On 30 September 2015, the European Commission (the “Commission”) published their Capital Markets Union (“CMU”) action plan on helping build a true single market across the 28 EU Member States and unlocking a free flow of capital throughout. Some of the key motivations for the launch of the CMU are to create a more favourable environment for entrepreneurs in the EU and hence retain more businesses within, rather then losing them to other economies, such as the United States.

The Commission’s action plan is focused around creating more opportunities for investors; creating a better connection between financing and the real economy; fostering a strong and resilient financial system; and increasing competition within the market. Some of the key early actions of the action plan, as announced by the Commission, are as follows:

Introduction of new rules on securitisation:

A new regulatory framework for securitisation will be introduced, aiming to create rules which are simple, transparent and standardised and subject to adequate supervisory control. The Commission estimates that the changes would generate between €100-150bn in additional funding for the economy.

Holding a public consultation on venture capital:

It is often challenging for small and medium-sized unlisted companies to get access to mainstream financing, such as via bank loans and they have limited alternative means to other sources of funding. Further developing the VC industry, which has proven to be a successful model overseas, might be a solution to this issue and could further develop not only business but the financial services industry.

The particular proposals in regards to the further development of venture capital seek to review and address the following:

  • whether targeted changes to the EuVECA and EuSEF Regulations could boost the take-up of investment funds;
  • the rules allowing managers authorised under the Alternative Investment Fund Managers Directive to set up, manage and market EuVECAs and EUSEFs;
  • broadening the number of private investors investing in investment funds by lowering the minimum investment threshold;
  • reducing the expense of establishing the investment funds;
  • allowing third country managers to use the investment fund’s designations; and
  • broadening the range of eligible assets available to EuVECAs.

The consultation will run until 6 January 2016.

Holding a public consultation on covered bonds:

The current EU covered bonds market is fragmented along national lines, which constrains standardisation in underwriting and disclosure practices and creates obstacles to deep, liquid and accessible markets, in particular across borders. The Commission will be consulting on a pan-European framework for covered bonds, thereby building on national regimes and utilising their best market practices. Two reform options are being considered in this regard:

  • a voluntary convergence of covered bond legislation through a non-legislative coordination measure; and
  • a dedicated EU covered bond legislative framework that would regulate covered bonds as a debt instrument rather than just regulating their prudential treatment.

The consultation will run until 6 January 2016 and will seek views on the use of covered bonds on the back of SME loans.

Gauging the cumulative impact of financial legislation:

The Commission launched a “call for evidence” in order to gather feedback and gauge the cumulative impact and interaction of current financial rules. The aim of the call of evidence is identifying and addressing any inconsistencies, incoherence and gaps in financial rules, as well as any unnecessary regulatory burdens and factors negatively affecting long-term investment and growth.
Investment firms of all types should follow the developments of the CMU as they might strongly impact the industry on a EU-wide scale.

In order to view the full CMU action plan documentation package, please follow this link.

Should you require any further advice or information on the above, Cleveland & Co, your external in-house counsel, are here to help.