The European Commission (the “Commission”) published a new Capital Markets Union (“CMU”) action plan (the “Action Plan”) on 24 September 2020 designed to ensure greater access to market financing across the European Union (“EU”), in particular as a means of financial recovery from the COVID-19 pandemic.
The CMU is a plan to create a single market for capital. 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.
While progress has been made since the adoption of the 2015 CMU Action Plan, EU capital markets remain fragmented. 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. A strong and complete CMU is needed now more than ever, in order to support the economic recovery following the COVID-19 crisis and the return to long-term growth and to finance the green and digital transitions of our economy.
The Action Plan has 3 key objectives, namely:
- ensuring that the EU's economic recovery is green, digital, inclusive and resilient by making financing more accessible for European companies, in particular SMEs;
- making the EU an even safer place for individuals to save and invest long-term; and
- integrating national capital markets into a genuine EU-wide single market for capital.
To achieve the above objectives, the Action Plan proposes 16 legislative and non-legislative measures, considered thematically below.
Single Access Point
The Commission proposes setting up an EU-wide platform (a European single access point) to provide investors with seamless access to financial and sustainability-related company information.
Also, public listing is often cumbersome and costly, especially for SMEs. Planned simplification of existing listing rules would reduce compliance costs for SMEs and remove a significant obstacle that holds them back from tapping public markets.
To complement the action on listing rules, the Commission will continue its work on creating an SME IPO fund to make it easier for small and high-growth companies, in particular in sectors of strategic importance to the EU, to raise capital and finance their growth.
Supporting Insurers and Banks
The Commission will review the legislative framework for European long-term investment funds with a view to channeling more long-term financing to companies and infrastructure projects.
The Commission will seek to remove regulatory obstacles for insurance companies to invest long-term, without harming financial stability and policyholder protection. It will also seek to provide for an appropriate prudential treatment of long-term SME equity investment by banks. Furthermore, it will assess possibilities of promoting market-making activities by banks and other financial firms.
The Commission will assess the merits and feasibility of introducing a requirement for banks to direct SMEs, whose credit application they have turned down, to providers of alternative funding.
In order to scale-up the securitisation market in the EU, the Commission will review the current regulatory framework for securitisation to enhance banks' credit provision to EU companies, in particular SMEs. The Commission will also continue to assess the possibility of introducing a dual-recourse instrument named European Secured Notes. As set out in Directive (EU) 2019/2162 of the European Parliament and of the Council of 27 November 2019 on the issue of covered bonds and covered bond public supervision, it will submit a report to the European Parliament and the Council by 8 July 2024.
Strengthening Investment Protection
The Commission will conduct a feasibility assessment for the development of a European financial competence framework. It will also assess the possibility of introducing a requirement for Member States to promote learning measures supporting financial education, in particular in relation to responsible and long-term investing.
The Commission will assess the applicable rules in the area of inducements and disclosure and, where necessary, propose to amend the existing legal framework for retail investors to receive fair advice and clear and comparable product information. It will also propose how to reduce information overload for experienced retail investors, subject to appropriate safeguards. Finally, it will seek to improve the level of professional qualifications for advisors in the EU and assess the feasibility of setting up a pan-EU label for financial advisors.
Monitoring of Pension Adequacy
The Commission will facilitate the monitoring of pension adequacy in Member States through the development of pension dashboards. It will also develop best practices for the set-up of national tracking systems for individual Europeans. Finally, it will launch a study to analyse auto-enrolment practices and may analyse other practices to stimulate participation in occupational pension schemes, with a view to developing best practices for such systems across Member States.
Harmonising Insolvency Rules
To make the outcomes of insolvency proceedings more predictable, the Commission will take a legislative or non-legislative initiative for minimum harmonisation or increased convergence in targeted areas of non-bank insolvency law. In addition, together with the European Banking Authority, the Commission will explore possibilities to enhance data reporting in order to allow for a regular assessment of the effectiveness of national loan enforcement regimes.
In order to lower costs for cross-border investors and prevent tax fraud, the Commission will propose a common, standardised, EU-wide system for withholding tax relief at source.
To facilitate cross-border investor engagement, the Commission will consider introducing an EU definition of 'shareholder' and further clarifying and harmonising rules governing the interaction between investors, intermediaries and issuers. It will also examine possible national barriers to the use of new digital technologies in this area.
The Commission will consider amending rules to improve the cross-border provision of settlement services in the EU. It will also propose the creation of an effective and comprehensive post-trade consolidated tape for equity and equity-like financial instruments.
The Commission will propose to strengthen the investment protection and facilitation framework in the EU.
The Commission will work towards an enhanced single rulebook for capital markets by assessing the need for further harmonisation of EU rules and monitoring progress towards supervisory convergence.
The new Action Plan is to be welcomed, particularly as everyone’s top priority is to recover from the unprecedented economic crisis caused by the COVID-19 pandemic. The Action Plan offers a helpful roadmap to ensure that Europe’s capital markets play a key role in supporting economic recovery throughout the EU. It will now be incumbent on policymakers to implement these measures in an efficient and timely manner. The time for true integration of EU capital markets for the benefit of all EU citizens is now, more so than ever.