European policymakers have launched an initiative that aims to better integrate the region’s capital markets, in a bid to improve their appeal to investors and improve funding conditions.
The European Commission Wednesday unveiled its Capital Markets Union (CMU) project, which aims to break down barriers to cross-border investment in the EU by creating “a true single market” for capital. The commission says that the current environment is tough for businesses that remain heavily reliant on banks and less on capital markets. It wants to reduce obstacles that are preventing those who need financing from reaching investors, and to make the system for channelling those funds as efficient as possible.
For example, it says that if Europe’s venture capital markets were as deep as they are in the U.S., an additional €90 billion would have been available to companies between 2008 and 2013.
The commission Wednesday launched a three-month consultation by issuing a green paper on the issue to kick-start a debate across the EU over the measures needed to create a true single market for capital. The paper seeks input on how to overcome obstacles to the efficient functioning of markets, including how to reduce the costs of setting up and marketing investment funds across the EU; how to further develop venture capital and private equity; and whether targeted reforms to corporate, insolvency and securities laws are needed.
“The direction we need to take is clear: to build a single market for capital from the bottom up, identifying barriers and knocking them down one by one. Capital Markets Union is about unlocking liquidity that is abundant, but currently frozen, and putting it to work in support of Europe’s businesses, and particularly SMEs,” said EU commissioner, Jonathan Hill, responsible for Financial Stability, Financial Services and Capital Markets Union. “The free flow of capital was one of the fundamental principles on which the EU was built. More than fifty years on from the Treaty of Rome, let us seize that opportunity to turn that vision into reality.”
In addition to the green paper, the commission also launched a review of its prospectus regime that will consider ways to simplify the information included in prospectuses, examine when a prospectus is necessary and when it is not, and how to streamline the approval process. It is also seeking to boost the securitisation market to facilitate the issuance of securitised products, and help institutional investors perform their due diligence.
“Today’s launch by the European Commission of its green paper on CMU initiates an important process. CMU has the potential to create a truly integrated EU capital market easing access to finance for European companies and consumers. ESMA strongly supports this project,” said Steven Maijoor, chair of the European Securities and Markets Authority (ESMA).
The commission is seeking feedback from EU institutions, national parliaments, businesses, the financial sector and others by May 13. Following the public consultation, it plans to will adopt an action plan this summer that will set out its roadmap for implementing the CMU by 2019.