The High Level Forum on the Capital Markets Union (CMU), set up by the European Commission last October (see EUROPE 12346/26), delivered its final recommendations on Wednesday 10 June.
The 100-page report presents a “new vision” for the CMU that will guide the Commission’s future work. The report points out that completing this work has become more urgent than ever with Brexit and, recently, the Covid-19 pandemic.
This is not a “menu” of options, said Forum President Thomas Wieser in a live Twitter chat, but measures that are “mutually reinforcing and dependent on each other”.
However, if these ideas are not to remain mere recommendations, there will need to be an “explicit high-level agreement”, supported by the President of the European Commission, the President of the European Council and the 27 Member States, he warned. So the battle is still far from being won.
Reinforced, high-quality, but not centralised supervision
According to the Forum, it all starts with good supervision. “High-quality, well-resourced and convergent supervision based on a single rulebook is a key pre-requisite for a well-functioning Capital Markets Union”, the report indeed indicates.
To this end, its authors recommend strengthening, by 2021 at the latest, the horizontal powers of the European Securities and Markets Authority (ESMA) and the European Insurance and Occupational Pensions Authority (EIOPA), in particular with regard to crisis management and the prohibition of the marketing of certain financial products.
Both authorities will also need to be adequately resourced and undergo governance reform, the Forum explains. In this respect, the report proposes to draw inspiration from the governance framework of the European Central Bank (ECB). The current management board of each authority would be replaced by a new “Executive Board” composed of a Chairman, a Vice-Chairman and four independent members who would be appointed by the EU Council after confirmation by Parliament.
It will also be necessary to further harmonise and simplify the financial legislative framework by moving from Directives to Regulations, according to the report, while ensuring that Directives that work well are not compromised by this transformation process.
Forum members, however, were unable to agree on the issue of direct supervision. The internal differences were so great that the report does not make any recommendations in this regard.
Indeed, some members consider that capital markets are still too fragmented to allow for centralised supervision at European level, with national supervision allowing better account to be taken of national specificities. “There is no market failure that would justify a radical overhaul of the current supervisory architecture”, the report says.
Conversely, other members - supported by the Chairman and the three Vice-Chairmen of the Forum - believe that the establishment of a single European supervisor is essential for the construction of a truly integrated and efficient European capital market. In their view, additional direct supervisory responsibilities should be assigned to ESMA and EIOPA.
This disagreement disappointed MEP Sven Giegold (Greens/EFA, Germany). Without progress on this issue, the group’s other recommendations remain “piecemeal”, he said in a statement.
Sixteen other recommendations
The report contains an additional 16 key recommendations aimed at improving corporate finance, market infrastructure, individual investor engagement and barriers to cross-border investment.
The report identifies tax regimes and insolvency proceedings as major obstacles to cross-border investment. It therefore suggests that the Commission should submit a legislative proposal by 2022 for minimum harmonisation of certain elements of the main laws on corporate insolvency. It also puts forward the idea of a legislative proposal to introduce a standardised system of relief at source of withholding tax.
It should be noted that the Forum suggests that the Commission should present, before the end of 2021, a series of targeted amendments to improve the EU framework on securitisation which, if properly designed, would allow for additional investment opportunities.
To ensure that businesses can fully exploit the potential of crypto-assets, the Forum also urges the Commission to amend existing legislation by the end of 2020 and to propose new legislation by the end of 2021.
In addition, the report recommends that the Commission mandate ESMA by mid-2021 to set up a “European Single Access Point” which would bring together all financial and non-financial information published by companies in one place. A recommendation welcomed by EFAMA and PensionsEurope.
Finally, the Forum recognises that pension adequacy is likely to remain a major issue in the future. Thus, it underlines the importance of making the Pan-European Personal Pension Product (PEPP) a real success (see EUROPE 12440/16). And it recommends that the Commission develop a scoreboard to measure Member States’ progress towards adequate and sustainable pensions.
The ball is now in the Commission’s court. Interested parties have until 30 June to comment on the report. The Forum’s final recommendations, together with the responses received from the public consultation, will serve as a basis for the Commission to draw up its new Action Plan on CMU, which is expected to come out in autumn.
See the final report: https://bit.ly/2Yktn4r (Original version in French by Marion Fontana)