Documents considered by the Committee on 18th November 2016 Contents

9Financial services and the Capital Markets Union

Committee’s assessment

Politically important

Committee’s decision

Not cleared from scrutiny; conditional scrutiny waiver granted; further information requested

Document details

(a) Proposed Regulation concerning venture capital funds and social entrepreneurship funds; (b) European Central Bank Opinion on the proposed Regulation concerning venture capital funds and social entrepreneurship funds

Legal base

(a) Article 114 TFEU, ordinary legislative procedure, QMV; (b) —

Department

HM Treasury

Document Numbers

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

(b) (38102), —

Summary and Committee’s conclusions

9.1The Commission has proposed, in the context of building the Capital Markets Union, a Regulation to amend the Regulations governing European Venture Capital Funds and European Social Entrepreneurship Funds, with the aim of increasing uptake of these funds. It has proposed three main amendments to the Regulations: 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.

9.2When in September we considered this proposal we heard that the Government strongly welcomed this Commission initiative, but, in particular, that it would seek to have as much as possible of the proposed technical standards for “sufficient own funds” for European Venture Capital Fund managers specified in the body of the proposed Regulation. While we saw no problems with this proposed Regulation we retained the document under scrutiny, pending information from the Government on progress in discussion of the proposal.

9.3Following publication of the Commission proposal the European Central Bank issued an Opinion generally welcoming and supporting the aims pursued by the proposed Regulation and viewing it as a positive step towards the completion of the Capital Markets Union. However, it proposed, in addition to technical amendments, that the Regulation should make it mandatory to use the International Securities Identification Number and the global Legal Entity Identifier in the information requirements for managers of European Venture Capital Funds and European Social Entrepreneurship Funds and that the European Securities and Markets Authority should use the same format when storing information in their central database of European Venture Capital Fund and European Social Entrepreneurship Fund managers. The Government has told us that the Opinion is broadly consistent with its position and that it had not identified any concerns in relation to the recommendations of the Bank.

9.4The Government now tells us, first, that the latest Presidency compromise text of the proposed Regulation now specifies own funds requirements in the body of the Regulation, rather than requiring the European Securities and Markets Authority to develop Regulatory Technical Standards. However, in the Government’s view, the requirements now proposed are too complex and several other Member States have also raised concerns that they should be proportionate. The Government says that the Presidency has agreed to make some amendments to this proposal and that it anticipates an appropriate outcome in the next compromise text.

9.5The Government also tells us of its support for both a slightly amended text concerning the registration process for large asset managers, allowing operation in Member States other than the one a manager is registered in, and an alternative optional process proposed by the Presidency.

9.6The Government asks us to clear this proposal from scrutiny in anticipation of the Presidency seeking soon agreement on a General Approach by COREPER. We note the general acceptability of the Council text now emerging. But, since the Government only ‘anticipates’ that there will be an appropriate outcome in relation to proportionate own funds requirements, we do not agree to the request for scrutiny clearance. However, we do allow the Government a conditional waiver from the Scrutiny Reserve Resolution if an appropriate outcome is achieved.

9.7We wish to hear promptly from the Government about the outcome of the COREPER meeting. At the same time we should like to know from the Government how it expects the registration process for large asset managers wishing to do cross-border business will operate after Brexit. Meanwhile the documents remain under scrutiny.

Full details of the documents

(a) 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; (b) European Central Bank Opinion of 12 September 2016 on a proposed Regulation amending Regulation (EU) No. 345/2013 on European venture capital funds and Regulation (EU) No. 346/2013 on European social entrepreneurship funds (CON/2016/44): (38102), —.

Background

9.8In July 2016 the Commission proposed, in the context of building the Capital Markets Union, a Regulation to amend the Regulations governing European Venture Capital Funds (EuVECAs) and European Social Entrepreneurship Funds (EuSEFs). The Commission said that the aim of reforming the Regulations was to increase uptake of these funds. It noted 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 proposed 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.

9.9When in September 2016 we considered this proposal we heard that:

9.10We noted that the Government expected an “ambitious timeline” for this Regulation, which we took to mean it might be adopted in the near future. While we saw no problems with this proposed Regulation we retained 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.

