On 30 September 2015, the Commission adopted an action plan setting out 20 key measures to achieve a true single market for capital in Europe following consultation in February. On the same day, and as part of the CMU Action Plan, the Commission also published a proposal for a securitisation regulation and a proposal for the amendment of the regulatory capital treatment for securitisations in the CRR. The Commission has also published a consultation paper on covered bonds, a consultation calling for evidence in relation to the EU Regulatory Framework for Financial Services and a consultation on the review of the European Venture Capital Funds (EUVECA) and European Social Entrepreneurship Funds (EUSEF) Regulations. The Commission also proposed legislation that will modify the Solvency II Delegated Regulation to create better incentives for insurers to invest in infrastructure projects.
Under the Action Plan the Commission will take forward action in the following priority areas:
1. Providing more funding choices for Europe’s businesses and SMEs by
- Modernising the Prospectus Directive to make it less costly for businesses to raise funds publicly, reviewing regulatory barriers to small firms listing on equity and debt markets and support the listing activities of small firms through European advisory structures;
- Launching a package of measures to support venture capital and equity financing in the EU, including catalysing private investment using EU resources through pan-European funds-of-funds, regulatory reform, and the promotion of best practice on tax incentives;
- Promoting innovative forms of business financing such as crowd-funding, private placement, and loan-originating funds whilst safeguarding investor protection and financial stability; and d. Exploring ways to build a pan-European approach to better connect SMEs with a range of funding sources
2. Ensuring an appropriate regulatory environment for long term and sustainable investment and financing of Europe’s infrastructure by
- Swiftly revising Solvency II calibrations to better reflect the true risk of infrastructure investment, followed by a review of the treatment under the Capital Requirements Regulation for bank exposures to infrastructure; and
- Assessing the cumulative impact of previous regulatory reforms to ensure coherence and consistency, as part of the Commission's initiative on Better Regulation and building on the work started in the European Parliament in 2013 on the coherence of EU financial services legislation.
3. Increasing investment and choices for retail and institutional investors by
- Looking at ways to boost choice and competition in cross-border retail financial services and insurance through a Green Paper published later this year. It will also assess the regulatory framework for retail investment, looking particularly at improving transparency and the quality and availability of investment advice against the backdrop of increased on-line provision;
- Exploring ways to increase choices for retirement saving and build an EU market for personal private pensions which pension providers could opt for when offering private pensions across the EU; and
- Delivering an effective European fund passport that eliminates cross-border fees and barriers to increase competition and consumer choice.
4. Enhancing the capacity of banks to lend by
- Revitalising simple, transparent and standardised European securitisations to free up capacity on banks' balance sheets and provide access to investment opportunities for long term investors;
- Exploring the possibility for all Member States to benefit from local credit unions to operate outside the scope of the EU's capital requirements rules for banks;
- Assessing whether and how to build a pan-European covered bond framework, building on national regimes that work well, and explore the feasibility of similar funding tools for SME loans.
5. Bringing down cross-border barriers and developing capital markets for all 28 Member States by
- Consulting on the key insolvency barriers and take forward a legislative initiative on business insolvency, addressing the most important barriers to the free flow of capital and building on national regimes that work well;
- Tackling uncertainty around securities ownership, and pursue improvements in the arrangements for clearing and settlement of cross-border securities transactions;
- Promoting the development of capital markets in all 28 Member States, as part of the European Semester and by offering Member States tailored support to strengthen administrative capacity through the Commission's Structural Reform Support Service;
- Working with the European Supervisory Authorities (ESAs) to develop and implement a strategy to strengthen supervisory convergence and identify areas where a more collective approach can improve the functioning of the single market for capital;
- Drawing on the forthcoming European Systemic Risk Board (ESRB) review and international work, to ensure that national and European macro-prudential authorities have the tools to react appropriately to developments in capital markets.
The Action Plan sets out the building blocks for putting a well-functioning and integrated Capital Markets Union, encompassing all Member States, into place by 2019. The Commission will assess achievements and re-assess priorities in 2017.
