Documents considered by the Committee on 14 September 2016 Contents

7Financial services and the Capital Markets Union

Committee’s assessment

Politically important

Committee’s decision

Not cleared from scrutiny; further information requested

Document details

Proposed Regulation concerning venture capital funds and social entrepreneurship funds

Legal base

Article 114 TFEU, ordinary legislative procedure, QMV

Department

HM Treasury

Document Numbers

(37956), 11303/16 + ADDs 1–2, COM(16) 461

Summary and Committee’s conclusions

7.1In the context of building the Capital Markets Union the Commission has proposed a Regulation to amend the Regulations governing European Venture Capital Funds and European Social Entrepreneurship Funds. The Commission says that the aim of reforming the Regulations is to increase uptake of these funds. It notes that the two frameworks have had some success, with a number of funds being established and intending to market mostly cross-border. However, the Commission proposes three main amendments to the Regulations, designed to increase the uptake of these fund structures: expanding the number of managers who are able to offer these funds, expanding European Venture Capital Fund eligible assets beyond the existing definition, and making some changes to fee structures and registration processes to decrease costs for managers.

7.2The Government tells us that it strongly welcomes this Commission initiative. It will seek an outcome that allows more businesses to benefit from the non-banking source of financing which European Venture Capital Funds provide, while incentivising more managers to market both types of funds across borders. It will also seek to have as much of the proposed technical standards for “sufficient own-funds” as possible specified in the body of the proposed Regulation.

7.3We note that the Government expects an “ambitious timeline” for this Regulation, which we take to mean it may be adopted in the near future. While we see no problems with this proposed Regulation we retain the document under scrutiny, pending information from the Government on progress in discussion of the proposal, particularly in relation to its perceived advantages not being diminished during negotiation.

Full details of the documents

Proposed Regulation amending Regulation (EU) No. 345/2013 on European venture capital funds and Regulation (EU) No. 346/2013 on European social entrepreneurship funds: (37956), 11303/16 + ADDs 1–2, COM(16) 461.

Background

7.4Regulation (EU) No. 345/2013 on European Venture Capital Funds (EuVECA) and Regulation (EU) No. 346/2013 on European Social Entrepreneurship Funds (EuSEF) were introduced in 2013 to bring together EU-wide investors with unlisted SMEs and social undertakings and to increase non-bank finance within the economy. EuVECA and EuSEF allow fund managers to market these funds across the EU to investors able to commit a minimum of €100,000 (£76,190).

7.5In September 2015 the Commission published an action plan for the first steps in building the Capital Markets Union. It detailed a range of about 20 reforms that the Commission would be developing and pursuing over the next four years. These reforms were to be a combination of legislative and non-legislative actions across a range of policy areas related to EU capital markets.28

The document

7.6As part of the Capital Markets Union project, the Commission proposes amendment to the EuVECA and EuSEF Regulations to support investment in SMEs and entrepreneurial businesses. The Commission says that the aim of reforming EuVECA and EuSEF is to increase uptake of the funds. The two frameworks have had some success, with a number of funds which have been established and intend to market mostly cross-border. However, the Commission suggests that revision of EuVECA and EuSEF will encourage take-up of these funds to boost the venture capital market as quickly as possible.

7.7The Commission proposes three main amendments to the Regulations, designed to increase the uptake of these fund structures: expanding the number of managers who are able to offer these funds, expanding EuVECA eligible assets beyond the existing definition, and making some changes to fee structures and registration processes to decrease costs for managers.

Managers able to opt into EuVECA and EuSEF

7.8Under the current Regulations, only small managers, with assets under management of €500 million (£380.95 million), are eligible to opt into the EuVECA and EuSEF Regulations. Managers with more than €500 million (£380.95 million) assets under management are required to be authorised under Directive 2011/61/EU, the Alternative Investment Fund Managers Directive (AIFMD),29 but are not able to market funds under EuVECA and EuSEF. The Commission proposes allowing large managers authorised under AIFMD to market funds under EuVECA and EuSEF in the same way as small managers, by opting into the Regulations.

Eligible assets for investment under EuVECA

7.9Under the current EuVECA Regulation, managers are only able to invest in companies which fulfil strict criteria for investment, namely unlisted companies with less than 250 employees and an annual turnover less than €50 million (£38.095 million) or an annual balance sheet of less than €43 million (£32.762 million). The Commission proposes:

Requirements for sufficient own-funds

7.10The proposal includes provisions relating to capital buffer requirements. Both Regulations require managers to hold “sufficient own-funds” to be able to properly discharge their obligations on an on-going basis, but neither the amount nor the methodology for the own-funds calculation are prescribed. It is up to individual Member States to determine the methodology and to charge what they consider appropriate. Such differences in national rules raise direct and indirect costs for EuVECA and EuSEF funds when marketed across borders. The Commission proposes requiring the European Securities and Markets Authority (ESMA) to develop Regulatory Technical Standards on methodologies for determining the amounts of sufficient own funds, in order to ensure a consistent approach to own-funds across all Member States.

Streamlining the registration process for managers

7.11In order to streamline the registration process the Commission proposes:

Technical changes

7.12The Commission proposes:

The Government’s view

7.13In his Explanatory Memorandum of 2 September 2016 the Economic Secretary to the Treasury (Simon Kirby) says that:

7.14The Minister notes that:

7.15The Minister tells us that:

7.16Turning to the financial implications of the proposal the Minister says that:

Previous Committee Reports

None.


28 (37134), 12263/15: see Seventh Report HC 342-vii (2015–16), chapter 3 (28 October 2015).

29 Large managers are authorised under Article 6 of Directive 2011/61/EU.




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16 September 2016