Annexes to COM(2015)63 - Green paper "building a Capital Markets Union" - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2015)63 - Green paper "building a Capital Markets Union". |
|---|---|
| document | COM(2015)63  |
| date | February 18, 2015 |
Direct marketing of EU investment funds and other investment instruments in third countries should be facilitated. This could be achieved by reducing barriers for EU financial institutions and services to access third country markets, including, where appropriate, by opening markets for cross border asset management in future trade agreements.
In light of these trends, the Commission is interested in views on measures that could be taken to increase the attractiveness of EU markets to international investors.
Questions 21) Are there additional actions in the field of financial services regulation that could be taken ensure that the EU is internationally competitive and an attractive place in which to invest? 22) What measures can be taken to facilitate the access of EU firms to investors and capital markets in third countries?
4.3 Improving market effectiveness – intermediaries, infrastructures and the broader legal framework
Single rulebook, enforcement and competition
The development of a single rulebook in recent years has been a major step towards a more harmonised regulatory framework for capital markets in which firms can compete cross border on a level playing field. The success of the single rulebook also depends on the effective implementation and consistent enforcement of the rules. There are still some key pieces of EU legislation which allow for the addition of requirements, so-called 'gold-plating' by Member States, and issues of divergent interpretations of rules have also arisen. The Commission, in cooperation with Member States and the ESAs, is working to ensure that EU financial legislation is correctly implemented and enforced on the ground.
Competition plays a key role in ensuring that consumers get the best products and services at adequate prices, and that investment flows are channelled towards the most productive uses. Entry barriers for competitors should be removed where possible and access to financial market infrastructure needs to be assured. To support more efficient and well-functioning capital markets, the Commission has pursued several cases in recent years using its competition powers. The Commission will continue to ensure that competition law is rigorously applied to avoid restrictions or distortions of competition affecting the emergence of integrated and well-functioning capital markets.
The principle of free movement of capital should also be enforced to tackle unjustified barriers to investment flows within the EU. For instance, requirements imposed by host Member States on market operators with a European marketing passport granted by their home Member State could in some cases constitute an unjustified barrier to the free movement of capital. A more stable, transparent and predictable framework for investors could contribute to building confidence and enhancing the attractiveness of the Single Market as a place to invest for the long term.
Supervisory convergence
Although regulatory frameworks for capital markets have largely been harmonised, the success of reforms also depends on the implementation and consistent enforcement of the rules. The ESAs play a key role in promoting convergence. The Commission recently published a report on the operation of the ESAs and the European System of Financial Supervision (ESFS)[29] that identified a number of areas where possible improvements could be made in the short and medium term. The Commission will continue to review the functioning and operation of the ESAs, as well as their governance and financing.
The ESAs have an important role to play in continuing to foster greater supervisory convergence, increasing the focus on and use of peer review and appropriate follow-up. Furthermore, use of dispute settlement where it is needed and investigatory powers in relation to alleged breaches of EU law could facilitate consistent implementation and application of EU law across the single market.
Further consideration could be given to the role played by the ESAs in this context. To the extent that national supervisory regimes may result in differing investor protection levels, barriers to cross-border operations and discouraging companies seeking financing in other Member States, there may be a further role for the ESAs to play in increasing convergence.
Data and reporting
The development of common data and reporting across the EU could help to support closer capital market integration. For example, in the equity markets a "consolidated tape" is essential to ensure the quality, availability and timeliness of post-trade information. Should market-led efforts prove to be insufficient to deliver a consolidated tape which is easily accessible and usable for market participants on a reasonable commercial basis, consideration may need to be given to other solutions, including entrusting the operation of a consolidated tape to a commercial entity. The Commission will also seek to ensure that the dissemination of consolidated information at commercially reasonable terms takes place unhindered.
More efficient approaches towards supervisory and market reporting involving national authorities or ESMA, for example in relation to common IT approaches for certain reporting requirements, could also be helpful for market participants. Views would be welcome as to whether and what further work is needed to improve data and reporting in the EU.
