Capital Markets Union: the rubber hits the road

ABBL Published 01.04.2021

When the European Commission adopted its ambitious Capital Markets Union (CMU) Action Plan on 24 September 2020, the financial sector certainly welcomed many of the measures put forward as actions, while it remained cautiously sceptical about whether the EC would be in a position to deliver in terms of realistic measures for a sector that is in dire need of a boost, given its fragmentation, its regulatory burden as well as the incumbent challenges to bring European retail investors to financial markets.

Amidst the context of Brexit and the health pandemic fallout, the timing could not have been less promising for the CMU to be successful this time around (remembering the first CMU project in 2015, which failed to deliver on almost all promises made). A few months down the line, however, the situation seems to have changed. Based on the correct analysis that the recovery process following the Covid-19 pandemic will only be feasible with functioning capital markets and the recent push of sustainable investments, the EC started the CMU process with a primary review of specific cornerstone legislation as part of the Capital Markets Recovery Package. As such, the likes of MiFID, the Prospectus Regulation as well as the European Securitisation Regulation have been reviewed throughout the second half of 2020 with the revised measures taking their effect in the first half of 2021. With less burdensome rules and more adapted frameworks to kickstart the economy through capital market access accompanied by rules allowing credit institutions to recharge their lending capacities (through revised CRR and securitisation rules), the European capital markets setup looks much more attractive than it did a few months ago.

However, the European Commission did not stop there and over the course of last couple months has engaged in a process to realise as many as possible of the actions set out in the CMU Action Plan. The actions are being implemented at a heightened pace, with the EC having launched not less than seven consultations, feedback requests and clarification processes preparing the various upcoming legislative proposals underpinning the CMU actions:

  • European Single Access Point (ESAP): The EC is currently consulting on the ESAP, a sort of datahub focusing mainly on information and data on Small and Medium sized Enterprises (SMEs). The discussions on ESPA concentrate for the time being on the type and scope of information to be included in the ESAP, as well as the use that can/should be made with such data. Alongside discussions regarding the supervisory and regulatory setup of the ESAP, the ABBL is actively monitoring the discussions and contributing to the consultation responses prepared by the European Banking Federation.
  • EU Referral Scheme: The EC is further looking into creating a so-called referral scheme to require banks (and other providers of funding) to direct SMEs whose funding application they have turned down to providers of alternative funding. The objective of this scheme, if implemented, will be to facilitate SMEs’ access to a wider set of funding options. The current call for feedback aims at gathering evidence and feedback from stakeholders on whether there is potential for a referral scheme to help SMEs whose funding applications have been rejected.
  • AIFMD: The EC is currently looking into reforming several aspects of the Alternative Investments Fund Managers’ Directive (AIFMD) with a view on how to achieve a more efficiently functioning EU AIF market as a part of a stable financial system. This review is of particular importance to the Luxembourg financial sector, given its pre-dominance in the fund space as well as the weight of its depositary banking industry. The ABBL closely follows the evolution of this review and regularly exchanges with the European Commission and the European Parliament to ensure the interests of its membership are duly reflected.
  • MiFID: While the MiFID review process was kickstarted before the official launch of the CMU Action Plan, it features as a prominent CMU action and several sub-actions have been launched since October 2020. The EC and the supervisory authorities have engaged in discussions on inducements as well as the client vetting processes (appropriateness and suitability). On top of that, the integration into MiFID of sustainable and ESG considerations is ongoing and will likely keep the industry very busy in the coming months. The ABBL is closely following any developments in this area with active contributions to a number of authorities and industry associations.
  • ESA review: Following the last review of the European Supervisory Authorities (ESA) powers in 2017, the EC has decided to put the topic on the table again by launching a revised ESA review consultation focusing on ESMA, with dedicated sections on how direct supervisory powers could look for which type of industries. This consultation seeks to take stock of what has been achieved so far and will feed into the preparation of the report required by the CMU Action Plan which will cover the review required under the ESAs founding regulations as well. This consultation seeks targeted views on certain aspects related to the 2019 ESAs review and contributes to a wider debate on supervisory convergence and the single rulebook. The ABBL, alongside with its sister associations in Luxembourg, is highly engaged in this process to ensure that the Luxembourg interests are upheld and taken into consideration.
  • SFD and FCD: The EC has further launched two related consultations seeking input on rules concerning settlement finality, and financial collateral arrangements. The current review covers a variety of issues that have come up since the last review of the settlement finality directive (SFD) and the closely related financial collateral directive (FCD), back in 2008 and 2009. Together with its members, the ABBL is engaged with the EBF in answering this highly technical review.
  • CSDR: The ongoing review of the Central Securities Depositories Regulation (CSDR) has been enshrined in its proper action under the CMU Action Plan and continues to shape the future of the post-trading landscape in the European Union. With its diverse membership, the ABBL will continue to represent the interests of the Luxembourg post-trade industry.
  • SME IPO fund: without being formally launched, the discussions within the EU authorities on the thorny topic of an SME IPO fund have made to the public showing the fundamental disagreements on the how and alignment on the what. The negotiations on this fund are ongoing and will certainly spark further controversies once industry is consulted.

Considering the different topics being discussed as part of the CMU Action Plan, it definitely seems that the Commission is serious about implementing CMU and creating a real union of capital markets across borders and with the support of local financial markets. Combined with the ongoing efforts on the digital side as well as the ever-changing market conditions surrounding the ESG space, European capital and financial markets are heading towards a bright future with changes looming to finally awaken the “Sleeping Beauty” of Europe.


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