Equity Issues 30.01.17 - Mid-term review of Capital Markets Union action plan

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Claire Cummings
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claire.cummings@cummingslaw.com
www.cummingslaw.com

 
EQUITY ISSUES

Mid-term review of Capital Markets Union action plan
The European Commission has launched a public consultation on the planned Capital Markets Union (CMU) mid-term review to seek feedback on how the current CMU Action Plan can be updated and completed. According to European Commission Vice-President Valdis Dombrovskis, responsible for Financial Stability, Financial Services and Capital Markets Union: “We have built good momentum behind the Capital Markets Union project and we are well on our way to completing the first wave of measures. Now, we want to move faster and be more ambitious. This mid-term review consultation will help shape the next phase of our work to build a single market for capital in Europe.” The mid-term review (Review) aims to:

1. Take stock of progress on the implementation of the CMU Action Plan;

2. Reframe actions in the light of work undertaken so far and evolving market circumstances; and

3. Complement the CMU Action Plan with new measures which constitute an effective and proportionate response to key challenges.

Background

The Commission announced the creation of the CMU in September 2014 with the aim of bringing about “a well-regulated and integrated Capital Markets Union, encompassing all member states, by 2019, with a view to maximising the benefits of capital markets and non-bank financial institutions for the real economy”.
The CMU Action Plan was published in September 2015 and set out a comprehensive programme of 33 actions to put in place to build the building blocks for the CMU.

In September last year, the Commission adopted a communication to reaffirm its commitment to the CMU. The communication called for an acceleration of the reforms as the Commission considers that there is a need to speed up the legislative process, starting with the securitisation package and implementing provisions of the Prospectus Regulation, in order to reap the benefits of the first CMU commitments.

The CMU sits at the heart of the EU reform agenda for a deeper and fairer single market and remains a flagship priority of the Commission.

The Consultation

The consultation is seeking feedback on how the current programme can be updated and completed, so that it represents a strong policy framework for the developments of the capital markets, building on the initiatives that the Commission has presented so far. In support, the consultation provides an updated overview of the state of implementation of the Action Plan.

The Commission does not envisage fundamental changes to the conception or strategic focus of the Action Plan, but rather envisages targeted changes to update and reframe the programme of actions required. The consultation paper therefore retains the structure of the CMU Action Plan, which identifies six policy areas on which the CMU should focus:

1. Financing for innovation, start-ups and non-listed companies – The Commission is keen to identify those actions that strengthen non-bank sources of finance for innovative companies and EU businesses with high-growth potential.  The Commission notes for example that:

– while the online alternative finance market (including crowdfunding and peer-to-peer lending) is growing, it is concentrated in a few member states.
– cross-border activity is low;
– there was a reduction in both venture capital funding and VC deals in 2016. EU VC funds lack both scale, relative to their US counterparts, and geographical reach and in the Commission’s view, other options could be explored;
– private placements of debt are also concentrated in a handful of member states; and
– pre-IPO non-bank finance remains largely absent, particularly in the smaller member states.

2. Making it easier for companies to enter and raise capital on public markets – The Commission notes that the size of EU public equity and debt markets lags behind other developed economies. There are currently limited equity raisings by EU companies, especially the smallest ones. The potential of public markets is under-utilised for small and mid-cap companies. IPO costs, already high, fall on them disproportionately. The Commission recognises that there is a need to speed up the legislative process, including in this context the implementing measures of the Prospectus Regulation.

3. Investing for long-term, infrastructure and sustainable development – The Commission notes that institutional and other private investors can be an important source of funding for infrastructure investments and reforms for sustainable finance are necessary to support investment in clean technologies.  Efficient capital markets can play a key role in financing sustainable investments both in the EU and abroad.

4. Fostering retail investment and innovation – The Commission notes that the under-development of capital markets hampers the EU’s ability to provide investment opportunities for savers and retirement provisions and part of the solution is to provide better access to capital markets for EU retail investors.

5. Strengthening banking capacity to support the wider economy – The Commission notes that securitisation can increase the availability of bank credit and reduce the cost of funding for SMEs and that covered bond markets are also an important channel for longer term financing. A rapid implementation of the securitisation package will pave the way for a revival of the market.

6. Facilitating cross-border investment – The Commission notes that there remain many long-standing and deep-rooted obstacles to cross-border investment. These include divergences in corporate governance frameworks that may deter equity investments across borders and impede the exercise of efficient oversight over a company’s management and board. It cites evidence that better corporate board accountability is necessary for long-term value creation.

Next Steps

Comments on the consultation are invited by 17 March 2017. The Commission intends to produce a summary feedback statement which will feed into the Review, which will be published in June 2017. The Review will take stock of progress on the implementation of the Action Plan and identify potential additional measures to improve the financing of the economy.

According to the Commission, some 15 initiatives, or almost half of the actions envisaged in the Action Plan, have already been completed. Several more will be launched in the coming months and will be finalised by 2019.

This document is for general guidance only. It does not contain definitive advice.
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Cummings

Tel: + 44 20 7585 1406
Mob: + 44 7734 057 327
www.cummingslaw.com
30 January 2017