The EU Commission has published for consultation a Green Paper entitled “Building a Capital Markets Union”, which sets out a blueprint for creating a harmonised capital market across the EU by 2019. Papers published alongside the Green Paper include consultations on a review of the EU Prospectus Directive and on establishing an EU framework for standardised securitisation.
The idea for a Capital Markets Union (CMU) was raised by the European Parliament in 2014 with a view to cutting the cost of raising capital (in particular for SMEs), improving financing and helping to reduce the current dependency on bank funding.
Achieving a Capital Markets Union is one of the stated top priorities of the EU Commission. The key proposals are summarised below.
Amendments to the EU Prospectus Directive to facilitate capital raising, especially for SMEs
A wide-ranging consultation on the Prospectus Directive is part of the CMU proposal. The objective of this review is to reform and reshape the current prospectus regime in order to facilitate capital raising and cut the cost of doing so, in particular for small and medium sized enterprises (SMEs), while maintaining appropriate levels of consumer and investor protection. The review states that it will seek to ensure that a prospectus is required only when truly needed, that the approval process is as smooth and efficient as possible and that information that must be included in prospectuses is useful and not burdensome.
Issues for discussion are grouped under three themes. These are:
- When a prospectus is needed – whether:
- the current thresholds which exempt certain types of public offers from the prospectus requirement should be adjusted (the emergence of investment based crowdfunding as a means of fundraising is cited as one reason for re-assessment of the thresholds)
- there should there be a more generous exemption from the prospectus requirement for certain secondary equity capital raisings where a significant amount of information is already publicly available about the issuer
- The information that a prospectus should contain –
- why the lighter-touch proportionate disclosure regime (available, for example, on rights issues) has rarely been used in practic
- whether there should be a limit on the length of prospectuses
- How prospectuses are approved - whether
- national competent authorities prospectus approval processes should be streamlined (differing processes are applied)
- greater use could be made of a shelf registration document to facilitate capital raising.
Other topics in the Green Paper
- whether an EU private placement market should be created, with some of the same features as the successful US Private Placement model for fixed rate debt instruments;
- access to improved credit information for SMEs;
- the creation of an EU framework for securitisation; and
- legislation to create an EU Long Term Investment Fund, designed to facilitate investment into asset classes (such as infrastructure) that are too illiquid to be served by existing EU regulated fund structures.
The consultations on the Green Paper, Prospectus Directive Review and Securitisation Review close on 13 May 2015, with an action plan to be published in Q3 2015. The aim is to create a fully functioning Capital Markets Union by 2019.
The series of papers issued by the European Commission, including the Green paper: Building a Capital Markets Union, Q&A on the Green Paper, the Consultation document: Review of the Prospectus Directive and a Press release, are available on the Europa website