In September 2015 the European Commission ("Commission") adopted an action plan on building a capital markets union (the "CMU") (the "CMU Action Plan"). The CMU Action plan lists 33 individual topics for action and related measures to establish truly integrated European capital markets by 2019. The Commission has delivered on 20 of the initially announced 33 measures to date.
At the beginning of 2017 the Commission launched a public consolidation on the Mid-term Review with the aim of updating its CMU working programme in response to evolving priorities and challenges. On 8 June 2017 the Commission published its mid-term review on the progress achieved so far and introduced new measures under the CMU Action Plan (the "Mid-term Review").
While the challenges identified in 2015 are still relevant, more recent political and economic challenges to financial integration have transpired which draw attention to the importance of resilient and competitive European capital markets.
Brexit has prompted the need to further strengthen and integrate EU capital markets and EU-wide supervision. Related risks of financial stability must be properly managed. In addition, evolving financial technology ("FinTech") is redefining capital markets processes by increasing efficiency and competition, as well as lowering costs for businesses and investors.
The Mid-term Review aims to address these recent challenges and sets additional actions which complete those still outstanding under the CMU Action Plan by identifying nine priority areas.
Nine new priority areas
In Q3 2017:
- Reinforcing effectiveness and consistent supervision across the EU The recent European Supervisory Authority ("ESA") consultation identified a need to adjust the regulatory framework under which ESAs are currently operating in order to improve their ability to effectively supervise the financial sector. The increasing number of cross-border transactions and increased monitoring and coordination costs can hardly be met at a national level and therefore justify centralisation of supervision. It is envisaged to strengthen ESMA's powers, eg by granting direct supervision in certain areas.
In Q4 2017:
- Review the prudential treatment of investment firms EU legislation provides a comprehensive framework for investment firms under MiFID II / MIFIR (setting out authorisation and conduct rules) and CRR as well as CRD IV (setting out prudential requirements). Some of these rules are not appropriately calibrated to the size and nature of the business of investment firms, eg as regards capital requirements. The responses also stressed the importance of decreasing the regulatory burden for local investment firms offering their services to SMEs. A respective legislative proposal will be published in Q4 2017.
- Assessment of an EU licensing and passporting framework for FinTech activities Most of the responses to the Mid-term Review call for a level playing field between traditional actors and FinTech companies and emphasise the importance of ensuring appropriate investor and consumer confidence and protection. In March 2017, the Action Plan on Consumer Financial Services was published and a targeted consultation on the impact that new technologies may have on financial services was launched. Based on this consolidation, the case for an EU-wide licensing and passporting framework for FinTech activities will be assessed in Q4 2017.
In Q1 2018:
- Presentation of measures to support secondary markets for non-performing loans (NPLs) and exploring legislative initiatives to strengthen the ability of secured creditors to recover value from secured loans to corporates and entrepreneurs
- Follow up on the recommendations of the High Level Expert Group on Sustainable Finance
- Launch of an impact assessment to facilitate cross-border distribution and supervision of UCITS and alternative investment funds (AIFs) Responses to the Mid-term Review show that the lack of regulatory and supervisory convergence, including divergent national requirements on the notification, distribution and use of the marketing passport under the UCITS and AIFM Directives are significant barriers for the growth and the cost-effectiveness of investment funds. The Commission therefore aims to launch an impact assessment (considering a possible legislative proposal to facilitate cross-border distribution and supervision of UCITS and AIFs) in Q1 2018.
- Guidance on existing EU rules for the treatment of cross-border EU investments; develop an adequate framework for the amicable resolution of investment disputes
In Q2 2018:
- Develop a more proportionate regulatory environment for SME listings Good progress on SME listings has been made so far. On 5 April 2017, the European Parliament adopted the new Prospectus Regulation which will enter into force in summer 2019 and also foresees easements for SME listings. Notwithstanding recent progress, many respondents called for a proportionate review of the various obligations placed on non-financial issuers, especially SMEs. The Commission will continue to review any remaining regulatory barriers for SME listings and may introduce a legislative proposal in Q2 2018.
- Proposal of a comprehensive EU strategy to support local and regional capital markets development across the EU (building on the report of the Vienna Initiative's CMU Working Group)
Further information on these measures can be accessed in the Commission working staff document (Economic Analyses). Advance on outstanding actions In addition, the Commission stressed the need to advance on the following three legislative proposals which are central to the creation of the CMU:
By end of June 2017:
- Proposal on a pan-European personal pension product (PEPP) to help people finance their retirement The PEPP aims to create a safer, more cost-efficient and transparent market for affordable and voluntary personal pension savings that can be managed on a pan-European scale. It will address demographic challenges, complement existing pension products and schemes, and support the cost-efficiency of personal pensions by offering good opportunities for long-term investment of personal pensions.
In Q4 2017:
- Proposal on securities law to increase legal certainty on securities ownership in a cross-border context Differences in the national treatment of third-party effects of assignment of debt claims make it difficult for investors to price the risk of debt investments and complicate the use of these instruments as cross-border collateral. This proposal will promote cross-border transactions by removing uncertainty about the applicable law, which gives rise to costs and risk. The proposal will provide clarity on which law applies to third-party effects in cases of transactions in securities and in claims.
In Q1 2018:
- Proposal for an EU framework on covered bonds This proposal aims to create a more integrated covered bond market in the EU, without undermining the quality of existing covered bonds. Covered bond markets are an important channel for the long-term financing of the real economy. At the same time, the Commission will explore the possibility of developing European Secured Notes as an instrument for SME loans and infrastructure loans.
We will monitor these developments and provide updates on areas of interest throughout the implementation process of the CMU.