On 19 June, the European Parliament (“EP“) published a draft report on the further development of the Capital Markets Union (“CMU“), improving access to capital market finance, in particular by SMEs, and further enabling retail investor participation.
In the report, the EP recognises that:
- All actions taken to create a CMU should aim to improve the range of financing options offered to companies and citizens, as well as a greater range of more attractive investment offers.
- Whilst actions taken to achieve the CMU are moving in the right direction, further work should be done in terms of the precision, effectiveness and simplification of the measures adopted.
- The social and economic crisis resulting from Covid-19 will have a particularly negative impact on SMEs and retail savers.
- The EU’s response to the virus through the European Recovery Plan should provide a large injection of capital to increase European enterprises’ access to finance.
In summary, the report focuses on the following areas:
Financing business – the EP:
- calls for the removal of barriers, including the simplification of legislation, to diversify funding sources for SMEs, in order to promote SMEs’ ability to access equity markets and to reduce the existing debt bias;
- says the efficiency of financial markets should be improved and the listing of companies should be facilitated;
- calls for the acceleration of the development of EU venture capital (VC) and private
equity markets; - requests the realignment of the treatment of cash and synthetic securitisations and the treatment of regulatory capital and liquidity with that of covered bonds and loans.
- calls for targeted measures within securities market legislation to expedite the recovery after the current crisis.
Promoting long-term and cross-border investments and financial products – the EP:
- asks Member States to amend their tax frameworks in order to reduce tax
obstacles to cross-border investments and increase financing in long-term investment opportunities; - stresses the importance of increasing legal certainty for cross-border investments by making national insolvency proceedings more efficient and effective;
- stresses the necessity of implementing a genuinely Single Rule Book for financial services in the internal market;
- underlines the need to promote pension provision;
- encourages Member States to promote multi-pillar pension systems to improve market dynamics and incentives to invest;
- requests the Commission and EIOPA to consider adjusting the capital requirements for investments in equity and private debt, in particular of SMEs.
Market Architecture – the EP:
- calls for supervisory convergence to promote a common European model,
guided by the European Securities and Market Authority (“ESMA”), to reduce the
existing obstacles to cross-border financial operations; and - recognises that financial services regulation is a very complex undertaking, but encourages all relevant actors to address this complexity to ensure proportionality and remove unnecessary administrative burdens.
Retail investors – the EP:
- calls for measures to promote retail investments by increasing the participation of retail investors in capital markets through more attractive and appropriate personal pension products;
- stresses that access to financial markets should be possible for all enterprises under
the ‘same business, same rules’ principle; - expects that Level 2 PRIIPs legislation on the Key Investor Document to respect level 1, in particular in relation to the performance scenarios;
- Urges the Commission to clarify the differentiation between professional and retail
investors on all levels of MIFID, making it possible to tailor the treatment of clients
according to their knowledge and experience on the markets; - believes that a simplification of the current reporting framework within MIFID II and the European Market Infrastructure Regulation (EMIR) is necessary;
- calls for amendments to legislation to ensure access to independent advice by financial intermediaries while avoiding promotion of the institution’s own financial products and ensuring a fair marketing of financial products.
Financial education – the EP:
- stresses that financial education is needed to overcome low retail investor
engagement with financial markets; and - urges Member States to include financial literacy programs in school curricula
aimed at developing autonomy in financial matters.
Digitalisation – the EP:
- emphasises that an EU framework with high standards of cybersecurity
would be conducive to the CMU; and - highlights that ‘sandboxes’ may help enhance the innovation and competitiveness of the financial services sector and requests that the Commission create a
pan-European ‘sandbox’.
Finally, in relation to the EU’s role in global markets, the EP points out that deeper, more integrated and efficient European capital markets are critical to protecting Europe’s economic sovereignty, the use of the euro in third countries, and to attracting foreign investors.
The EP calls for action towards strengthening the international role and the use of the euro, by completing Economic and Monetary Union, the CMU and the Banking Union,
supporting the development of euro-benchmarks for commodity markets, and reinforcing the role of the euro as a reference currency.