Market infrastructure and securities law
Market infrastructure and securities law – the 'piping' which channels investments and the laws under which it is treated – are key determinants of the efficiency and ease by which investment can be made. The regulatory framework applying to market infrastructures is in the process of being put into place, with legislation to ensure the robustness of central counterparties (CCPs) and central securities depositories (CSDs) and the Target2Securities (T2S) project run by the Eurosystem. As announced in the Commission Work Programme, the Commission intends to bring forward a legislative proposal to create a European framework for the recovery and resolution of systemically relevant financial institutions such as Central Counterparties. There are, however, some aspects relating to market infrastructures supporting trading where there may be potential to make further improvements.
Collateral is a vital part of the financial system as it underpins a large number of transactions in the market and provides a safety net in case there are problems. The fluidity of collateral throughout the EU is currently restricted, preventing markets from operating efficiently. Since the financial crisis, the demand for collateral has increased, driven by market demand for more secured funding as well as new regulatory requirements, such as set out in the European Market Infrastructure Regulation (EMIR)[30] and Capital Requirements Regulation (CRR).[31] With demand for collateral rising, there are risks that the same securities are being reused to support multiple transactions as was the case pre-crisis and work is underway internationally to look at these issues. Views are welcome as to whether work should be undertaken to facilitate an appropriately regulated flow of collateral throughout the EU.
Also, while there has been considerable progress in harmonising rules needed for the transparency and integrity of securities markets, legislation relating to investors' rights in securities differs across Member States. As a result, investors have difficulties assessing the risk of capital investments in different Member States. Discussions on this issue date back more than a decade starting with the Second Giovaninni Report in 2003. This issue is, however, complex as it touches on property, contract, corporate and insolvency law, as well as the laws on holding of securities and conflict-of-laws. Opposing views hold that harmonisation at EU level and a single EU definition of securities would not be necessary. Furthermore, it is argued that the launch of Target 2 Securities in mid-2015 will remove the legal and operational risks associated with the transfer and holding of securities across jurisdictions, reduce costs and could increase cross-border investment. In light of these constraints, views would be welcome as to whether any targeted changes to legislation on securities ownership rules that could materially contribute to more integrated capital markets within the EU are feasible and desirable.
Another important aspect in developing a pan-European market in securitisation and financial collateral arrangements, and also of other activities such as factoring, is achieving greater legal certainty in cases of cross-border transfer of claims and the order of priority of such transfers, particularly in cases such as insolvency. A report identifying the problems and possible solutions will be published by the Commission in 2015.
Banks play a key part not only in lending but also in capital market intermediation, notably by providing liquidity through market making. Some research indicates signs of liquidity decreasing in some market segments, but also that liquidity may have been under-priced in the run-up to the crisis. The decline in liquidity is attributed by some to a necessary market correction as well as a decline in market confidence in the aftermath of the crisis, and by others to global post-crisis regulatory measures. The Commission is interested in views on how to achieve better priced and robust liquidity conditions, notably whether measures could be taken to support liquidity in vulnerable segments and whether there are barriers to entry for new market participants who can play a role in matching buyers to sellers.
Company law, corporate governance, insolvency, and taxation
EU legislation exists in the area of corporate governance (e.g. on corporate governance statements[32], on the cross-border exercise of shareholder rights[33]), but corporate governance often remains the preserve of domestic law and standards. After the financial crisis a review of the EU corporate governance framework was undertaken through two consultations.[34] The revision of the shareholder rights directive which is underway aims to encourage institutional investors and asset managers to provide more long term capital to companies.
The protection of minority shareholder rights improves corporate governance and the attractiveness of companies for foreign investors, since these may often be minority investors. Another aspect of sound corporate governance is the efficiency of company boards in terms of controlling company managers. As company boards protect the interests of investors, efficient and well-functioning company boards are also key to attracting investment.
Despite several directives on company law[35], businesses still face important obstacles to their cross-border mobility and restructurings. Further reforms to company law may be helpful in overcoming barriers to cross-border establishment and operation of companies.
Divergent national conflict-of-law rules regarding the internal functioning of a company can cause legal uncertainty, as they may lead to a situation where a company is subject to the laws of various Member States at the same time, for instance, in cases where a company is incorporated in one Member State but operates mainly from another Member State.
