At the beginning of 2015, the European Commission unveiled its plan to boost funding and growth across Europe through the creation of a single market for capital by issuing its Green Paper on Building a Capital Markets Union (the “Green Paper”) and launching a dedicated website.
The CMU is not a legislative proposal, but a framework under which various legislative initiatives will be taken spanning areas as diverse as infrastructure investments, securitisation, changes to the prospectus regime to make it easier and less expensive for SMEs (small- and medium-sized enterprises) to raise capital, alternative sources of financing such as venture capital and crowdfunding, but also insolvency, corporate and tax law. It is a medium- to long-term project with some key early actions being expected in 2017.
The CMU Action Plan
Following up on its Green Paper and subsequent public consultations, the Commission released its CMU Action Plan in September 2015. Planning more than 30 specific actions that will be taken to complete the CMU by 2019, the CMU Action Plan identifies five key priority areas:
- providing more funding choices for Europe’s businesses and SMEs;
- ensuring an appropriate regulatory environment for long-term and sustainable investment and financing of Europe’s infrastructure;
- increasing investment and choice for retail and institutional investors;
- enhancing the capacity of banks to lend to the real economy; and
- dismantling barriers to cross-border investment and further developing capital markets in all Member States.
Call for acceleration of reforms under the CMU Action Plan
As part of its periodic status updates, in autumn 2016 the Commission reiterated the importance of implementing the objectives of the CMU as soon as possible, calling the EU Parliament, the Council, the Central Bank and the Social Committee and the Committee of Regions to accelerate reforms.
First phase CMU measures to be finalised by 2017
According to the Commission, completion of the first phase CMU measures is essential in order to have a tangible impact on the economy. By 2017, the following key measures will have been implemented:
- an EU framework for simple, transparent and standardised (STS) securitisation to free up bank balance sheets, generate additional funding and enhance financial stability;
- an overhaul of EU prospectus rules to facilitate access to capital markets, in particular for SMEs, and generating more, and less costly financing opportunities; and
- measures to strengthen venture capital markets and social investments by revising the respective EU regulations (EuVECA/EuSEF) to boost investment into venture capital and social projects, such that the type of managers and the range of companies that can invest or be invested in is expanded.
Next phase CMU actions – 2017 and beyond
Given the Commission’s push for reform and its plan to assess achievements and reassess priorities, 2017 will certainly be an exciting and intense year for regulation. Amongst others we expect:
- a legislative initiative on business insolvency, including early restructuring and second chance;
- a benchmarking review of loan enforcement regimes;
- proposals for removing withholding tax refund barriers to encourage best tax practices in promoting venture capital and innovative companies, and to facilitate equity financing through changes in taxation frameworks to overcome the “debt/equity” bias; and
- amendments to the Solvency II and CRR framework to reduce capital charges for infrastructure investments and SME loans to unlock institutional investment in infrastructure.
Developing further priorities
Further priorities in relation to which steps will be taken in the course of 2017 include
- development of a simple, efficient and competitive EU pension product;
- publication of an action plan on retail financial services;
- development of a green finance strategy to support investment in clean technologies and to contribute to a low-carbon, climate-resilient economy;
- promoting the development of the FinTech sector in an appropriate regulatory environment;
- legislative changes to support the development of covered bond markets throughout the Union; and
- promotion of cross-border funds distribution by further eliminating barriers in the asset management sector.
The Commission's CMU Action Plan set out the key changes needed to further strengthen EU capital markets, expand funding options for businesses, incentivise infrastructure investments and remove structural barriers in diverging tax systems, insolvency and securities laws. Midway through the proposed implementation timeline, 2017 will prove crucial for the successful implementation of the CMU Action Plan and the delivery of its full potential to support growth in Europe.