FEE CMU Policy Update

April 2016

European Commission

Upcoming Commission consultation on cross-border activities of investment funds – 22 April

The European Commission is expected to launch its anticipated public consultation on obstacles to investment funds’ cross-border activities in May. According to Commissioner Hill, these obstacles are in particular the result of different Member State rules which constitute additional costs for operating cross-border. The Commissioner expressed particular concern for obstacles and costs falling on smaller fund managers.

Commission publishes first status report on CMU, outlines next steps – 25 April

The European Commission has published its first status report on the CMU Action Plan’s objectives. The report lists the measures already taken in the CMU context, the upcoming key initiatives for 2016, as well as subsequent action for 2017 and 2018. A legislative proposal to revise EuVECA and EuSEF legislation with the view of further supporting venture capital is expected for the summer 2016. A report on crowdfunding is anticipated in the upcoming weeks. The Commission is moreover to publish a call for applications for an expert task force regarding the EU corporate bond markets. The proposal to re-launch the Common Consolidated Corporate Tax Base (CCCTB), including addressing the debt-equity bias, is anticipated for November 2016. With regard to the Call for Evidence, a public hearing of the results will take place in May, and the Commission will announce next steps by the summer of 2016. The Commission is moreover currently preparing a public consultation on the establishment of European personal pensions. Another public consultation on the main barriers to cross-border distribution of investment funds is to be launched in May (see article above for further details). A report on national barriers to the free movement of capital is to be expected for Q4 2016, as is a legislative initiative on insolvency. And finally, “preparatory work” on a White Paper on ESA’s funding and governance is underway, scheduled for June but may be postponed.


European Financial Stability and Integration Review (EFSIR): A focus on Capital Markets Union – 25 April

The European Commission has published its European Financial Stability and Integration Review (EFSIR) with particular focus on the CMU. The document focuses in particular on general trends in EU’s financial markets and funding structures, a variety of indicators to monitor the evolution of EU capital markets, as well as a number of drivers for market funding. Of additional interest, the document argues that policy action on pension systems and the pension fund industry could significantly contribute to the objectives outlined in the CMU Action Plan. The amount of assets in private pension funds and public pension reserve funds has great potential in the development of EU capital markets.



European Parliament

MEPs discuss ECON Committee report on prospectus reform, amendments published – 7/29 April

A total of 649 amendments have been posted for the ECON Committee’s draft report on prospectus reform, led by the MEP Philippe De Backer (ALDE/BEL) – for further details on the report itself, please refer to the FEE CMU Policy Update for March. The number of amendments received reflects the political interest on the dossier, and touch upon a wide range of the draft report’s sections – including on the EU Growth Prospectus (EUGP) proposed by Mr. De Backer, the disclosure requirements for SMEs as well as the need to ensure investor protection and confidence in investing in SMEs.

Earlier in April, the ECON Committee MEPs discussed the draft report, and each political Group expressed their broad views and sentiments on its content and proposals. Philippe De Backer himself stated that the prospectus regulation cannot alone address all investor protection issues, and must instead form a coherent whole together with existing relevant legislation (MiFID, PRIIPs, etc.). Moreover, a prospectus must provide understandable information for investors, including what the money will be used for, most crucial elements of the company, etc. together with an introduction/summary. The EPP Group (Christian-Democrats) feels that the draft report by Mr. De Backer leaves too much room for discretion and does not ensure harmonisation or appropriate investor protection due to the laxer thresholds. The SME simplified regime is a priori something positive, but should not be extended so far to mid-caps. The S&D Group (centre-Left) is open for the EUGP in principle, but the mid-cap regime is too wide and needs to be tightened up and made consistent with MiFID rules. On summary, S&D calls on Mr. De Backer to stay close to the Commission proposal. Overall, S&D has “a lot of issues” with the report (reflected by the number of amendments submitted by the Group). The ECR Group (Eurosceptic Conservatives) for its part disagrees on the summary, and argues that it could be completely deleted as “small investors don’t read it and large investors don’t need it”. Moreover, the risk factors and risk categories must be improved. Finally, the Greens-EFA Group raises concerns over the increased thresholds, and together with the far-Left GUE-NGL Group maintains that the key issue for SMEs in the current economic climate is a lack of aggregate demand, not of financing.

In terms of next steps, the ECON Committee is currently scheduled for 13 June, followed by a Plenary vote possibly in July. In parallel, Member States in the Council are seeking to reach a political agreement by the end of May. The two institutions will have to reach a compromise before the prospectus proposal can become EU law, and negotiations are expected to start during autumn.


ECON Committee discusses and publishes amendments on the report on Access to Finance for SMEs – 14/25 April

The ECON Committee MEPs have submitted a total of 249 amendments to the draft report titled Access to Finance for SMEs and increasing the diversity of SME funding in a Capital Markets Union and prepared by the MEP Othmar Karas (EPP/AUS) – for further details on the report, please refer to the February issue of the FEE CMU Policy Update. Later in April, the ECON MEPs held an exchange of views on the amendments.

