Documents considered by the Committee on 14 December 2016 Contents

12Financial services and the Capital Markets Union

Committee’s assessment

Politically important

Committee’s decision

Cleared from scrutiny; 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

12.1The 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. We have been considering the proposal, together with an associated European Central Bank Opinion, for several months. Most recently we granted a conditional waiver from the Scrutiny Reserve Resolution in advance of a COREPER meeting in November 2016. This was against the Government’s assertion that the Presidency text had been improved and its anticipation of certain remaining concerns being addressed. We asked to hear promptly about the outcome of the meeting and also about a Brexit point.

12.2The Government tells us now of a further improved Presidency text, about which it says that the proposed changes will encourage the uptake of European Venture Capital Funds and European Social Entrepreneurship Funds, increasing financing for SMEs and social causes. It expects this revised Presidency text to be formally adopted by the Council on 15 December 2016 and asks us to clear the documents before then. The Government also says that, in relation to how the registration process for large asset managers wishing to do cross-border business will operate following Brexit, it aims to get the best possible deal for the financial services industry as part of the withdrawal negotiation and registering to market to EU clients and to manage EU-based investment funds is a process that will form one component of the wider deal.

12.3 Given the information the Government now gives us we clear these documents from scrutiny. Nevertheless, we wish the Government to keep us informed of developments in the European Parliament’s consideration of the proposed Regulation.

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

12.4The Commission has proposed, in the context of building the Capital Markets Union, a Regulation, document (a), to amend the Regulations governing European Venture Capital Funds (EuVECA) and European Social Entrepreneurship Funds (EuSEF), 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 EuVECA eligible assets beyond the existing definition, and making some changes to fee structures and registration processes to decrease costs for managers.

12.5When in September 2016 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 EuVECA 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.

12.6Following publication of the Commission proposal the European Central Bank issued an Opinion, document (b), 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 EuVECA and EuSEF and that the European Securities and Markets Authority should use the same format when storing information in their central database of EuVECA and EuSEF managers. We heard from the Government, in November 2016, that the Opinion was broadly consistent with its position and that it had not identified any concerns in relation to the recommendations of the Bank.

12.7The Government also told us in November 2016, first, that the latest Presidency compromise text of the proposed Regulation now specified 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 were too complex and several other Member States had also raised concerns that they should be proportionate. The Government said that the Presidency had agreed to make some amendments to this proposal and that it anticipated an appropriate outcome in the next compromise text.

12.8The Government also told 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 was registered in, and an alternative optional process proposed by the Presidency.

12.9The Government asked us to clear this proposal from scrutiny in anticipation of the Presidency seeking soon agreement on a General Approach by COREPER. We noted the general acceptability of the Council text then emerging. But, since the Government only ‘anticipated’ that there would be an appropriate outcome in relation to proportionate own funds requirements, we did not agree to the request for scrutiny clearance. However, we did allow the Government a conditional waiver from the Scrutiny Reserve Resolution if an appropriate outcome was achieved. We wished to hear promptly from the Government about the outcome of the COREPER meeting. At the same time we wanted to know from the Government how it expected the registration process for large asset managers wishing to do cross-border business would operate after Brexit. Meanwhile the documents remained under scrutiny.

The Minister’s letter of 12 December 2016

12.10The Economic Secretary to the Treasury (Simon Kirby) now tells us that since the COREPER meeting the Slovak Presidency has launched a “silence procedure” for a General Approach on its compromise text, which ended on 5 December 2016 was not broken by any Member State. In consequence, the Presidency will submit that for agreement by the Council on 15 December 2016.

12.11The Minister recalls the main concerns highlighted to us previously about the Presidency’s proposed compromise, that is:

12.12The Minister then tells us that:

12.13Noting that the remaining own funds provisions in the compromise text remain at a proportionate level, the Minister says that the full provisions are:

12.14As for the question as to how the Government expects the registration process for large asset managers wishing to do cross-border business will operate following Brexit the Minister says that:

12.15The Minister adds some information about other changes to the text of the proposed Regulation, saying that:

12.16The Minister concludes that:

Previous Committee Reports

Eighteenth Report, HC 71-xvi (2016–17), chapter 9 (18 November 2016) and Eleventh Report, HC 71-ix (2016–17), chapter 7 (14 September 2016).





16 December 2016