The single market is one of the core objectives of the EU as a matter of policy guidance and also as a benchmark. Achieving free movement of capital throughout the EU is an indispensable part of the creation of a single market and the matter has been widely addressed on numerous occasions.

In February 2015, the European Commission (“EC”) published a green paper on building a Capital Markets Union (“CMU”). The CMU is a policy plan created as part of an EC initiative that aims to create deeper and more integrated capital markets throughout the member states of the EU by 2019, therefore, making movement of capital easier throughout member states and seeking to support the single market. The CMU addresses a significant issue, namely unlocking access to capital throughout the EU, with the view of creating more opportunity for growth of small and medium sized businesses and more opportunities for capital growth for investors. From a practical perspective, one of the key industry impacts of the CMU will be to benefit the venture capital and private equity markets in the EU and to stimulate their growth.

In comparison to other countries, including the US, medium-sized companies in the EU received five times less funding in the period between 2008 and 2013. If this issue had been addressed, there would have been as much as €90 billion available funding for such businesses. If successful, the CMU would benefit the private equity and venture capital industries along with businesses seeking further growth by unlocking a higher degree of capital flow and access to it.

As part of its main objectives in tackling the above-mentioned issues, the CMU will address:

  • the diversification of the financial system that complements bank financing with deep and developed capital markets;
  • unlocking capital that is currently frozen and putting it into the economy; and
  • creating a genuine single capital market throughout the EU thus enabling investors to freely invest cross borders with no obstacles, and therefore giving easier access to funding for businesses across the EU.

In addition, the CMU will also seek to address the disparity between access to finance in higher and lower income EU member states. Such a disparity has not only impacted lower income member states’ economies but also obstructs investment opportunities for wealthier economies and indirectly widens the economic gap. Overcoming the barriers of capital flow will serve a particular benefit to lower income countries and will significantly help harmonize the markets.

In line with the above, the CMU will also seek to:

  • address and review the current prospectus regime;
  • build a more stable capital market for small and medium sized businesses;
  • revive securitisation;
  • boost long-term investment across member states; and
  • further develop the private placement market.

To view the Q&A on the Green Paper on building a Capital Markets Union please follow this link.

If you are a business in the venture capital or private equity space and need legal advice in regards to the placing and distribution of collective investment schemes throughout the EU, Cleveland & Co, your external in-house counsel, are here to help.