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Markets and Securities Services |
Europe
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While every aspect of the CMU, especially the
three new areas of focus, will be challenged
by the UK’s withdrawal from the EU, the CMU
framework provides a fairly comprehensive
opportunity to maintain links with the UK after
it leaves the EU post-Brexit concerning market
activities where the EU is most dependent
on the UK’s investors, infrastructure and
intermediaries, for example. Whether or not this
opportunity will be seized is another matter.
Wooing European Parliament
The CMU’s progress reveals an enthusiasm gap
between the Commission and the other two
EU governing bodies, especially Parliament.
There appears to be a philosophical divide
as to the benefits and costs of more robust
capital markets, primarily the revitalisation
of activities that pose investor protection
concerns. While the EU securitisation market
performed much better than in the US (where
it was the main contributor to the financial
crisis), the European public’s aversion appears
to have influenced Parliament’s response to the
proposed regulations. While not backing down
either from the securitisation package or from
the general principle that the balance between
bank and capital market finance needs to be
recalibrated, the Commission appears intent on
demonstrating that growing capital markets can
facilitate socially worthwhile ends.
Specifically, the Commission will be convening
a high-level group to come up with an
operationally feasible sustainable finance
agenda. At this stage, it is unclear what the
group’s findings will be and whether it will
advocate any EU-wide regulation of the market,
such as creating a regime for EU green bonds.
The EC’s FinTech workstream is further along, as
it recently published a consultation seeking input
on investor-protection provisions, the impact of
regulatory divergence for crowd-funding and
other areas and cross-border impediments to
technological access (cloud computing), among
others. The Commission seems especially focused
on whether fintech activity should be regulated
as a discrete area or on similar terms to other
entities that perform like services. The enthusiasm
stems in large part from an understanding that
digital solutions can facilitate integration by
reducing the meaningfulness of physical distance,
and can support some of the CMU’s other specific
agendas such as better matching investors and
investment opportunities across the EU.
Venture-capital package
The Commission has targeted venture capital (VC)
as an under-utilised source of funding and expertise
for firms looking for equity investment. VC can
provide companies with deeper capital pools than
angel investors can provide (although the CMU also
looks to increase the profile of angel investors)
and can also leverage their market experience
on behalf of their acquisitions. The Commission
seems to view the interests of VC firms and their
investments as broadly aligned, as the various
exit ramps for VC investors are typically scenarios
where the other underlying shareholders will
benefit — such as through an IPO or private sale.
As in other areas, the Commission views the
EU VC industry as too parochial, whereby firms
tend to have a limited geographic reach in
terms of inbound and outbound investment.
When compared with the US, this results in
VC funds that are much smaller and unable to
achieve the same economies of scale.