One year after unveiling a new action plan to strengthen capital markets in the European Union (see EUROPE 12567/3), the European Commission, on Thursday 25 November, tabled four legislative proposals to make the Capital Markets Union (CMU) a reality, while the banking sector still accounts for 80% of the financing of the real economy.
“Today’s proposal will attract and protect investors, improve their access to company and trading data, making easier for small businesses to find funding, (...) boost Europe global competitiveness as a place to invest and to do business”, the Commission’s Executive Vice-President, Valdis Dombrovskis, told the press.
“We are also announcing today more ambitious CMU initiatives to come in 2022 on access for companies to public markets, open finance, financial education and insolvency”, said the European Commissioner for Financial Services, Mairead McGuinness.
To see the Communication: https://bit.ly/30SalHr
To see the legislative package: https://bit.ly/3xtY9ZF
ESAP. The Commission is suggesting that the European Securities and Markets Authority (ESMA) should set up a European Single Access Point (ESAP) by the end of 2024. This will centralise, on a single digital platform, all the regulatory information that financial players must provide on their activities and products to both the market and supervisors (see EUROPE 12836/6).
Managed by the European authority, this service will be a “public good”, noted an expert from the EU institution.
The proposal will not introduce “new reporting obligations” for companies, Mr Dombrovskis had stressed the day before in an interview with some media outlets, including EUROPE. He had pointed out that SMEs will be excluded from the scope, but that they will be able to provide data on a voluntary basis to increase their visibility to investors.
This concerns the reporting obligations contained in 21 regulations and 16 directives. The economic operators concerned will also be able, if they want, to communicate on their activities in relation to sustainability issues.
See the legislative proposal: https://bit.ly/3nYKQ0p
MiFIR. A targeted revision of the ‘MiFIR’ Regulation (600/2014) will aim to make instrument markets more transparent and competitive (see EUROPE 12839/2).
“We want all investors to have access to trading data in capital markets (...) from 476 EU exchanges and trading venues in a consolidated tape”, said Mr Dombrovskis.
ESMA’s establishment of this consolidated tape will provide financial actors with an overview of market conditions in a timely manner to make informed choices. Exchanges and platforms will be responsible for providing data on prices and volumes of securities traded (shares, listed funds, bonds, derivatives) in return for adequate remuneration.
By ‘democratising’ information on stock market transactions, this new service will reduce the advantage enjoyed by large operators over smaller managers, banks and financial intermediaries who do not always have the means to afford the services of private data aggregators, the Commission stated.
In order to create a more level playing field between securities trading markets, the Commission also wants to increase transparency. “We believe in more transparency, not less”, said Ms McGuinness.
In particular, the double threshold (at the level of a trading platform, at the EU level) limiting ‘dark trading’ will be abolished and only the maximum limit at the EU level will be maintained, which will be reduced from 8 to 7% of the total trade in a single financial security.
The ‘payment for order flow’ system, through which some investment banks pay brokers for their orders, will also be prohibited. “Financial actors should find the best way for executing clients’ orders. It should be based on merit and not on compensations intermediaries are receiving”, said Mr Dombrovskis.
To see the ‘MiFIR’ proposal: https://bit.ly/3nOcTiT
ELTIFs. The Commission also proposes a targeted amendment to Regulation (2015/760) to boost the use of European Long-Term Investment Funds (ELTIFs), of which there are only 57 in four Member States (see EUROPE 12837/8).
The main proposals concern: - the extension of the assets eligible for investment by ELTIFs; - the removal of barriers limiting retail investor participation in ELTIFs, such as the initial entry ticket of €10,000; - increasing the exposure of retail ELTIFs to 20% of financial instruments issued by, or loans to, a single eligible company.
To see the legislative proposal: https://bit.ly/3FSqT1n
AIFMD. Lastly, the ‘AIFM’ Directive (2011/61) governing alternative investment funds will be amended in a targeted manner in order to build on a proven harmonised regulatory framework (see EUROPE 12835/9).
In particular, the interests of professional investors accessing these funds (venture capital, real estate, commodity funds, etc.) will be better protected by ensuring that managers delegating their functions to third parties adhere to prudential standards applicable throughout the EU.
“It (the Directive) works well so we’re not making a major overhaul”, Ms McGuinness said. She added: “Today, managers can delegate functions to third parties. We need to understand that this delegation is what it is, and that it is not allowing for ‘letter-box’ entities in the EU. So, the minimum is to have two people employed in the EU”.
For ‘loan-originating’ funds, provisions will be introduced to ensure that their managers implement credit risk management procedures and regularly monitor their portfolios.
To see the legislative proposal: https://bit.ly/3cTMSYZ
Programme for 2022. Next year, the Commission is already planning to present a series of initiatives in the following areas: - a legislative proposal to cut red tape for companies raising funds on listed markets (Q2); - on the basis of a review of the Payment Services Directive 2, the Commission will explore how data could be shared and reused by financial institutions to create new services in line with EU ‘open finance’ rules; - a strategy to enable supervisors to better collect and use this data to carry out their duties; - publication of a competency framework to improve citizens’ financial literacy; - an initiative to harmonise targeted aspects of the corporate insolvency framework and procedures (Q3 ). (Original version in French by Mathieu Bion)