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Topic:
Capital Markets Union
Summary

Current situation

The Capital Markets Union (CMU) is a key pillar of the Investment Plan for Europe which aims to revitalise Europe’s economy and aims to tackle investment shortages head-on by increasing and diversifying the funding sources for Europe’s businesses and long-term projects and was seen as a necessary step to complement the Banking Union and complete the Economic and Monetary Union(EMU). The European Commission unveiled its Action Plan for a Capital Markets Union in September 2015 to create a true single market for capital across the 28 EU Member States. The European Commission set up a High Level Forum (HLF) in November 2019 with the aim of reviewing what has been done to date and proposing new targeted actions to further advance the Capital Markets Union initiative.

Since the the mid-term review of 2017 significant progress as been made. New challenges relating to the green and digital transformation of the economy and also the onset of Covid-19 mean further measures are required. In June 2020, the High Level Forum delivered its report and recommendations to the Commission, outlining the measures it considers the EU should take to move the EU and the CMU project forward in order to make it fit for the future and to assist in the economic recovery from COVID-19.

Background

The Green Paper on Capital Markets Union supported a a step-by-step approach to building the CMU. The CMU Action Plan set out proposed actions under 6 key themes ranging from increasing bank lending to creating more opportunities for retail investors and sets out 33 measures necessary to achieve an integrated capital market in Europe by 2019.

-EC: Press release

-EC: FAQs

-EC: Capital Markets Union Action Plan

The principle objectives of the CMU are to:

-improve access to finance for all businesses and infrastructure projects across Europe;

-help SMEs raise finance as easily as large companies;

-reate a single market for capital by removing barriers to cross-border investments; and

-diversify the funding of the economy and reduce the cost of raising capital.

The CMU Action Plan follows six key themes:

-The path to growth – financing for innovation, start-ups and non-listed companies

-Making it easier for companies to enter and raise capital on public markets

-Investing for the long term, infrastructure and sustainable investment

-Fostering retail and institutional investment

-Leveraging banking capacity to support the wider economy

-Facilitating cross-border investing

As noted in the Green Paper, the CMU will not be delivered through a single measure, but instead will take forward a number of measures to remove the barriers which stand between investors' money and investment opportunities, and overcome the obstacles which prevent businesses from reaching investors. Although the CMU is a medium-term project there are some important early workstreams which are set out in Annex 1 to the Action Plan needed to begin achieving this objective. To this end, alongside the CMU Action Plan, the Commission unveiled a first set of legislative proposals for harmonising the current regulatory regime and for establishing a new framework for simple, transparent and standardised (STS) securitisations.

Supporting the take up of new European Long Term Investment Funds (ELTIFs) to channel investment into infrastructure and other long-term projects is another early action. To provide insurance companies with incentives to invest for the long term in infrastructure and European long-term investment funds (ELTIFs) will necessitate amendments to the Solvency II Delegated Regulation.

Other first actions include the definition of infrastructure and revised calibrations for Solvency II, and a proposal to review the Prospectus Directive. In other areas, further consultation with interested parties may be needed. In parallel, the Commission will facilitate discussions with Member States on items such as tax and insolvency to enable progress to be reached over the medium to long term.

The Commission:

-has modernised the Prospectus Directive to make it less costly for businesses to raise funds publicly, review regulatory barriers to small firms listing on equity and debt markets and support the listing activities of small firms through European advisory structures through the introduction of the Prospectus Regulation;

-launched a package of measures to support venture capital and equity financing in the EU, including catalysing private investment using EU resources through pan-European funds-of-funds, regulatory reform, and the promotion of best practice on tax incentives;

-will promote innovative forms of business financing such as crowd-funding, private placement, and loan-orginating funds whilst safeguarding investor protection and financial stability; and

-will explore ways to build a pan-European approach to better connect SMEs with a range of funding sources.

On 20 September 2017, the European Commission proposed further reforms aimed at promoting growth and investment in Europe through further financial integration of the Single Market and the Economic and Monetary Union and the establishment of a full Capital Markets Union. A Communication entitled Reinforcing integrated supervision to strengthen Capital Markets Union and financial integration in a changing environment was issued alonside the proposals.