Following the building of the European Banking Union and the ensuing integration of the banking sector from a regulatory and supervisory perspective, the Capital Markets Union (CMU) project officialized by the CMU action plan of September 2015 aims fundamentally to make it easier for EU companies to get the financing they need to grow.
For such purpose, the CMU action review consequently in light of the lack of significant progress by the mid-term review of June 2017 as well as the last progress report in November 2018 and the call for ambitious progress in spring 2019 builds fundamentally on seven pillars:
- Financing of innovation, start-ups and non-listed companies
- Easing the entry and raising of capital on public markets for all types of companies
- Promoting long-term, infrastructure and sustainable investment
- Fostering retail investment and pension planning
- Facilitating cross-border investment
- Strengthening banking capacities to support the wider economy as well as capacities of EU capital markets more generally.
Today, in the light of global instability, increased technological developments as well as the rise of a sustainable investment culture, the building of a solid European capital market capacity is even more crucial to support the growth of European markets and the EU market. It is only by bundling the strengths of all capital markets across the Member States that the European financial system gains in stability and diversifies its range of funding, making it less vulnerable to crisis situations. A fully functioning and integrated CMU will be able to reduce or eliminate cross-border investment restrictions, and thereby make capital markets more accessible to small and medium-sized enterprises. For investors, the CMU will provide a larger access to a wider range of competitive and transparent investment products, and improve returns on long-term savings.
The CMU will obviously not build itself in one go, but will have to be delivered through a cumulative impact of a number of initiatives at European, regional and local level. The Luxembourg Bankers’ Association is well aware of the efforts required to build the CMU and, in light of the significant benefits for its members as well as the public at large, has engaged since the beginning in the building process. The most visible element of this engagement is certainly the participation in the Markets4Europe campaign led by the European Banking Federation, an initiative proposing a roadmap for the political forces to fully integrate capital markets in Europe.
As such, the Markets4Europe campaign builds around removing obstacles between national borders to ensure that savers and firms invest beyond their borders, thereby enjoying opportunities to diversify their portfolios and lower their funding costs, respectively. With truly internationalising the playing field between the different markets, the financing costs companies pay will no longer depend on their country of incorporation, collateral-constrained startups will access new sources of funding, and consumption is shielded, at least to a certain extent, from local economic shocks. Lowering these barriers to a European CMU offers the prospect of powerful macroeconomic benefits.
Along the wave of the current sustainable finance efforts, the anaemic EU growth can be jumpstarted with a wave of new (and not so new) investment products thereby not only offering help to overburdened banks to offload part of their lending through tradable products, but further diversifying the offer of investment products for pension planning and long-term investments.
At the upcoming invitation-only Markets4Europe roadshow taking place on 25 February 2020 in Luxembourg (before moving onwards on 27 February 2020 to Berlin), key industry leaders will discuss the different axes that the CMU has to offer and will be measured upon. Protecting investor interests through a solid offer of sustainable tradable investment solution for their pension planning will be a key measurement for success for the CMU.
Similarly, companies will look at the CMU to ensure that their novel financing needs are met not only through traditional bank lending, but also through new forms of financing through capital markets. Banks will act as key intermediaries for both investors and savers as well as companies.
The future can look bright for the revived CMU, if it does not remain a sleeping beauty.
By Gilles Walers, Legal Adviser, ABBL