Brussels, 18/02/2015 (Agence Europe) - In the process to run until Wednesday 13 May, the European Commission is hoping to gather the opinions of the stakeholders on a capital markets union in the EU.
“With the capital markets union, we want to unlock the capital across Europe that is currently frozen and put it to work in support of Europe's businesses, particularly SMEs and start-ups. We want to remove barriers that stand between investors and investment opportunities and we want to make the system for channelling those funds more efficient”, said the Commissioner for Financial Services, Jonathan Hill, presenting the Commission's specific Green Paper on Wednesday 18 February (see EUROPE 11254).
When asked about the appeal of the capital markets union (CMU) to the city of London as a project to convince the United Kingdom to stay in the EU, the Commissioner said that these were “two completely separate issues” . Even so, the Commission feels that the City could be able to provide expert guidance on securitisation.
The document identifies more than 30 areas for action, ranging from more mature issues such as breathing new life into the market for securitised products and the revision of the “prospectus” directive, right the way through to those for which major progress remains hypothetical, such as tax harmonisation or insolvency law. Once the opinions of the stakeholders has been gathered, the Commission will draw its conclusions from the consultation at a European conference to be held on Monday 8 June, with the aim of finalising an action plan for presentation in September, aiming to lay the foundations for the CMU. The European finance ministers will hold a guideline debate on the capital markets union at their informal meeting in Riga on 24-25 April.
Securitisation. On the subject of securitisation, which suffers from a poor reputation due to the role it may have played in the spread of the financial crisis in 2008 (see EUROPE 11246), Lord Hill said that the consultation aimed to build “a market where highly transparent, simple and standardised securitisation instruments can help free up banks' balance sheets so they can lend to households and businesses”. “Our intention is not at all to revive the bad old days of the sub-prime instruments and the unhealthy practices of the past”, he stressed, noting the majority opinion within the member states, the Commission and the central banks, that revitalising securitisation is desirable. By allowing banks to group the loans it makes together (mortgages, consumer credit, corporate lending) into securitisation instrument portfolios to offer to investors, securitisation facilitates liquidity flows and the transfer of risks.
In its specific consultation document on securitisation, the Commission hopes to find out the opinions of the stakeholders on the need for clear definitions for the criteria allowing a securitised product to be classed as simple (e.g.: underlying assets of the same category, restrictions on the securitisation of derivative products, ban on re-securitisation), transparent (e.g. respect of obligations regarding publication of information), standardised (e.g. true sale). The question of the level (currently 5%) of the securitised credit which issuing European banks are obliged to hold on their balance sheet, in line with the reform of the prudential rules for the banking sector in force since 2010 (see EUROPE 9858 and 9751), is also raised. The EU is the only jurisdiction to apply this rule across the board, whilst a similar provision in the United States covers just 10% of the securitisation market due to the very many possible exemptions, the Commission notes.
“Prospectus” directive. A second specific consultation concerns the revision of the directive requiring companies wishing to issue instruments on the regulated markets to publish a prospectus aimed at investors and containing information on the product and the issuer. Lord Hill explains that the “objective is to take a hard look at whether we can remove unnecessary administrative burdens for companies raising capital across the EU without jeopardising investor protection”. The twenty or so questions this raises can be divided into three separate areas: - the scope (which transactions would require the publication of a prospectus); - the content (is a simplification of the data required possible for certain products/investors?); - checks on compliance to be carried out by the competent authorities.
The time is no longer right for the Commission to trigger a new legislative avalanche to set the CMU in place, contrary to what was done in response to the financial crisis of 2008. It must now enforce the rules already adopted and assess their impact in terms of growth and jobs. If legislation proves necessary to improve how the market is operating, we will propose it, but we will also look at what other types of instrument will help to move forward equally efficiently, said a senior Commission official, referring to the example of the recent initiative of the industry to promote the private investment markets in the EU. (Mathieu Bion)