Global Trustee and Fiduciary Services News and Views Issue 48

Global Trustee and Fiduciary Services News and Views

| Issue 48 | 2017

Furthermore, the CMU’s pro-growth agenda

incorporates a review of post-crisis regulation

to rationalise market stabilisation efforts. This

review has identified streamlining reporting

requirements — such as those under PRIIPs,

MIFID II, UCITS, etc. — as a likely initiative that

will benefit many asset managers.

Mixed success

In certain areas, the CMU has achieved some

successes that may have been surprising at the

outset. Specifically, the EU institutions have

taken some steps to intervene in areas that

have traditionally been the province of domestic

law but that are necessarily interconnected

with capital market formation. For example, the

Commission proposed a corporate tax offset

allowance for equity issuance to address the

“debt-equity” bias whereby companies seek

debt over equity financing because of perceived

tax benefits. Also, the Commission has issued

proposed insolvency rules for preventative

restructuring frameworks. Recently, it published

a consultation to assess a potential framework

for European personal pensions, which would

try to facilitate the development of cross-border

products that have historically been distributed

exclusively within national borders.

However, inter-institutional inefficiencies

have stalled many Commission initiatives in

trilogue discussions where, in many instances,

Parliament and Council have become

roadblocks. For example, the Commission

proposed a regulatory framework for “high-

quality” securitisations with reduced capital

requirements simultaneously with the release of

the wider CMU action plan in Q3 2015. But, this

regulation has gone through complex trilogue

negotiations, as Parliament has fundamental

objections to the underlying rationale of the

regulation, specifically expanding Europe’s

securitisation market. Similarly ambitious

agenda items, such as reducing credit-risk

capital reductions for infrastructure exposure

and reducing capital requirements for credit

unions more broadly, also await approval by

Parliament and Council.

A pivot to address apathy and disruption

Such uneven progress has been exacerbated

by the surprising result of the UK’s referendum

and the resulting diversion of attention and

resources to address Brexit, along with a

continuingly expansive post-crisis regulatory

agenda. Furthermore, firms appear to be so busy

grappling with the accumulated compliance and

operational burdens of existing and upcoming

regulatory requirements, such as MIFID II, that

they have failed to think strategically about the

potential benefits of the CMU and how to best

engage with the EU institutions.

To address the accumulated concerns

of Brexit, an uneven rollout, and tension

within the EU institutions, the Commission

published a communication in September 2016

reaffirming its commitment to the CMU. While

fundamentally affirming the assumed trajectory,

the communication also signalled an important

pivot with the intent to re-energise the CMU

agenda. The pivot focuses explicitly on three

new priority areas: sustainable finance, FinTech

and supervisory convergence by the European

Supervisory Authorities (ESAs). However, it also

obliquely referenced Brexit, which will be the

critical subtext to whether or not the CMU as

initially envisioned is achievable.

Asset management was always meant

to play an important role in the CMU

and, as a result, most of the CMU work

streams have the potential to increase

the industry’s EU footprint either

directly or indirectly.