Documents considered by the Committee on 21 July 2015 - European Scrutiny Contents

74 Capital Markets Union

Committee's assessment Politically important
Committee's decisionCleared from scrutiny
Document detailsCommission Green Paper about a Capital Markets Union
Legal base
DepartmentHM Treasury
Document numbers(36667), 6408/15 + ADD 1, COM(15) 63

Summary and Committee's conclusions

74.1 In February the Commission published a consultative Green Paper, about building a Capital Markets Union. The predecessor Committee asked that we should see the Government's response to the Green Paper, which we now have before us.

74.2 Whilst now clearing the Green Paper from scrutiny, we draw it and, particularly, the Government's response to the attention of the Treasury Committee.

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


74.3 In February the Commission published a Green Paper, about building a Capital Markets Union (CMU), to consult on a range of issues relating to improving market-based financing of the EU economy. It said that it would 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 called for responses to the 32 questions posed by the Green Paper by 13 May and said that it expected to present an action plan in the summer.

74.4 Our predecessor Committee noted the Government's intention to respond quickly to the Commission's Green Paper and asked it to inform us of the content of that response. Meanwhile the document remained under scrutiny.

The Minister's letter of 26 March 2015

74.5 With her letter the former Economic Secretary to the Treasury (Andrea Leadsom) sent our predecessor Committee the Government's response to the Green Paper. As this was received after that Committee's last meeting in the previous Parliament it is only now being considered.

74.6 The Government's response consisted of answers to the Commission's 32 questions and a covering note.[ 507] It noted that the Bank of England and the Financial Conduct Authority would be submitting separate responses.

74.7 The Government introduced its remarks in the covering note by saying that:

    "A fully functioning single market in capital would see more efficient allocation of capital without constraint due to location, diversification of sources of finance for businesses, provide confidence to investors accessing markets, and a decreased reliance on bank funding. In turn, risk would be shared beyond borders and national banking sectors, cushioning local shocks and contributing to sustainable economic growth. These are ambitions that will take time to achieve but they are of central importance to the future growth and competitiveness of the EU and its economies."

74.8 In the covering note the Government set out the principles it believed should underpin the development of the Commission's Action Plan for the CMU and the actions it thought were essential in the immediate, medium, and longer term to develop the capital markets that would sustain and strengthen the EU into the future. It said that in developing its priorities, it had employed the three following principles, which would form a reasonable basis for drawing up the Action Plan:

·  every initiative should aim to contribute to sustainable growth and competitiveness in the EU;

·  initiatives should be assessed and prioritised on the basis of impact and feasibility; and

·  the Commission should require a high burden of proof to justify the creation of new market infrastructures or institutional change.

74.9 The Government then commented that the Commission's consultation should provide a firm evidence base on which to base policy responses and that the Action Plan must set out, on the basis of the consultation, a set of evidenced priorities that have impact. It suggested that in the immediate term, the CMU Union should focus on:

·  restarting the securitisation market;

·  lowering the barriers to accessing capital markets;

·  supporting development of a pan-EU private placement market;

·  opening the market for SME lending by establishing minimum standards for SME credit information; and

·  removing barriers to funds operating cross-border.

74.10 For the medium term, the Government suggested that the CMU should focus on:

·  establishing vibrant venture capital markets in every Member State;

·  developing EU corporate bond markets;

·  promoting international consistency, cooperation and trade; and

·  ensuring the European Supervisory Authorities contribute to a competitive EU.

74.11 As for the longer term, the Government suggested that the CMU should focus on building capability in all Member States.

74.12 But the Government also said that it did not see value in progressing the following measures:

·  transfer of direct supervisory responsibilities to EU institutions;

·  a 29th regime for harmonisation of personal pensions;

·  tax harmonisation; and

·  harmonisation of insolvency laws.

74.13 The Government concluded its remarks in the covering note by saying:

    "Improving the provision of capital market financing to business and achieving a single market in capital are long term goals and will take many years to achieve fully. We need to start now, taking action where there is a clear evidence base in support of initiatives by the Commission and by Member States. We can also take the time to complete further in-depth research on some important issues where we still need to build the evidence base to support action. With the right programme of reforms, we should be able to look back at the end of Commission's mandate to see significant progress, with burgeoning capital markets in every Member State. Flows of capital between Member States will increase, with businesses of all sizes finding it easier to access capital both in the home market and elsewhere. Businesses will be better informed about their financing options and the financial sector better able to meet their funding needs. The EU will be more competitive, with higher growth and better productivity. The EU will be a more attractive destination for international investors; and all investors will feel more confident about pursuing a wider range of investment opportunities and channels.

    "The issues outlined in this note are important to the UK and, we believe, would be key drivers of this transformation. They should form a central part of the CMU reform programme. Given the relatively short time we have had to consider the issues in the Green Paper, there will be areas for action which the UK may want to build upon or has not yet identified. In particular, the Bank of England and FCA will also submit their own responses to this consultation. The UK is fully prepared to consider any measures which contribute to CMU where action can be justified by evidence and respects the principles of subsidiarity and proportionality. In line with the Commission's Better Regulation initiative, legislative proposals should be subject to a robust impact assessment, be directed at achieving the Commission's own objectives for CMU and should be pursued only where non-legislative measures are known not to be sufficient.

    "With the most developed capital markets in Europe, the UK has a key role to play in building a Capital Markets Union. The UK will participate actively in the debate that follows this Green Paper to set the direction of CMU. The Commission must act decisively and above all, the CMU Action Plan should send a clear message: Europe is open for business."

Previous Committee Reports

Thirty-seventh Report HC 219-xxxvi (2014-15), chapter 17 (18 March 2015).

507   All of which can be seen in full at  Back

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Prepared 30 July 2015