As a consequence of the economic and financial crisis, the level of investment in the EU has dropped by about 15% since its peak in 2007. The current level is well below what historical trends would imply, and according the EU Commission – in the absence of action – projections point towards an only partial rebound over the coming years. Economic recovery, job creation, long-term growth and competitiveness are being hampered as a result. The EU Commission perceives this investment gap as a risk to reach the targets set by the Europe 2020 Strategy.
Investment Plan for Europe
The Capital Markets Union (CMU) is an initiative of the EU Commission and aims to boost growth and jobs in the 28 member states of the EU. Its creation is a key element of the Investment Plan announced by the Commission in November 2014. The Investment Plan focuses on removing obstacles to investment, providing visibility and technical assistance to investment projects and making smarter use of new and existing financial resources.
In summary, the investment plan consists in:
- mobilising investments of at least €315 billion in three years
- supporting investment in the real economy
- creating an investment friendly environment
The first goal, the set-up of a European Fund for Strategic Investments (EFSI) is foreseen as tool to mobilize private investments in order to support private investments in key areas such as infrastructure, education, R&D as well as risk finance for small businesses. A proposal for EFSI Regulation shall establish a legal framework and provide the budgetary allocations for the mobilization of finance and the financing of investments.
The second goal of supporting investment in the economy should be achieved through the creation mid-2015 by the Commission and the European Investment Bank (EIB) of a European Investment Advisory Hub (EIAH). It should act as gateway to share good practices, lessons learnt and real-life case studies on project finance and project management. A web-based EU Investment Project Portal (EIPP), currently under development, will provide potential investors with clear and transparent investment opportunities in a standardized format.
The CMU and Regulation
The CMU is with Digital Single Market, Energy Union part of the third goal of creating an investment friendly environment and has the following objectives:
- Develop a more diversified financial system complementing bank financing with deep and developed capital markets
- Unlock the capital around Europe which is currently frozen and put it to work for the economy, giving savers more investment choices and offering businesses a greater choice of funding at lower costs
- Establish a genuine single capital market in the EU where investors are able to invest their funds without hindrance across borders and businesses can raise the required funds from a diverse range of sources, irrespective of their location
According to the EU Commission the objectives of CMU are to help businesses tap into more diverse sources of capital from anywhere within the EU, make markets work more efficiently and offer investors and savers additional opportunities to put their money to working in order to enhance growth and create jobs.
It aims to put in place the building blocks of a well regulated and fully functioning Capital Markets Union in the EU by 2019 – creating a single market for capital for all 28 EU Member States by removing barriers to cross-border investment and to lower costs of funding within the EU.
The building blocks of CMU should create a situation where: small and medium-sized enterprises (SMEs) can raise financing more easily than today; costs of investing and access to investment products converge across the EU; obtaining credit through capital markets is increasingly straightforward; and seeking funding in another Member State is not impeded by unnecessary legal or supervisory barriers.
In order to achieve an integrated and well-regulated Capital Markets Union, the Commission has launched a broad consultation to get shared diagnosis of the problems perceived and to set out an agenda of the initiatives to take. Organisations and individuals have been invited to send their contributions regarding the Green Paper on the Capital Markets Union as well as on specific consultations on securitisation and the Prospectus Directive. The ABBL has sent its contribution.
Whilst these changes will help capital markets to play a larger role in channelling financing to the economy, banks will remain key players in capital markets, as issuers, investors and intermediaries. Banks will continue to play a major role in credit intermediation through their role in funding and information provision.
Therefore, while agreeing on the principles of CMU, banks who play a central role in CMU point to a series of key principles having to be addressed to achieve an efficiently functioning Capital Markets Union by 2019:
- Ensure a level playing field between markets and between EU and non-EU actors
- A tailored approach is needed – diverse cultural, economic and legal frameworks in EU jurisdictions
- A systematic and detailed review of the financial markets regulatory framework and the completion of the Single rulebook
- The CMU should promote market-led standards and best practices
- The CMU should emphasize the importance of liquidity and market-making
- Revised rules for Securitisation are to needed
- Review of the Prospectus Directive make it easier to comply with
- Removal of existing tax barriers
- Cross-border shareholder tax transparency
- Improvement of financial education and knowledge
What is the ABBL doing for its members regarding the CMU ?
The ABBL is deeply involved in the development of the CMU project and follows closely related initiatives.
When it was launched, the ABBL participated in the CMU Consultation. Today, the ABBL is focusing on ensuring the appropriate development and implementation of new specific measures (e.g. prospectus, securitisation, fund distributions, resolution of market infrastructures, securities law). The ABBL is constantly in contact with the relevant stakeholders, both from the authority and from the market, to create the optimal conditions for ABBL members to succeed into the EU markets.