European Economic and Social Committee
ECO/379
Capital Markets Union
Milena Angelova
On 18 February 2015 the European Commission published its Green Paper on building
a Capital Markets Union (CMU). This initiative represents one of the three pillars of the
so-called “Juncker’s Plan”, together with the EFSI proposal and better regulation
reform. Investor relations are really at the heart of the CMU, since its main goal is to
better link investors with the companies.
Bulgarian stakeholders, including BICA and ABIRD, actively participated in the public
consultation, and the topic was also discussed by the National Corporate Governance
Commission. The responses were sent directly to the European Commission, and have
also been incorporated in the EESC opinion on the Green Paper. The opinion supports
the Green Paper and its ultimate goal - to overcome the current fragmentation of the
markets and to enhance the flow of capital - through efficient market infrastructure and
intermediaries - from investors to European investment projects, improving allocation
of risk and capital across the EU and recommends decisive and swift action to be taken
in some directions, e.g.:
 Develop a secondary market;
 Develop a mechanism to make traded SMEs more attractive for investors, bearing
in mind SMEs' limited financial and administrative resources. Possible measures
could include: stimulating liquidity providers or market makers that quote SMEs
issues; introducing best practices of corporate governance in listed SMEs and
involving key financial investors in their management; offering guarantees from
specialised institutions for issues of SMEs meeting certain criteria;
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 Introduce credit ratings for SMEs according to a standardised transparent
methodology;
 Create more 'tailor-made" investment products as these should better match
companies' needs;
 Create a unified European stock-exchange segmentation model, which
differentiates SMEs based on their type as issuers, or create specialised segments
on the respective national regulated markets;
 Devise a unified simplified standard for qualitative and quantitative requirements,
including for the fund-raising prospectuses and registration documents for listing
SMEs on regulated markets for financial instruments. Relieve wherever possible
the administrative and bureaucratic requirements and explore the possibilities of
liberalizing some disclosure requirements for SMEs in the Prospectus Directive
 The EU should concentrate on building a single digital network infrastructure,
which should provide for swift, efficient and safe communication between
markets, companies and investors, as well as an opportunity for remote and crossborder participation in shareholders' general meetings and for voting. Efforts
should also focus on finding ways to decrease the relatively high clearing and
settlement costs when trading across borders.
The consultation ended in mid-May and on 8 June the Commission organised a Public
Hearing on the next steps to build a Capital Markets Union, where Commissioner Hill
announced some elements of the future Action Plan which was ultimately published on
30 September 2015.
The Action Plan will be based on the +700 responses to the public consultation, which
generated creative ideas for actions to overcome barriers and obstacles to the CMU. The
vast majority of the responses firmly supported the step-by-step approach combining
long-term ambitions with actions with immediate effect and the principle CMU to be
done with the industries, not with them.
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The consultation showed overall support from the Member States and the European
Parliament, and support from across the EU. It was stated that the right issues have been
identified and people want an ambitious agenda, but at the same time a tangible
approach when it is possible – e.g. planning and implementing swift reforms so as to
achieve a single market for simple, transparent, standardized securitization products (the
proposal is planned to be published the next month), and to review the Prospectus
Directive (the proposal is planned to be published in November).
The ultimate goal of the Action plan is to better link savings with growth, channel
investments to production and to diversify the financing of the economy, currently too
dependent on bank finance.
The results of the consultation highlighted 3 main areas that require prompt action:
A. How the CMU can increase funding options for business. The actions are meant
to improve the EU’s funding escalator – this is the top priority resulting from the
consultation.
1. Gaps for SMEs financing and no finance for their growth. Key steps of the
financing escalator of Europe are missing compared to the USA – angel
investments, venture, crowd funding, venture capital, equity financing – wider
range of funds and of possible investments. Strengthening venture capital’s ecosystem, including by review EVECA (venture capital regulation).
2. Alternative financing development – peer to peer, non-banking finance
(strengthen investments) – MIFID and other legislation to strengthen the
regulation.
3. Large companies – issue equity and debt. Build on success of private placements
(as in German and France). Give time to industry to take up the initiative and not
to rush to produce more regulation. Ambiguity of regulation on private
placements (SOLVENCY 2) and divergence of national regulation of withholding
taxes were pointed as main obstacles, so the task is to improve them.
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4. Prospectus directive – understandable information to investors, legal certainty
and investor protection. Lighten the burden on the listed companies when making
second issuing. Lighten disclosure regime for small companies. So – the regimes
should be lightened – for smaller companies as well as for smaller countries in
Europe – in the autumn proposal to review the directive.
5. Securitization – 120 replies (separate consultation) – the EC shall build on the
work of the ECB and Bank of England to put forward more securitization
products that are simple and transparent. Rebuild trust and make it easier for
investors to assess the risks. The new legislative proposal, which is expecting to
be published next month, shall make the system simpler, while still safe, so that
more appropriate capital and solvency requirements are in place as to guarantee
that the simpler securitization products will not be penalized.
B. How the CMU can create more opportunities for retail and institutional
investors. Creating opportunities for institutional investors – insurance companies and
pension funds are natural investors in the EU investment eco system. They have deep
balance sheets and long-term time horizon so are able to manage significant exposures
to equity investments. These institutions were forced to hold the most amount of liquid
debt at the expense of equity. Regulatory framework is driving this tendency. So the EC
will start the process to amend the SOLVENCY 2 delegated acts to allow investments
in to European Long Term Investment Funds, and to incorporate infrastructure as an
asset class into SOLVENCY 2. Pension funds are one of the bigger sources of
investments. Personal pensions – potential to inject more savings and people should be
encouraged to save more for retirement.
Retail investors to be placed at the heart of the CMU. They will only invest in the
capital market if they have confidence. More transparency needed – so that is why
during the recent years the efforts were on improving and harmonizing disclosure
standards. Assess the results now – whether the standards are consistent across different
products. Effective consumers’ and investors’ protection and dismantling barriers for
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retail investors at the single market should be at the heart of the CMU. Green paper on
retail financial services use will also be published – most probably in October.
The actions will also include a calibration of Capital requirements regulation and
directive - Directive 2013/36/EU on access to the activity of credit institutions and the
prudential supervision of credit institutions and investment firms (CRD IV) and
Regulation (EU) No 575/2013 on prudential requirements for credit institutions and
investment firms (CRR). One of the expected changes will be to amend p. 431.4 in a
way that if a bank refuses a loan to a SMEs it should provide feedback and explain the
reasons for the refusal. Also the banks will be strongly encouraged to develop and
respect Code of conduct.
C. How the CMU can encourage cross border investments – national law,
insolvency, collateral and securities law, also obstacles related to infrastructures – e.g.
lack of information and data for SMEs. The answers warns not to put forward
legislative proposals in the area of taxation, as not to disrupt the balance of a well
working system. But still the EC would like to focus more attention on holding tax
procedures or double taxation, and the bias of the tax system on the debt on the expense
of equity is also a barrier to the development of capital markets. The same goes for the
cross border differences in the insolvency procedures – so EC shall identify existing
best practices that could be exported, and to stimulate cooperation between the national
authorities. The responses in this area will be assessed very carefully.
Further action to promote supervisory conversion, so the benefit of a single rule book
and a single market could be shared by all.
The Action plan will also stress more on capacity building, information provision and
dissemination, including through information portals, transfer of best practices.
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