While the discussion around harmonising substantive insolvency legislation has been slow over the past 30 or so years due to its complexity, there has been considerable progress in the area of conflict-of-laws rules for cross-border insolvency proceedings.[36] However, underlying national insolvency frameworks are still divergent in their basic features and in their effectiveness.[37] Reducing these divergences could contribute to the emergence of pan-European equity and debt markets, by reducing uncertainty for investors needing to assess the risks in several Member States. Furthermore, the lack or inadequacy of rules enabling early debt restructuring in many Member States, the absence of "second chance" provisions, and the excessive length and costs of formal insolvency proceedings can lead to low recovery rates for creditors and discourage investors. With a view to achieving progress on insolvency, the Commission adopted a Recommendation on a new approach to business failure and insolvency[38] in which it urges Member States to put in place early restructuring procedures and 'second chance' provisions. The recommendation also invites Member States to consider applying the principles to consumer over-indebtedness and bankruptcy. An evaluation of the Recommendation is planned for 2015.
Differences in tax regimes across Member States can impede the development of a single market for capital. For example, they can create obstacles to cross-border investments such as pensions and life insurance. As a follow-up to the White Paper on Pensions[39], the Commission conducted a study on discriminatory rules relating to pension and life insurance capital, contributions, and pay-outs. The Commission will take action as necessary if any discriminatory rules are found and discriminatory tax rules on cross-border investments by life insurance companies and by pension funds in real estate at a later stage. Work is also continuing on simplifying withholding tax relief procedures related to post-trading.
In addition to the tax treatment for different market participants across Member States, there are also differences in the tax treatment of different types of financing, which may create distortions. For example, differences in the tax treatment of debt and equity financing might increase the reliance of companies on debt and bank funding. Furthermore, differences across Member States in the definition of debt and equity and their respective tax treatment, including in relation to regulatory capital instruments, may hamper a level-playing field, fragment markets and create opportunities for profit-shifting.
Finally, obtaining finance is especially difficult for start-ups as they lack collateral and a proven track record that can provide certainty to suppliers of financing. Start-up companies are, however, more likely to bring innovations that challenge the market position of large incumbent firms. A recent study commissioned by the European Commission[40] concluded that targeting tax incentives for R&D expenditure at young innovative companies is an effective practice.
Technology
An important driver of the integration of capital markets is the rapid development of new technologies, which have contributed for example to the development of electronic trading platforms, high frequency trading and so-called "FinTech" companies. "Fintech" can be defined as the combination of innovative financial services and the availability of capital through the use of new (digital) technologies, such as crowdfunding. According to a recent report, since 2008 global investment in FinTech ventures has tripled to nearly $3 billion in 2013; this trend is set to continue, with global investment on track to grow to up to $8 billion by 2018.[41]
European and national company law has not kept pace with technological development, for example by insufficiently integrating the benefits of digitalisation. Exchanges of information between companies, shareholders and public authorities are often still paper-based. For example, in many companies, shareholders still cannot vote electronically and there is no Europe-wide on-line registration of companies. Use of modern technologies in these areas could help reduce costs and burdens, but also ensure more efficient communication, particularly in a cross-border context.
Questions:
23) Are there mechanisms to improve the functioning and efficiency of markets not covered in this paper, particularly in the areas of equity and bond market functioning and liquidity?
24) In your view, are there areas where the single rulebook remains insufficiently developed?
25) Do you think that the powers of the ESAs to ensure consistent supervision are sufficient? What additional measures relating to EU level supervision would materially contribute to developing a capital markets union?
26) Taking into account past experience, are there targeted changes to securities ownership rules that could contribute to more integrated capital markets within the EU?
27) What measures could be taken to improve the cross-border flow of collateral? Should work be undertaken to improve the legal enforceability of collateral and close-out netting arrangements cross-border?
28) What are the main obstacles to integrated capital markets arising from company law, including corporate governance? Are there targeted measures which could contribute to overcoming them?
29) What specific aspects of insolvency laws would need to be harmonised in order to support the emergence of a pan-European capital market?
30) What barriers are there around taxation that should be looked at as a matter of priority to contribute to more integrated capital markets within the EU and a more robust funding structure at company level and through which instruments?
31) How can the EU best support the development by the market of new technologies and business models, to the benefit of integrated and efficient capital markets?
32) Are there other issues, not identified in this Green Paper, which in your view require action to achieve a Capital Markets Union? If so, what are they and what form could such action take?
