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Capital Markets Union – A Significant Development

The Eurogroup of EU Finance Ministers (the “Eurogroup”) issued a statement (the “Eurogroup Action Plan”) on the Capital Markets Union (“CMU”) on 11 March 2024. In preparing for the next EU legislative term which is scheduled to begin later this year, the Eurogroup has identified three priority areas for action and thirteen specific measures which they view as necessary to improve the functioning of European capital markets. The Eurogroup Action Plan is the culmination of nearly a year of policy discussions on the future of European capital markets.

What is the CMU? 

The CMU is a plan to create a single market for capital, which was initially launched by the European Commission in September 2015.  The aim is to get money – investments and savings – flowing across the EU so that it can benefit consumers, investors and companies, regardless of where they are located.  Ongoing progress has been made on the CMU, since we wrote about the European Commission's most recent CMU action plan in September 2020. The progress has included the publication by the European Commission in December 2022 of a series of proposed measures (which proposals we updated on in Spring 2023, Autumn 2023 and Spring 2024).  The Listing Act proposal and the separate EMIR 3.0 proposal are expected to be published in the Official Journal of the EU later this year and to enter into force shortly thereafter.  

However, the sense remains (and the Eurogroup are certainly of the view) that EU capital markets are still too fragmented and not sufficiently deep or liquid.  This means that EU citizens and businesses are not able to fully benefit from the deep, competitive, efficient and reliable sources of funding and investment that a true single market for capital in the EU can offer.  The EU remains a predominantly bank-funded economy. Moreover, the success of the CMU is an important component in the ongoing sustainability and digital transitions. The Eurogroup Action Plan is a response to these concerns and complements ongoing legislative work on the CMU.

Who should be interested in the Eurogroup Action Plan?

The CMU and the Eurogroup Action Plan are of interest to a wide group of stakeholders, including the following:

  • Institutional investors in capital market and securitisation transactions;
  • Issuers and originators of capital market and securitisation transactions;
  • Retail investors in capital market and securitisation transactions; and
  • Companies who are not able, in practical terms, as issuers, investors and / or originators (as applicable) to access the EU capital markets but wish to do so.

What are the priority action areas in the Eurogroup Action Plan?

The Eurogroup has identified the following priority areas for action:

  • Architecture: Develop a competitive, streamlined and smart regulatory and supervisory system, allowing funds to be better channelled into innovative EU businesses, with greater liquidity, risk taking and risk sharing together with higher resilience and financial stability.
  • Business: Ensure better access to private funding for EU businesses to invest, innovate and grow in the EU.
  • Citizens: Create better opportunities for EU citizens to accumulate wealth and improve financial security, by increasing direct and indirect retail participation through access to profitable investment opportunities.

What specific measures has the Eurogroup suggested?

The Eurogroup has identified thirteen specific measures for action in the Eurogroup Action Plan.  These include the following:

  • Securitisation: The Eurogroup is requesting that the European Commission comprehensively assess all the factors negatively impacting the development of the securitisation market in the EU. This assessment should include considering the adequacy of the regulatory framework, including the prudential treatment of securitisations for banks and insurance companies as well as the reporting and due diligence requirements in the EU Securitisation Regulation. The European Commission should then consider coming forward with corresponding proposals, taking into account international standards in this space.
  • Supervisory Convergence: The Eurogroup is requesting that the European Commission assess ways to improve supervision in the EU through further developing the common rulebook as well as examining a broad range of options to enhance supervisory convergence through a more efficient and effective use of the existing powers of the European Supervisory Authorities, together with a possible targeted strengthening of their role and governance arrangements. The aim should be to deliver a more harmonised enforcement of rules, improving access to and the attractiveness of EU capital markets. The Eurogroup is also requesting that the European Commission explore ways to enhance the efficiency of supervisory data collection and storage in the EU.
  • Reducing Regulatory Burden: The Eurogroup is requesting that the European Commission consider bringing forward proposals to reduce regulatory burden for market participants in the EU’s financial markets framework, while maintaining the related policy objectives. The Eurogroup is also requesting that the European Supervisory Authorities aim to reduce compliance costs and regulatory burden for financial companies.
  • National Corporate Insolvency Frameworks: The Eurogroup is requesting that the European Commission assess the need for additional measures to facilitate further convergence in specific features of insolvency frameworks that could deter cross-border capital markets/investments, notably the ranking of claims and insolvency triggers or the rules for financial collateral and settlement.
  • Integrated Market Infrastructure: The Eurogroup is requesting that the European Commission and EU governments assess and, if appropriate, address obstacles that could hinder mergers and acquisitions or other forms of integration of market infrastructure, including stock exchanges, with the view to strengthening European centres of expertise. The Eurogroup is also requesting that the European Commission monitor any outstanding issues following the adoption and implementation of the Listing Act and of the consolidated tape (i.e. consolidated data on prices and volume of traded securities in the EU), including the identification of areas where further developing the consolidated tape could be beneficial to market integration.
  • Sustainable Finance: The Eurogroup is requesting that the European Commission continue its efforts to enhance the usability of the EU sustainable finance framework and to support stakeholders with its implementation and, where appropriate, to take steps to reduce administrative burden through enhancing clarity, consistency and ease of use based on an appropriate impact assessment. The Eurogroup is also requesting that EU governments step up their efforts in supporting market participants in the uptake of sustainable finance tools and to address national barriers which slow down the use of the EU sustainable finance framework.
  • Strengthening Retail Investor Culture: The Eurogroup is requesting that EU governments create initiatives to improve financial literacy among citizens as well as SMEs, combined with targeted initiatives to create more interest in long-term wealth-creation through investing. The Eurogroup is requesting that the European Commission promote a regular exchange of best practices among EU governments integrating the joint EU/OECD financial competence frameworks in specific financial education measures aimed at building a better understanding of market-based investment opportunities. 

What happens next?

The Eurogroup Action Plan constitutes a list of priorities and a clear policy direction that the Eurogroup wants the European Commission, European Supervisory Authorities, EU governments and the finance industry to focus on between now and the end of the next EU legislative term in 2029.  Ultimately, it is within the discretion of these stakeholders (including the European Commission in accordance with its 'right of initiative') to determine how best to respond to this request from the Eurogroup.

However, the Eurogroup has clearly emphasised the urgency and set out that it expects the CMU to be a key focus for the next EU legislative term. The Eurogroup Action Plan contains specific requests to address perceived deficiencies in how the European capital markets are operating currently and the Eurogroup intends to monitor the progress of these requests.  In addition, other stakeholders (including the Banking & Payments Federation Ireland and the Association for Financial Markets in Europe) have welcomed the Eurogroup Action Plan and its aim to enhance the CMU.  Moreover, in 2015 and 2020 the European Commission responded to calls for action from the Council of the EU by introducing and then updating the European Commission's CMU action plan. We therefore expect further progress on the completion of the CMU to be a key focus for policymakers and legislators in the time ahead.

We are continuing to keep a close eye on developments in this area and will publish further updates as matters progress. For further information on the CMU and the Eurogroup Action Plan, please contact  Turlough Galvin, Maireadh DaleChristian Donagh, Alan Keating or your usual Matheson contact. 

This article is provided for general information purposes only and does not purport to cover every aspect of the themes and subject matter discussed, nor is it intended to provide, and does not constitute or comprise, legal or any other advice on any particular matter.