An ABBL comment: kickstart reforms to boost CMU

ABBL Published 12.06.2020

The ABBL welcomes the recent publication of the recommendations by the High Level Forum (HLF) on the Capital Markets Union (CMU) presenting a new vision for Europe’s capital markets. The ABBL supports renewed and ambitious efforts around the CMU, both as part of the Markets4Europe campaign launched by the European Banking Federation and on behalf of our members, conducting in-depth analysis of the key priorities to ensure the eventual accomplishment of the CMU.

The ABBL fully agrees that “bringing about an EU Capital Markets that works for everybody remains a priority for those who want to make Europe stronger, resilient and dynamic. With Covid-19, it is now urgent in order to rebuild the European economy”.

The ABBL is pleased to see that key priorities identified from the Luxembourg banking sector point of view are echoed in the recommendations put forward by the HLF.

It is obvious in the current COVID-19 pandemic that the lack of capital markets integration within the EU is hampering the development of adequate financing means to kickstart the European economies. Fully developed EU27 markets would indeed help to provide the required tools to finance businesses hit by the lockdown of the economy. In light of these pressing issues, the ABBL has identified, together with its members, three main priorities to build integrated capital markets within the EU : 

  1. Strengthen securitisation as a tool and a market – The Simple and Transparent Securitisation Regulation needs to be reviewed for the potential of this product to develop its fullest potential. The future regime should require less prudential requirements by giving banks the tools to lighten lending-driven balance sheets and thereby provide investors with viable and interesting investment alternatives.
  2. Channel savings and investments into sustainable activities – Sustainable finance activities are the future of the financial sector and therefore it is crucial to create and sustain an adequate regulatory framework ensuring qualitative services and products. The creation of a liquid market for green bonds, i.e. greenfield (from scratch)  and brownfield (greening of existing infrastructure), is an important milestone for sensitising a larger public to the existence of interesting sustainable investment possibilities. Coupled with the development of green securitisation, this will be further encouraged through a meaningful disclosure requirements on ESG compliance and an appropriate ESG integration in asset classes and investment strategies. Financial and prudential regulation as (dis-)incentive should be used with an appropriately cautious approach.
  3. Improve withholding tax relief and refund procedures – By simplifying withholding tax procedures, it will be possible to finally build a saver-friendly and investor-friendly tax system that guarantees the tax reliefs for savers and investors under double tax treaties. This new efficient tax withholding relief and refund system will eventually serve as boost for cross-border investments and securities services.

The HLF report has identified these reforms along with a number of other important initiatives, such as:

  • Minimum harmonisation of certain targeted elements of core non-banks corporate insolvency legislation
  • Harmonisation of post-trade services
  • Improved access to financial markets for corporates in general and for SMEs in particular
  • Recognition of financial knowledge and skills as a priority

However, the HLF report seem to covertly neglect further inclusion of the transition towards a low-carbon, circular and resource-efficient economy as necessary part of the future CMU. The topic of sustainable finance is merely touched upon in certain specific circumstances when it comes to the financing of the citizens’ pension system in the future. The ABBL would have preferred a stronger focus and commitment to unlocking the full potential of public and private investment to support the necessary reforms. While there are separate efforts to pursue the Action Plan by the European Commission in regard of sustainable finance, the ABBL has always considered that the CMU is the right tool to push transparency, proportionality and incentives to allow sustainable finance to go from niche to mainstream.

The ABBL has identified as a priority not only the reform of the current securitisation framework, but also the promotion of a dedicated set of rules to support green and circular securitisation, as well as a general incentive for the real economy and investors to pool their resources and funds into sustainable activities. The financial sector, by itself, cannot explicitly decide sectoral policies or offer substitutions for the steps that need to be taken by the real economy, i.e. transforming activities and operations and enabling business propositions that include ESG values across the whole market and supply chain. Nonetheless, financial actors can make sure that these changes are happening more swiftly and effectively.

Identifying these reforms is obviously only the first step and the ABBL urges the European Commission to use these ideas in a bold action plan and the co-legislators to support a comprehensive reform together with the local governments. Turning these ideas into action will require all stakeholders to understand the practical implications of these reforms better. In this context,  the ABBL stands ready as a forum and partner for discussing constructively on the most salient topics.


By Gilles Walers


Association des Banques et Banquiers, Luxembourg


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