Section 5: Next steps
On the basis of the outcome of this consultation, the Commission will consider the priority actions needed to put in place by 2019 the building blocks for an integrated, well-regulated, transparent and liquid Capital Markets Union for all 28 Member States. In addition to supporting market-led initiatives where possible, EU action could take the form of non-legislative measures, legislation, competition enforcement action and infringements, as well as country specific recommendations to the Member States in the context of the European semester. Member States are encouraged to consider whether barriers and obstacles created by national legislation and practices exist and how best to overcome them.
Interested parties are invited to send their answers to the questions in this Green Paper by 13 May 2015 through the online questionnaire:
http://ec.europa.eu/finance/consultations/2015/capital-markets-union/index_en.htm During the consultation process, the European Commission:
will engage with the European Parliament to get direct feedback from its Members; invites Member States to organise consultations and events with the public and national parliamentarians to promote discussion on Capital Markets Union at national level; and will organise in a transparent and balanced manner workshops to consult those with specific technical expertise (such as academics, market participants) to reach an informed view on specific issues.
The Commission will organise a conference in the summer of 2015 to draw the consultation to a close. An Action Plan on Capital Markets Union will be published later in 2015.
[1] Such as the legislation on markets in financial instruments (MIFID II), market abuse (MAR/MAD), Alternative Investment Fund Managers (AIFMD), European market infrastructure (EMIR) and central securities depositories (CSDR)
[2] COM(2014) 903 final, 26.11.2014
[3] ECMI Statistical package 2014
[4] Part of the REFIT (Regulatory Fitness and Performance) programme
[5] SIFMA/AFME European Structured Finance Data Tables (4th Quarter 2014)
[6] Proposal for a Regulation of the European Parliament and of the Council on the European Fund for Strategic Investments and amending Regulations (EU) No 1291/2013 and (EU) No 1316/2013, COM(2015)10
[7] See ICMA Q3 2014 report
[8] In the context of infrastructure investments, the European Structural and Investment Funds (ESIF) can also play an important role, provided that the relevant eligibility criteria are met
[9] Such as Multilateral trading facilities (MTFs)
[10] See COM(2015)10 final, Article 9
[11] COM (2014) 172
[12] Directive 2014/91/EU
[13] Directive 2011/61/EU and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010
[14] Directive 2009/138/EC
[15] Separately, in the area of bank prudential regulation, the Commission Delegated Act on Liquidity Coverage Ratio (LRC) provides increased incentives for investments in infrastructure and SMEs that would facilitate investments into SMEs
[16] http://europa.eu/rapid/press-release_MEMO-14-578_en.htm
[17] UK, Germany Sweden, Denmark, Finland Netherlands, France and Spain
[18] Regulation (EU) No 345/2013
[19] Regulation (EU) No 346/2013
[20] Regulation (EU) No 1303/2013
[21] Regulation (EU) No 1287/2013
[22] 2014/C 19/04
[23] Business angels are individual investors, usually with business experience, who provide capital for start-ups
[24] Fact Book 2014, European Fund and Asset Management Association
[25] Directive 2014/65/EU and amending Directive 2002/92/EC and Directive 2011/61/EU
[26] COM(2014) 509
[27] COM (2010) 343
[28] The EU also seeks to ensure in its trade and investment agreements appropriate guarantees to safeguard appropriate protections in areas such as safety, health, environmental protection or cultural diversity
[29] COM(2014) 509
[30] Regulation (EU) No 648/2012
[31] Regulation (EU) No 575/2013 and amending Regulation (EU) No 648/2012
[32] Directive 2006/46/EC
[33] Directive 2007/36/EC
[34] COM(2010) 284 and COM(2011) 164
[35] For example Council Regulation 2157/2001 and Directive 2005/56/EC
[36] Regulation 1346/2000 on insolvency proceedings will be replaced by an improved legal instrument in 2015
[37] Commission Staff Working Document (2014) 61 final
[38] Commission Recommendation C(2014) 1500
[39] The White Paper "An Agenda for Adequate, Safe and Sustainable Pensions" was adopted on 16 February 2012, building on the 2010 Green Paper consultation. The White Paper takes stock of the challenges to adequacy and sustainability of pension systems and puts forward a range of policy measures at the EU level
[40] CPB (2014), "Study on R&D tax incentives", Taxation papers No 52
[41] http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture-Rise-of-Fintech-New-York.pdf