micro-enterprises and SMEs in the cultural and creative sectors, in particular with new financing schemes such as microcredit, repayable contributions, crowdfunding, risk capital finance and venture capital.



MEP Questions & Answers

Green Paper on retail financial services – 17 February

The European Commission has replied to a question asked by the MEP Sophie in ‘t Veld (ALDE/NLD) with regard to the Commission Green Paper on retail financial services. In her question, Ms. in ‘t Veld asks the Commission amongst other things what timetable and which subsequent steps it will take as a follow-up to the Green Paper, and whether it believes that its response to digital innovation and developments in retail financial services market is timely and keeps pace with developments. In his reply, Commissioner Hill confirms that the Commission will launch later in 2016 an Action Plan on retail financial services, which will in particular take stock of the results of the public consultation (which closed on 18 March).



Venture capital fund of funds – 23 February

The European Commission has replied to a question asked by the MEP Dariusz Rosati (EPP/POL) with regard to the anticipated Commission proposal on a venture capital (VC) fund-of-funds. In his question, Mr. Rosati questions the planned approach whereby the EU budget would be used to support the scheme. He therefore asks the Commission which institution(s) would manage the funds-of-funds, from which part of the EU budget would the funding come from, and whether it will remove administrative barriers in order to better stimulate VC in the EU. In his reply, Commissioner Hill states that the exact funding arrangements and mandates for the VC fund-of-funds is still under preparation, and a number of options are being studied. One possibility would be to include Horizon 2020 and funding from the European Fund for Strategic Investments (EFSI) SME equity window. With regard to regulatory, administrative and tax barriers, these must according to the Commissioner also be addressed and as such the Commission will also improve the overall regulatory framework for VC funds.





ECB opinion on Commission proposal for STS securitisation – 16 March

The European Central Bank (ECB) has published its opinion on the Commission proposal on Simple, Transparent and Standardised (STS) Securitisation. The ECB in particular welcomes the objectives of the proposal, as well as the establishment of criteria for a sub-category of securities, i.e. the STS securities. The paper moreover clarifies ECB’s role in the area of securities, and asks to amend the Commission proposal to align its role appropriately in the framework of STS securities as well. ECB subsequently puts forward a set of specific recommendations on the provisions, criteria, due diligence, sanctions and cooperation between supervisory bodies, amongst other things.


ECB opinion on Commission proposal for prospectus reform – 21 March

The European Central Bank (ECB) has published its opinion on the Commission proposal for a Prospectus Regulation. ECB’s comments and amendments do not focus on the proposed lighter SME disclosure regime, but ECB puts forward a number of suggestions on how to improve the ESMA prospectus database as established in the Regulation proposal. In particular, ECB wants to ensure that the centralised storage database will on top of a search function for prospectuses also enable the presentation of the most relevant information in prospectuses in a “machine-readable” way using meta-data.


EBA publishes report on SMEs and the SME Supporting Factor – 23 March

The European Banking Authority (EBA) has published a report on SMEs and the SME Supporting Factor. The report focuses on the evolution of lending trends and conditions for SMEs, the effective risk level of SMEs in the EU, and the consistency of own funds requirements as established in the Capital Requirements Regulation (CRR). The report’s results demonstrate limited effectiveness of the SME Supporting Factor, although EBA acknowledges the need for further data and monitoring.



Other News

WFE publishes report on SME Exchanges – 22 March

The World Federation of Exchanges (WFE) has published a report on SME exchanges as a means of enhancing SME access to finance. The report puts forward four case-studies from WFE members’ exchanges with specific SME offerings. The report acknowledges that there is no one universally applicable model for SME markets, but highlights the importance of factors including tailored listing, disclosure requirements, methods to enhance secondary market liquidity as well as education for SMEs. The report however reminds that overall exchange offerings are only one element in wider SME financing and development landscape.



Event reports

QED: EU Prospectus Regulation – Striking a balance – 1 March

QED organised an event in early-March titled EU Prospectus Regulation – Striking a balance. As the name implies, the event focused on the Commission proposal for a new prospectus regulation. It brought together a number of stakeholders representing issuers, investors, preparers and regulators to discuss to what degree the proposals achieve the primary goals of more integrated capital markets in Europe, better access and lighter regimes (especially for SMEs), and adequate investor protection. The main interest of the event was to hear further the views of the MEP Philippe De Backer (ALDE/BEL) who is the lead rapporteur on the dossier at the European Parliament. Specifically, Mr. De Backer is concerned by the balance between investor protection and lighter or tailored prospectus regimes. He is in particular interested in solutions for allowing for a more flexible and extensive risk factor regime whilst avoiding overly burdensome, costly and lengthy prospectuses. In more generic terms, the speakers and attendees discussed the removal of the wholesale/retail distinction, which several industry stakeholders criticised as harmful. Moreover, there was an almost unilateral concern that too many details have been delegated to the technical level 2 (i.e. later delegated acts), whilst instead more details on for example thresholds and disclosure and format of the tailored prospectuses should be subject to level 1 (i.e. political level) considerations. Finally, questions of risk factors and liability overall emerged constantly, with the Commission and Mr. De Backer defending the proposed approach (i.e. limiting the number of risk factors), and industry stakeholders emphasising the nuances and complexities that render limiting risk factors all too problematic, whilst expressing concerns about possible legal and liability issues emerging from the proposed approach.




26/04/2016, 14:00-18:00, QED Conference on Retail Financial Services, QED, Brussels.

24/05/2016, 08:30-15:00, 14th Annual European Financial Services Conference, Forum Europe, Brussels.

24/05/2016, 10:00-16:30, Promoting Entrepreneurship in Europe: Developing Solutions Towards Economic Growth and Job Creation, Public Policy Exchange, Brussels.

07/06/2016, The priorities of the Slovak Republic Presidency of the Council, EPC, Brussels.

27/09/2016, Next steps on ESAs: funding and governance, Financial Future, Brussels.

08/11/2016, Cross-border distribution of funds, Financial Future, Brussels.

06/12/2016, Pan-European Personal Pension products, Financial Future, Brussels.