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Markets and Securities Services |
Europe
8
Focus on supervisory, but less on
regulatory, convergence
So far, a number of themes and tensions have
emerged during the CMU’s progression. The
most important has been the debate on how to
best craft regulatory coherence. While perhaps
not a thesis that everyone would agree with, the
Commission has always advocated the idea that
capital markets are strengthened by common
rules across the market. The CMU is premised
on the idea that a top-down political initiative
can shape capital markets in a way that market
forces in isolation could not, and continues to
explore whether common EU rules would be
preferable to Member State divergences.
Such an argument is certainly supported by the
example of the US, whose asset management
sector and securities markets expanded
dramatically when divergent state rules were
overridden by common federal statutes.
The 1930s and early ’40s saw the US create
its modern capital markets structure, with
comprehensive rules for securities offerings,
trading, brokerage, mutual and hedge funds,
and asset management more broadly.
While political realities and the scale of
regulatory amendments precluded such an
ambitious federalisation of EU capital market
regulation, nonetheless the CMU was proposed
with the intent of exploring increased EU
regulation (while diminishing Member State
discretion). So far, though, the record has been
mixed. In a number of key areas, the Commission
has pulled its punches and concluded that
voluntary and private sector measures built
on best practices would be better than new
regulation. Recent examples include approaches
to covered bonds and private placements.
Of course, with as large and complex a project
as the CMU, the picture is not so simple as a
uniform decision to pull back from common
regulation. There is a high chance that the
CMU workstreams concerning barriers to
capital flows and distribution of funds will lead
to amendments of the AIFMD and UCITS, as
discussed above. Likewise, significant regulatory
changes to prospectus rules, securitisation and
VC vehicles have already been proposed and are
at various stages of the EU legislative process.
Even more significantly, the Commission is
looking to expand the powers of the ESAs. A
recent consultation explores changing the ESAs
structure and decision-making processes to
The Commission observes that while the
cumulative costs may not be very much in absolute
terms, the research effort expended and regulatory
uncertainty acts as a significant impediment. Also,
the EU could conceivably take the lead in further
defining the definitional parameters of marketing
vs pre-marketing vs reverse solicitation, but it
appears that this will be left to national legislatures.
The proposed EuVECA amendments, already
discussed above, provides a potential template,
as the proposed rules prohibit host-Member
State authorities from imposing any additional
requirements or administrative arrangements
for marketing nor require pre-approval by the
host State of marketing communications.
Outside regulatory divergence, the Commission
has also identified withholding-tax practices
as another important impediment. Although
bilateral tax treaties attempt to address double-
taxation of cross-border investment by the
provision of tax refunds, unfortunately, investors
tend to have difficulty securing these refunds due
to the complex documentation requirements that
are difficult to complete and demand resources
to understand diverging Member State rules.
Currently, the Commission is attempting to
address these complications with a collection of
best practices, with the expectation that each
Member State would then be expected to make
commitments around the implementation of
these best practices. It will also use the best
practices to inform a more comprehensive code
of conduct addressing efficient withholding-tax-
relief refund procedures.
Given Member State prerogatives on taxation,
such voluntary initiatives are probably the most
politically feasible approach.
The main areas that the Commission is looking at include:
Different marketing communication requirements
and divergent standards on review and oversight of
communication content.
Varying administrative requirements for funds marketed
to retail investors, such as requiring that facilities for
redeeming, subscribing and receiving payments, which
need to be based in the local jurisdiction.
Regulatory fees applied when notifications are made
to market cross-border.