Capital Markets Union
Overshadowed by Brexit?
With respect to capital markets London was and is the most important hub in the EU – both as regards the international and as regards the inner-European capital markets.
So it can be viewed as just natural that Great Britain played an important role in the contemplations and the development of the Capital Markets Union (CMU). On September 30 2015 the EU Commission presented its announced action plan for the creation of a CMU and presented in April 2016 already its first status report about the steps already taken, the key initiatives planned by end 2016 and other initiatives to be prepared in 2017/2018. The EU Commissioner Jonathan Hill from Great Britain stood on top of the supporters being responsible for Financial Stability, Financial Services and Capital Markets Union. Even if his nomination for Commissioner for financial markets had not been undisputed in 2014 due to his proximity to the financial sector in the city of London - his responsibility for the CMU had a certain logic behind it.
But next, there was the decision of the British public in its referendum on June 23 2016 to exit the European Union. For many market participants this was received as an unexpected shock. For Jonathan Hill the natural consequence immediately after the referendum was to step down as EU Commissioner – against the wishes of many, including Jean-Claude Juncker.
What is to follow? Is the project CMU over, to be restructured or at least put on halt, so that the new, still to be defined, relationship between the EU and Great Britain can be taken into account?
The statement of the EU Commission of September 14 2016 regarding the CMU can be viewed as a direct response to this question. The EU Commission responded with clear commitment to the CMU, as it was agreed upon in the year 2015. Despite some expectations there was even a distinct focus on accelerating the completion of the CMU.
The EU Commission set the following priorities:
- Swift implementation of the rules for quality parameters for securitisations (Simple, Transparent and Standardised, STS);
- Modernisation of the regulations for capital market prospectus rules;
- Proposals for strengthening of the venture capital markets;
- Harmonising the Europeans bankruptcy regimes.
What place will Great Britain take in the CMU? Is it still destined to become a part of it? As for almost all questions regarding Brexit there are no simple and concluding answers to those questions at this point in time.
There will certainly be a transition period until the actual Brexit during which Great Britain will still be a member of the EU and continues to apply its rules. This includes newly adopted regulations. Hence British market participants will still have to analyse and deal with the legislative packet for securitisations and the prospectus rules since those will be implemented in the short or medium term.
What is clear is that the topics around the CMU remain tightly interwoven with Great Britain. Similarly to the other aspects of the single European market one will have to go into the details and start from there to negotiate how the EU can cooperate in future with Great Britain in capital markets related topics. While it is obvious that the current status about the CMU initiatives will constitute a starting point of the discussion it is still open how exactly such cooperation will look like in the future. Theoretically conceivable would be both that Great Britain becomes part of a CMU (with certain special rules), as well as that the EU continues to pursue the CMU on its own and comes to an agreement with Great Britain, which is separate from but influenced by the CMU.
Surely, Brexit has thrown a shadow on the CMU. But this shadow of insecurity is not darker than the remaining EU- and regulatory topics. Moreover after the Brexit decision the EU has explicitly and clearly emphasised its commitment to the CMU as well as it has pushed for concrete and accelerated next steps. This is an important sign.