Commission proposal for a securitisation regulation
The Commission published its proposal for a Regulation laying down common rules on securitisation and creating a European framework for simple and transparent securitisation. The general objective of the initiative is to revive a safe securitisation market that will improve the financing of the EU economy. Specifically, this is to be achieved by distinguishing between simple, transparent and standardised securitisation (STS) products that can provide a sustainable funding channel for the EU economy on the one hand and more opaque and complex ones on the other. Secondly, the standardisation of processes and practises in securitisation markets as well as tackling regulatory inconsistencies will be pursued.
Commission proposal for a regulation amending the regulatory capital treatment for securitisations in the CRR
The current securitisation framework in the CRR is essentially based on the standards developed by the Basel Committee on Banking Supervision (BCBS) more than a decade ago and these do not make any distinction between STS securitisations and other more complex and opaque transactions. The BCBS adopted a recommendation for a revised securitisation framework in December 20143 (the Revised Basel Framework). The Revised Basel Framework does not currently provide for a more risk-sensitive treatment for STS securitisations. However the BCBS is currently working on the incorporation in the new framework of the STS criteria adopted jointly with the International Organisation of Securities Commission (IOSCO) on 23 July 2015. No outcome is expected from this workstream before mid-2016.
In order to contribute to the overarching objectives of the Commission Proposal for a Securitisation Regulation of restarting securitisation markets on a more sustainable basis and making this a safe and efficient instrument for funding and risk management, it is proposed to amend the regulatory capital requirements for securitisations in the CRR in order to:
- implement the regulatory capital calculation approaches set out in the Revised Basel Framework (Articles 254 to 268); and
- introduce a re-calibration for STS securitisations, consistent with the recommendation of the EBA (Articles 243, 260, 262, and 264).
This Regulation is to form a legislative package with the proposed Securitisation Regulation. The development of STS eligibility criteria would not be sufficient 'per se' to achieve the objective of reviving EU securitisation markets if not accompanied with a new prudential treatment, including in the area of capital requirements, better reflecting their specific features.
Capital requirements for positions in securitisation, including the more risk-sensitive treatment for STS securitisations, are set out in the proposal while eligibility criteria for STS securitisations, together with other cross-sectoral provisions, are contained in the Securitisation Regulation. These notably encompass all provisions on risk retention, due diligence and disclosure requirements, previously included in Part V of CRR. The same applies to some definitions originally included in Article 4 which are of general nature and therefore have been moved to the cross-sectoral legislative framework.
The proposal will be followed at a later stage by an amendment to the LCR Delegated Act in order to align it with the Securitisation Regulation. In particular the eligibility criteria for securitisations as Level 2B assets in Article 13 of the LCR Delegated Act will be amended to make it consistent with the general STS criteria as laid down in the Securitisation Regulation. Amendments of this Delegated Act could not be made at this time since they follow a different procedure and depend on the outcome of the legislative negotiations on this package.
Commission Consultation Paper on Covered Bonds
As part of the CMU project, the Commission has launched a Consultation Paper on covered bonds in the EU. The consultation is set against the backdrop of the challenges faced in relation to covered bonds during the financial crisis in the form of investor retrenchment to their domestic jurisdictions and spread widening. The European banking sector faced two major challenges:
- fragmentation between credit institutions from "core and non-core countries"; and
- difficulties to access liquidity which became available only against collateral either in private repo transactions, by issuing secured instruments such as covered bonds, or by pledging assets to central banks, and as a result of which a significant proportion of banks' assets became encumbered.
Tackling fragmentation and market inefficiencies is at the core of the CMU project.
The Consultation Paper evaluates signs of weaknesses and vulnerabilities in national covered bond markets as a result of the crisis, with a view to assessing the convenience of a possible future integrated European covered bond framework that could help improve funding conditions throughout the Union and facilitate cross-border investment and issuance in Member States currently facing practical or legal challenges in the development of their covered bond markets.
The Consultation Paper presents two options:
- voluntary convergence of Member States' covered bond laws in accordance with non-legislative coordination measures such as targeted recommendations from the Commission; or
- direct EU product legislation on covered bonds, which could seek to harmonise existing national laws or provide an alternative framework.
The Consultation Paper is intended to trigger a debate with stakeholders on the feasibility and potential merits of greater integration between covered bond laws. Replies must be submitted by 6 January 2016.
