Mid-term review of the Capital Markets Union
interim results and new initiatives
The European Commission has presented and published the official mid-term review of the Capital Markets Union on June 8, 2017 in Brussels. Pursuant to this report 13 actions are work-in-progress, whilst 20 have been completed. „Mid-term“ marks the middle of the time span between 2015, in which the CMU action plan was published, and 2019, in which the Capital Markets Union is envisaged to be largely established.
Furthermore, nine „new priority initiatives to strengthen the CMU action plan“ are set out in the report:
- Amendments to the functioning of ESMA and the other ESAs
The Commission made clear its intention to increase the supervisory parameters of the European Supervisory Authorities (ESAs) in its recent consultation on their future operations. In the mid-term review report, the Commission says it will strengthen ESMA’s powers including, where warranted, granting direct supervision powers. The Commission will propose amendments to the functioning of ESMA, EIOPA and the EBA in Q3 2017.
- Support for SME listing on public markets
The Commission aims to increase the amount of equity raised by small and medium enterprises (SMEs) through public issuances. SMEs can potentially be alleviated of certain administrative requirements when listing on regulated markets and SME Growth Markets. The Commission will conduct an impact assessment on whether targeted amendments to relevant EU legislation (i.e. MiFID II and MAR) can deliver a more proportionate regulatory environment to support SME listing on public markets. The impact assessment can result in targeted changes in sectoral legislation by Q2 2018.
- Review of prudential treatment of investment firms
The Commission will review the prudential treatment of investment firms under CRD/CRR, with the aim of calibrating the prudential and supervisory framework to the size and nature of investment firms. The Commission will present a legislative proposal in Q4 2017 which recalibrates, and possibly lower, key prudential requirements for investment firms.
- Passporting framework for FinTech activities
With input from its ongoing consultation on FinTech, the Commission will assess the case for an EU licensing and passporting framework for FinTech activities. In this was FinTech firms can potentially conduct cross-border business without requiring further authorisation in each EU country. As part of its comprehensive approach to enable FinTech, the Commission will report on the possible establishment of an EU licensing and passporting framework in Q4 2017.
- Functioning of secondary markets for non-performing loans (NPLs)
The Commission aims to improve the functioning of secondary markets for non-performing loans (NPLs) as a solution to address the adverse impact of NPLs on banks’ profitability and ability to lend. The Commission will present measures to support secondary markets for NPLs. Shortly a public consultation on potential action in areas such as loan servicing by third parties and the transfer of loans will be launched, including to non-bank entities. This will be followed by an impact assessment to strengthen the ability of secured creditors to recover value from secured loans to corporates and entrepreneurs in Q1 2018, which can potentially lead to a legislative proposal.
- Sustainable investment
The Commission aims to strengthen the EU’s leadership in the development of sustainable finance. Focus is placed on sustainable investment products, such as green bonds, social impact funds and origination and packaging of energy efficiency mortgages. Institutional investors and investment managers can look to consider incorporating Environmental, Social and Governance (ESG) considerations into their investment mandates. The Commission will decide on concrete follow-up to the recommendations of the High Level Expert Group on Sustainable Finance by Q1 2018.
- Cross-border distribution and supervision of UCITs and AIFs
The Commission aims to increase regulatory and supervisory convergence for UCITs and AIFs, including addressing divergent national requirements on the use of the marketing passport under the UCITS and AIFM Directives and improving digital distribution channels. For achieving this, an impact assessment will be launched in Q1 2018, which may lead to a legislative proposal.
- Cross-border EU investment
The Commission aims to provide greater clarity on existing substantive EU standards on investment, including addressing intra-EU bilateral investment treaties between Member States (as such bilateral treaties are incompatible with EU law) and potentially establishing a framework for the resolution of investment disputes. For that purpose the Commission will adopt an interpretive communication to provide guidance on existing EU rules for the treatment of cross-border EU investments in Q1 2018. It will also shortly launch an impact assessment on the resolution of investment disputes.
- Development of local and regional capital markets
For EU Member States to reap the full economic benefits of the market-based initiatives under CMU, the Commission supports developing the maturity of capital markets across Member States, particularly those in Central, Eastern and South-Eastern Europe. The promotion and development of capital markets should encourage all financial institutions towards fund-raising through capital markets. As local markets develop, firms located in Central, Eastern and South-Eastern Europe should particularly consider increasing their market-based financial capabilities. The Commission will propose a comprehensive EU strategy in this respect by Q2 2018.
The Commission furthermore announced
- a legislative proposal on a Pan-European Personal Pension Product (PEPP) (end June 2017),
- a legislative proposal specifying conflict of laws rules for third party effects of transactions in securities and claims (Q4/2017) and
- a legislative proposal for an EU-framework for covered bonds (Q1/2018)
and emphasised their high priority.