Having proposed a temporary relief of certain banking prudential requirements to facilitate lending (see EUROPE 12476/8), the European Commission is now tackling the capital markets that it wants to further mobilise to help European companies recover from the economic crisis caused by the Covid-19 pandemic (see EUROPE 12514/5).
To this end, on Friday 24 July, it presented a series of targeted amendments to EU financial regulations, which it hopes will encourage more investment in the economy, allow rapid recapitalisation of businesses and strengthen the ability of banks to finance the recovery.
Although the horizons are very varied, the measures selected meet three common criteria, as a Commission official explained: - relate to an area where it has been identified that there are costs and resources that could be redeployed to ensure business continuity; - do not diminish investor protection; - be support with enough consensus that an agreement can be quickly enacted.
The European Commission hopes that the whole package will be adopted by the end of the year. "Everything was pre-negotiated", the official said, adding that what could not be agreed in the Member States' expert group had been left out of the package.
A temporary short form prospectus
The Commission proposes first of all to amend the Prospectus Regulation to create the "Union's recovery prospectus", which would be a short form prospectus, "easy for issuers to draw up, easy for investors to read and easy for national competent authorities to monitor". This scheme would nevertheless be temporary and would expire 18 months after the date of application of the proposed Regulation.
The new prospectus would be only 30 pages long, instead of the hundreds that usually make up prospectuses, and the time frame for its approval would be shortened to 5 business days to allow issuers to raise capital quickly. It could be used by issuers that have been listed for at least 18 months and would benefit from the EU passport mechanism.
The Commission also suggests easing certain requirements for financial intermediaries, such as commercial and investment banks, with regard to the "supplement" that must be published in addition to the prospectus.
Recognising the active role played by credit institutions in supporting businesses in need of financing, the Commission also proposes, for a limited period of 18 months, to raise the threshold for exemption from the prospectus requirement for certain types of offers for these institutions to €150 million (instead of €75 million).
See the proposal for a Regulation: https://bit.ly/2ZWXZe5
Relief for experienced investors
Other Commission proposals include a proposal to reduce certain administrative burdens on experienced investors in business-to-business relationships under the Markets in Financial Instruments Directive (MiFID II). It proposes, for example, that information should no longer be provided on paper to professional customers but electronically, except to retail customers who expressly request it.
In addition, according to the text, investment firms would no longer be required to carry out certain product governance assessments for certain types of products considered "non-complex", and "suitable for all types of clients", including retail clients.
The Commission also wants to increase the visibility of European businesses, particularly SMEs, among investors in order to encourage investment to promote economic recovery.
For example, to encourage research activities on SMEs, it proposes to allow investment firms to make a single payment for brokerage and research services on small and mid-cap issuers and fixed-income instruments.
If the single payment option is chosen, then the current requirement to establish a research expense account or issue separate invoices for research work would not apply. Instead, the investment firm would be required to contract with the research service provider and inform its clients of the single payment.
Other targeted amendments to the MiFID II Directive concern the rules on derivatives where the underlying is a commodity such as gas or electricity. "The coronavirus crisis has caused a shock in energy demand, which has been followed by unusual price and volume variations", the Commission explains. So in order to reboot euro-denominated emerging energy markets, it proposes a relaxation of the position limit regime for these derivative contracts.
See the proposal for a Directive: https://bit.ly/2OUQs9y
Make the use of securitisation easier
The third pillar of this package consists of amendments to the Regulation on securitisations and the Capital Requirements Regulations (CRR) so as to facilitate the use of securitisation - an instrument that allows banks to pool loans, convert them into securities and sell them in the capital markets.
The Commission is initially proposing several amendments, on the basis of an opinion from the European Banking Authority (EBA), to remove regulatory obstacles to the securitisation of non-performing exposures, which would have the effect of allowing the banks to lend more and lighten their balance sheets.
Second proposal: to extend the framework of simple, transparent and standardised securitisations (STS) to on-balance-sheet synthetic securitisations, which is a type of securitisation in which the originator retains ownership of the underlying exposures, as opposed to traditional securitisations, where these exposures are normally sold to another entity.
The Commission believes that it is "an important tool for managing the risks associated with bank lending to businesses, especially SMEs".
When the new framework for 'STS' securitisations was adopted in 2017 (see EUROPE 11908/30), this extension to on-balance-sheet synthetic securitisations was already envisaged, explained a Commission official, but had been abandoned due to the lack of available data.
"Today, after a thorough analysis from the EBA, we are convinced that we have the evidence that these securitisations are performing as well as traditional securitisations and that we can therefore extend this regime to them", he added.
See the proposed regulation on securitisation: https://bit.ly/30GWLTr and on the 'CRR' regulation: https://bit.ly/2CAfhoL (Original version in French by Marion Fontana)