Othmar Karas called for further thinking on the definition of SMEs, whilst making a distinction between different types of SMEs. He maintains that a variety of financing should be available throughout a company’s whole life-cycle. He called for a diversification of credit sources, including credit unions and risk capital. He moreover emphasised that the purpose is not to get rid of bank financing, but rather to strengthen all available options. The Liberal ALDE Group maintains that there are no one-size-fits-all solutions and consequently emphasises the importance of a broad range of financing sources. ALDE however also feels that it is unrealistic to expect for SMEs to participate in the capital markets on a wider scale, but strengthening non-bank financing for SMEs is nevertheless important. Moreover, the CMU requires a clear legislative framework with proper convergence. Finally, ALDE calls on the Commission to present an annual report covering the implementation of SME initiatives in the CMU context. The S&D Group (centre-Left) is broadly supportive of the report, but would like to emphasise the importance of bank financing for SMEs especially in remote areas – in such cases, the local banks should be strengthened. The Commission moreover should take measure to ensure the market accessibility for smaller banks, for public sector supported SME loans, and for a one-stop-shop information source for SMEs. The ECR Group (Eurosceptic Conservatives) for its part maintains that over-regulation and lack of simple rules can be harmful for SMEs, and expresses scepticism on further harmonisation of rules. The Greens-EFA Group argues that banks can best serve SMEs by being well capitalised, not by speculating. There is a consequent need to promote SME-friendly banking models. The Greens moreover argue that SMEs will not benefit from securitisation, and emphasise the importance of looking into and incentivising alternative financing to both bank lending and the capital markets, such as alternative currencies. Finally, Esther De Lange (EPP/NLD) urged to find out treasons behind significant regional disparities on refused SME requests for credit.

In terms of next steps, the ECON Committee is expected to vote on the draft report on 14 June. A Plenary vote is anticipated for September.


“MEP Philippe De Backer joins the Federal Government” – 29 April

According to Flanders News, the MEP Philippe De Backer (ALDE/BEL) currently in charge of the European Parliament’s report on prospectus reform is to leave his position at the European Parliament and move to become the Secretary of State at the Federal Government of Belgium. He is to replace the former Secretary Bart Tommelein, who will in turn replace Annemie Turtelboom as the Flemish Minister of Budget and Energy. No exact timelines have been specified yet, and it is difficult to predict at this stage how this will impact the European Parliament’s work on the prospectus reform.




ESMA and EBA react to the Commission Green Paper on retail financial

Services – 21 April

ESMA and the EBA have replied to the Commission Green Paper on retail financial services published last December. In its response, ESMA proposes specific actions on areas such as the MiFID passport and the home-host cooperation, improving information for customers, facilitating cross-border distribution of financial products, improving redress and quality of enforcement, and the possibility of “autonomous or more closely harmonised” EU regimes for particular financial products. EBA in turn focuses in particular on the digitalisation of banking services, entailed potential risks as well as opportunities, as well as the enforcement of consumer protection regulation.




OECD report: lending to SMEs and entrepreneurs is improving, but more diverse forms of financing are needed – 14 April

The OECD has published a report on SME financing which expresses concerns over their access to a wider pool of finance. In particular and in line with the concerns expressed by the Commission in its CMU Action Plan, the OECD report maintains that SMEs are too reliant on bank financing and consequently decision makers should take action to diversify and improve SME access to non-bank sources of finance.


Nordea to launch a crowdfunding service for fast growing start-ups – 27 April

According to Helsingin Sanomat, Nordea is planning to launch a crowdfunding service targeted for fast growing and innovative start-ups – the first Nordic bank to take such a step. The web-based service will be called Nordea Crowdfunding, and will be linked to the Finnish book entry system. The new service is a part of Nordea’s wider efforts to transform itself into a more digital actor. In parallel, the bank will soon launch a new mobile payments service. This is a good example of banks’ efforts to diversify their service portfolio to better address the needs of small but fast growing companies as well as to respond to the needs of an increasingly digitalised economy.



Other News

EESC opinion on prospectus proposal – 1 April

The European Economic and Social Committee (EESC) has submitted its opinion on the Commission proposal for prospectus reform. EESC expresses its support for the underlying principles behind the Commission proposal, i.e. to simplify and streamline the requirements for the prospectus and to ensure that the information contained is useful to investors. EESC calls for all stakeholders to be involved at the “level 2” (technical level) stage, whereby ESMA will provide more detailed recommendations as to the format, disclosure requirements etc. of the prospectuses. Moreover, it calls for the prospectus summary to include “specific warnings” on potential investment risks.


“Banks, Investors Push EU to Fix Flaws in ABS Revival Plan” – 4 April

According to Bloomberg, a number of large EU financial firms have raised concerns about the Commission proposal on Simple, Transparent and Standardised (STS) securitisation. The firms argue that the proposal must align with existing prudential requirements for other investments with comparable risks. The current proposal, however, provides for preferential capital treatment to securitisations that adhere to the STS standards as defined in it.




17/05/2016, Public hearing on the Call for Evidence, European Commission, Brussels.

24/05/2016, 14th Annual European Financial Services Conference, Forum Europe, Brussels.

24/05/2016, Conference on SME Financing, WSBI and ESBG, Brussels.

24/05/2016, 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.