On September 30, the European Commission (EC) launched the Capital Markets Union (CMU) Action Plan as the initial blueprint to help build a single market for capital within the European Union. The intention of the CMU is to help support more cross-border risk sharing, create deeper and more liquid markets, and diversify the sources of funding available. As part of the CMU implementation, the EC will seek to remove barriers that currently inhibit cross-border investments in the European Union so as to facilitate companies and infrastructure projects raising the finance they need, regardless of location in the European Union. The EC also will promote the use of alternative sources of finance (complementary to bank financing)––which are seen as playing a bigger role in the European Union in providing financing, especially with respect to small and medium enterprises (SMEs) and start-up businesses––while also mitigating the impact of further issues in the banking sector on companies and their access to finance.
The Action Plan is based on the findings from a number of earlier consultations conducted by the EC that focused on creating a CMU by defining the measures needed to unlock investment in the European Union and create a single market for capital (including amendments to the EU Prospectus Directive and Securitisation), which had received broad support from stakeholders.
The CMU is a medium-term project. The Action Plan, however, sets out a number of initial goals, including:
- increase the range of funding choices for businesses (including start-ups) and SMEs during the various; phases of business growth;
- reduce the barriers for EU companies to enter and raise capital on the capital markets;
- implement an appropriate regulatory framework to support long-term infrastructure financing;
- harness finance to deliver environmental sustainability;
- increase the range of investments available for both retail and institutional investors;
- reduce barriers for bank lending by leveraging bank capacity to support the wider economy; and
- facilitate cross-border investing and develop uniform capital markets in all EU member states.
While the Action Plan is focused on those matters set out above, the EC will continue to work to identify the main inefficiencies and barriers to deepen capital markets’ integration within the European Union and develop proposals as to how to best overcome them (while retaining a strong focus on investor protection and market supervision).
In seeking to implement the initial goals of the CMU Action Plan based on its findings from a public consultation on this topic carried out earlier this year, the EC also published a proposal laying down common rules on securitization so as to create a European framework for simple, transparent and standardized securitization (the proposal can be found here). The EC also published new legislation amending Solvency II to promote infrastructure investment by the insurance industry by removing unjustifiable prudential obstacles through the creation of a distinct infrastructure asset class, which requires insurers to hold less capital against investments that fall within such class (the legislation can be found here).
As the next stage of its CMU implementation, the EC also is undertaking two further public consultations on access to European venture capital funds/European social entrepreneurship funds (the consultation can be found here) and the creation of a pan-European covered bonds market (the consultation can be found here). Responses to both of these consultations must be received by January 6, 2016.
The EC intends to report on an annual basis the progress of CMU and also is proposing to prepare a comprehensive stock-take in 2017 as a basis for deciding any additional measures that may be required.