Commission consultation calling for evidence in relation to the EU Regulatory Framework for Financial Services
The last six years have been a period of intensive rulemaking as part of an international drive to restore financial stability and public confidence in the financial system. Given the large amount of legislation put in place and the interactions between them, there is a need to understand their combined impact and whether they give rise to any unintended consequences. It is also important to reflect on whether there are unintended barriers to new market players and innovative businesses preventing them from entering markets and challenging incumbents.
Building on the work started in the European Parliament in 2013 to look at the coherence of EU financial services legislation, and in line with the European Parliament's draft report, the purpose of this call for evidence is to gather feedback on:
- Rules affecting the ability of the economy to finance itself and grow;
- Unnecessary regulatory burdens;
- Interactions, inconsistencies and gaps; and
- Rules giving rise to unintended consequences.
Evidence is not only sought on the impacts of the EU financial legislation but also on the impacts of national implementation (e.g. gold-plating) and enforcement.
Replies must be submitted by 6 January 2016. Following this call for evidence, Commission services will report on the main findings and next steps by mid-2016.
Commission consultation on the review of the European Venture Capital Funds (EuVECA) and European Social Entrepreneurship Funds (EuSEF) Regulations
The CMU Action Plan confirms the Commission will take forward a comprehensive package to support venture capital and risk capital financing in the EU, including amending the EuVECA and EuSEF legislation. This consultation paper asks for detailed responses to a range of questions in order to take this work forward.
EU legislation has attempted to establish the regulatory conditions for a successful EU venture capital sector. The Regulation on European Venture Capital Funds (EuVECA) and the Regulation on European Social Entrepreneurship Fund (EuSEF) in particular define the conditions under which these funds can be marketed to institutional and high net worth individuals across the EU. However, the EuVECA and EuSEF passports are currently available only to smaller fund operators managing asset portfolios below EUR 500 million. Changes to these regulations could enhance the effectiveness of the passports by, for example, allowing larger fund managers to establish and market EuVECA and EuSEF funds, reducing the investment threshold in order to attract more investors and expediting cross-border marketing and investment.
The objective of the consultation is to collect further information on the performance of the current legislation and identify measures the Commission could propose to increase take-up of the two new fundraising passports for venture capital and social entrepreneurship funds. Interested parties are invited to report on their experiences with the new passports and on potential obstacles to their take-up that can be addressed further by legislative or other means. In particular, this consultation invites interested parties to provide more detailed responses to the issues raised in the CMU consultation paper.
Replies must be submitted by 6 January 2016.
Commission proposal to modify the Solvency II Delegated Regulation
One of the goals of the CMU is to help mobilise capital in Europe and channel it to the infrastructure and long term sustainable projects that Europe needs to create jobs. By amending the rules on how much capital insurance companies need to hold, the Commission is giving them incentives to invest for the long-term in infrastructure.
The Commission is proposing legislation that will modify the Solvency II Delegated Regulation to create better incentives for insurers to invest in infrastructure projects, in particular by reducing the amount of capital which insurers must hold against the debt and equity of qualifying infrastructure projects.
- The amended Regulation introduces a new concept of 'qualifying infrastructure investments'. Insurers will need to hold a lower level of capital against their investment in these infrastructure projects. 'Qualifying infrastructure investments' will form a distinct asset category under Solvency II and will benefit from an appropriate risk calibration, lower than that which would otherwise apply. This will ultimately lead to a lower capital charge.
- It allows investments in European Long-Term Investment Funds (ELTIFs) to benefit from lower capital charges under Solvency II. This brings them in line with investments in European Venture Capital Funds and European Social Entrepreneurship Funds, which benefit from the same equity capital charge as equities traded on regulated markets, lower than that for other equities.
- It grants equities traded on multilateral trading facilities (MTFs) the same capital charge as equities traded on regulated markets. This ensures coherence with the new legislative framework applicable to these structures.
- It extends the application of a transitional measure for equity investments to unlisted equities, so that insurers will not suddenly withdraw from equity investments. It also clarifies how insurers should apply the transitional measure to equities held in managed funds.