Documents considered by the Committee on 28 October 2015 - European Scrutiny Contents


3 Capital Markets Union

Committee's assessment Politically important
Committee's decisionNot cleared from scrutiny; recommended for debate in European Committee B, together with two related documents; drawn to the attention of the Treasury Committee
Document details(a) Commission Communication: Action plan on building a Capital markets Union; (b) Commission Staff Working Document: Economic analysis, accompanying the Commission Communication; (c) Commission Staff Working Document: Responses to the Capital Markets Union Green Paper, accompanying the Commission Communication
Legal base
DepartmentHM Treasury
Document Numbers (a) (37134), 12263/15, COM(15) 468;

(b) (37135), 12263/15 ADD 1, SWD(15) 183;

(c) (37136), 12263/15 + ADD 2, SWD(15) 184

Summary and Committee's conclusions

3.1 In February the Commission launched a consultation about a proposed Capital Markets Union (CMU) and now publishes this Communication about an action plan for building the CMU.

3.2 The Commission details a range of about 20 reforms, which are a combination of legislative and non-legislative actions across a range of policy areas related to EU capital markets. They aim at making it easier for all businesses, including small and medium sized businesses to get access to funding, and creating more investment opportunities for savers and investors.

3.3 The Government tells us that it welcomes the action plan. However it mentions that it has reservations about possible proposals in relation to insolvency, private pensions and credit information on SMEs.

3.4 We note the Government's welcome for the action plan, albeit with reservations. As the action plan is an important stage in development of the CMU we recommend that it be debated, together with two related legislative proposals, in European Committee B. In the debate Members would be able to explore further the Government's reservations. We draw the documents and the debate recommendation to the attention of the Treasury Committee.

Full details of the documents: (a) Commission Communication: Action plan on building a Capital markets Union: (37134), 12263/15, COM(15) 468; (b) Commission Staff Working Document: Economic analysis accompanying the Commission Communication: Action Plan on building a Capital Markets Union: (37135), 12263/15 ADD 1, SWD(15) 183; (c) Commission Staff Working Document: Feedback statement on the Green Paper 'Building a Capital Markets Union' accompanying the Commission Communication: Action Plan on building a Capital Markets Union: (37136), 12263/15 + ADD 2, SWD(15) 184.

Background

3.5 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. In July, having seen the Government's response to those questions, we cleared the document from scrutiny, but drew it and, particularly, the Government's response to the attention of the Treasury Committee.[ 22]

The documents

3.6 With this Communication the Commission now presents this action plan as the first step in achieving the objectives of the CMU. It details a range of about 20 reforms that the Commission says will be developed and pursued over the next four years. These reforms are a combination of legislative and non-legislative actions across a range of policy areas related to EU capital markets. At a high level, they are focused on making it easier for all businesses, including small and medium sized businesses to get access to funding, and creating more investment opportunities for savers and investors.

3.7 The reforms are at various stages of development and so there are a range of deadlines contained within the action plan, which are tabulated at the end of the document. The Commission will conduct a stock taking exercise in 2017 to assess the progress of reforms. Whilst the action plan outlines the potential and definite legislative proposals the Commission will make, it does not contain any specific legislative proposals. These are to be published separately by the Commission — we deal with two already published in a separate chapter in this Report.[ 23]

3.8 The CMU action plan is structured thematically. The overall approach the Commission has taken to reform reflects its wider 'better regulation' agenda, by committing to reviews and feasibility studies before deciding on the appropriate actions in many cases. The themes into which the Commission breaks down its actions are:

·  improving financing for the smallest firms and start-ups, promoting innovation and tackling red tape to lower the cost of raising money for these firms, which is vital for their success;

·  lowering the cost of raising finance on public markets such as stock markets, again by streamlining costly administrative burdens;

·  promoting sustainability by encouraging long-term investment in infrastructure projects, and examining the coherence and impact of the aggregate EU financial services reform legislation enacted since the crisis, to ensure it is operating as intended;

·  improving competition and quality for consumers wanting to invest their money;

·  increasing banks' capacity to lend to the real economy, through a series of reforms; and

·  reducing barriers to cross-border investing, ensuring the benefits of the single market are maximised.

3.9 The overall deadline for achieving the objectives of the CMU action plan is the end of the current Commission's mandate in October 2019. It intends to conduct a stock taking exercise to assess progress in 2017.

3.10 The Communication is accompanied by two Commission Staff Working Documents. The first is an economic analysis of the functioning of financial markets in the EU, which is used to substantiate the economic rationale for the objectives of CMU and provides context for the action plan. The second document is a feedback statement summarising the responses to the Commission's Green Paper consultation on CMU.

The Government's view

3.11 In her Explanatory Memorandum of 23 October 2015 the Economic Secretary to the Treasury (Harriett Baldwin), noting that the Government has publically welcomed the CMU action plan, says that it marks a shift in financial services policymaking away from crisis remediation and towards the next phase, which is supporting jobs and growth. She says that:

·  the Government fully supports the Commission's approach in developing these reforms, which reflects its own better regulation agenda, and the regulatory approach called for by the Prime Minister's Business Task Force;

·  it particularly welcomes the commitment to assess the need for further legislation on many core issues, rather than a commitment to legislating prior to making any such assessment; and

·  the Commission should use market-based solutions where appropriate.

3.12 The Minister comments further that:

·  the Government particularly welcomes the focus on helping small and medium-sized enterprises (SMEs) get access to the funding they need to grow and succeed, and the Commission's commitment to assess the impact of its post-crisis financial services legislation;[ 24]

·  it also fully supports the immediate steps being taken to boost capital markets, namely the proposals to create simple, transparent and standardised securitisation, and reforms to the Prospectus Directive;

·  there are several proposed actions where the Government has concerns that potential reforms might prove damaging to the UK — specifically in the areas of insolvency, private pensions and credit information on SMEs;

·  in these areas the Commission is either proposing legislation (in the case of insolvency) or considering legislative, rather than market-based action;

·  the Government understands that legislative action in these areas would take a minimum-standards approach, which it would support if legislation were to be decided on following appropriate analysis;

·  it is, however, urging the Commission to be mindful of domestic regimes that are working well such as those in the UK, and to make sure that any legislative action does not undermine those regimes;

·  the Government supports the Commission's focus on improving the effectiveness of the European Securities and Markets Authority within its existing mandate;

·  the institutional arrangements for capital markets supervision are a priority issue for the UK, and the Government thinks the Commission's focus on properly embedding the recently established regime, rather than proposing institutional change, is the right one;

·  it will actively engage in a forthcoming Commission White Paper on European Supervisory Authorities' funding and governance; and

·  for the future, the Government will continue to engage closely with the Commission as well as other stakeholders to ensure that both the debate on CMU and individual policy reforms closely reflect its objectives.

3.13 The Minister says that it is not clear from the action plan whether its different deadlines signal when the corresponding actions will be completed, or when work will begin. Although the Government understands that they refer to completion dates, it is following this up with the Commission to obtain clarity.

Previous Committee Reports

None.


22   (36667), 6408/15 + ADD 1: see Thirty-seventh Report HC 219-xxxvi (2014-15), chapter 17 (18 March 2015) and First Report HC 342-i (2015-16), chapter 74 (21 July 2015). Back

23   (37128), 12601/15 + ADDs 1-2 (37143), 12603/15: see chapter 2 in this Report. Back

24   Ibid. Back


 
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Prepared 6 November 2015