Documents considered by the Committee on 18 March 2015 - European Scrutiny Contents


17 Capital Markets Union

Committee's assessment Politically important
Committee's decisionNot cleared from scrutiny; further information requested
Document detailsCommission Green Paper about a Capital Markets Union
Legal base
Department

Document numbers

HM Treasury

(36667), 6408/15 + ADD 1, COM(15) 63

Summary and Committee's conclusions

17.1 The Commission has published a Green Paper, about building a Capital Markets Union, to consult on a range of issues relating to improving market-based financing of the EU economy. It says that it will decide on appropriate follow-up measures on the basis of the consultation to put in place the building blocks for such a union by 2019. The Commission calls for responses to the questions posed by the Green Paper by 13 May and says that it expects to present an action plan in the summer.

17.2 The Government tells us that it welcomes the publication of the Commission's Green Paper and the opportunity to consider the options for developing a Capital Markets Union. It says that, overall, it strongly supports the vision of a well-regulated and integrated union of all 28 Member States, which maximises the benefits of capital markets and non-bank financing for the real economy.

17.3 We note the Government's intention to respond quickly to the Commission's Green Paper and ask it to inform our successor Committee of the content of that response. Meanwhile the document remains under scrutiny.

Full details of the documents: Green Paper: Building a Capital Markets Union: (36667), 6408/15 + ADD 1, COM(15) 63.

Background

17.4 As early as July 2014 the new Commission President presaged the intention to create a "Capital Markets Union" (CMU). Lord Hill, one of the Commissioners, has specific responsibility, amongst other matters, for the CMU.

The document

17.5 The Commission has now published this Green Paper, about building a CMU, to consult on a range of issues relating to improving market-based financing of the EU economy. In the Green Paper the Commission:

·  identifies free movement of capital as one of the fundamental freedoms of the EU;

·  describes how the degree of market integration in the EU has declined since the financial crisis;

·  explains that the creation of a CMU is a key priority for the Commission as it seeks to increase growth in the EU by increasing access to finance; and

·  identifies areas for early action and then seeks views in an extensive consultation.

17.6 The Green Paper is divided into four sections. The first sets out the rationale for creating a CMU and its objectives:

·  improving access to finance for business and infrastructure projects;

·  helping small and medium-sized enterprises (SMEs) raise finance as easily as large companies;

·  creating a single market for capital by removing barriers to cross border investments; and

·  diversifying sources of funding and reducing the cost of funding.

17.7 Section two comprises a brief analysis of the existing barriers to deeper capital markets, with some comparison between the size and maturity of EU and US markets. The analysis also highlights the differing experiences in each Member State. More detail is provided in the accompanying Commission Staff Working Document "Initial reflections on the obstacles to the development of deep and integrated EU capital markets". Section three elaborates on the five areas identified by the Commission for early action:

·  reviewing the Prospectus Directive to lower barriers to accessing capital markets;

·  developing a common minimum set of comparable information for credit reporting and assessment in order to widen the investor base for SMEs;

·  creating a regulatory framework for sustainable, high quality securitisation;

·  boosting long-term investment, in particular by supporting take up of European Long Term Investment Funds; and

·  supporting industry led initiatives to develop a pan-EU private placement market.

17.8 Separate public consultations have been launched for reviewing the regulatory framework around securitisation and reviewing the Prospectus Directive.

17.9 Section four seeks views on a range of obstacles to cross border capital flows and is organised around three themes:

·  improving access to finance, focusing on addressing information problems and standardisation in areas such as covered, corporate, and green bonds;

·  developing and diversifying the supply of funding, exploring ways to bring institutional, retail and international investors to market and how to develop private equity and venture capital as alternative sources of finance; and

·  improving market effectiveness, seeking comments on the single rulebook, enforcement of EU rules, the role of the European Supervisory Authorities, issues on reporting standards, market infrastructure and securities law, possible obstacles to market integration via company law, insolvency and taxation and supporting new technology.

17.10 The Commission:

·  says that it will decide on appropriate follow-up measures on the basis of the consultation to put in place the building blocks for a CMU by 2019;

·  comments that this may include legislative measures, though it is clear that regulatory changes will only be sought where they are necessary;

·  invites responses to the questions posed by the Green Paper by 13 May; and

·  notes that it will then consider what actions should be taken, with an action plan expected in the summer.

The Government's view

17.11 In her Explanatory Memorandum of 11 March 2015 the Economic Secretary to the Treasury (Andrea Leadsom) says that the Government welcomes the publication of the Commission's Green Paper and the opportunity to consider the options for developing a CMU. She comments further that:

·  overall, the Government strongly supports the vision of a well-regulated and integrated CMU of all 28 Member States, which maximises the benefits of capital markets and non-bank financing for the real economy;

·  it is encouraged by the open nature of this consultation, which should provide the Commission with a firm evidence base on which to base policy responses, and agrees with the five areas prioritised for action in the near term;

·  the Government supports the Commission's suggestion that EU legislation should only be used where it is necessary and agrees that non-legislative steps, and the effective enforcement of competition and single market laws, should be utilised to achieve the objectives of CMU;

·  the Commission should also seek to share best practice among Member States;

·  in its response, the Government will consider the impact and feasibility of each of the measures proposed and their implications for growth;

·  in particular, it remains alive to subsidiarity concerns and will urge the Commission to avoid undertaking actions or making legislative proposals that concern matters most appropriately addressed at Member State level;

·  where legislative action is taken, the Government will urge the Commission, the Council, and the European Parliament to subject any legislative proposals to a rigorous impact assessment to ensure that the proposed legislation is proportionate; and

·  the Government will engage in a dialogue with relevant industry stakeholders and Member States as appropriate, and intends to respond to the Commission's consultation before the period immediately preceding the General Election begins.

Previous Committee Reports

None.


 
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