The new document

9.11The European Central Bank (ECB) has issued an Opinion, document (b), on the Commission’s proposed Regulation concerning EuVECAs and EuSEFs, document (a). The ECB generally welcomes and supports the aims pursued by the proposed Regulation and views it as a positive step towards the completion of the Capital Markets Union. It makes one specific observation, related to the use of the International Securities Identification Number (ISIN) and the global Legal Entity Identifier (LEI), and a number of minor and technical drafting suggestions related to that observation, as follows.

9.12The proposed Regulation would lay down conditions for managers authorised under Directive 2011/61/EU, the Alternative Investment Fund Managers Directive (AIFMD), to register EuVECAs and EuSEFs. These conditions include the provision of information on the identity of the persons effectively managing these funds, the funds themselves and the units or shares of such funds. The ECB believes that the standardisation of statistical information, namely by means of unique identifiers for institutions, products and transactions, is a key priority to achieve a data infrastructure that is of high-quality and workable. It underlines its strong support for internationally agreed standards, such as ISIN and LEI.

9.13The ECB recalls that in an earlier Opinion, on the proposal to replace the Prospectus Directive with a Prospectus Regulation, it said that when securities are offered to the public or admitted to trading on regulated financial markets, the key information in the prospectus summary should include mandatory reporting of unique identifiers using global standards.48 It says now that its proposed mandatory requirement to report ISIN and the global LEI should apply to all financial markets. It therefore recommends making it mandatory to use ISIN and the global LEI in the information requirements for managers of EuVECAs and EuSEFs and that the European Securities and Markets Authority should use the same format when storing information in their central database of EuVECA managers. The ECB proposes equivalent amendments to the EuSEF Regulation.

The Government’s view of the new document

9.14In his Explanatory Memorandum of 11 October 2016 the Economic Secretary to the Treasury (Simon Kirby) says that the ECB’s Opinion is broadly consistent with the Government’s position. He adds that the Government has not identified any concerns in relation to the recommendations of the ECB which relate to technical matters.

The Minister’s letter of 1 November 2016

9.15The Minister first reminds us that the Government is generally supportive of the proposed Regulation, and believes that the proposed changes will play an important role in increasing the uptake of EuVECAs by investment managers. In particular he recalls that the Government believes that the own funds requirements for managers of EuVECA funds are a crucial part of the proposal and that such an important component should be laid out in detail in the Regulation itself, rather than being left to the European Securities and Markets Authority to develop Regulatory Technical Standards.

9.16The Minister then tells us that the most recent Presidency compromise text is generally in line with UK objectives, but that further work is needed in order to ensure a preferable solution in relation to the requirement for a manager to keep own funds. He says that the Government will continue to argue in upcoming Council working groups that the provisions should not be watered down to ensure maximum possible take up of these funds, and that additional changes should be made.

9.17The Minister continues that the latest compromise text includes the following changes. In relation to own funds requirement he tells us that the requirement for the European Securities and Markets Authority to develop Regulatory Technical Standards on methodologies for determining amounts of sufficient own funds has been removed and has been replaced with a detailed proposal, based on the own funds requirements in AIFMD, on how own funds should be calculated. He says that the AIFMD own funds requirement has been amended to create a proportionate regime for small EuVECA managers, and includes the following requirements:

9.18The Minister comments that:

9.19Turning to the registration process for large asset managers the Minister tells us that:

9.20The Minister comments that:

9.21As for the next steps the Minister says that:

9.22The Minister adds that the European Parliament is also scheduled to begin considering the proposal later this year, and the Government will engage with rapporteurs and MEPs to ensure a good outcome in the European Parliament text.

Previous Committee Reports

Eleventh Report, HC 71-ix (2016–17), chapter 7 (14 September 2016).


48 See (37356), 14890/15 + ADDs 1–3 (37610), 7283/16: Twenty-ninth Report HC 342-xxviii (2015–16), chapter 8 (20 April 2016) and Sixteenth Report HC 342-xv (2015–16), chapter 9 (6 January 2016).




21 November 2016