Steps on the way to the capital markets union

05.10.2015 Steps on the way to the capital markets union

On 30 September 2015, the European Commission presented the Action Plan for the Capital Markets Union.

Mantas Gofmanas, Senior Associate of TGS Baltic, says that though free movement of capital is one of the fundamental principles of the EU, it is not properly implemented in capital markets for many reasons (different regulatory requirements in the Member States, taxation aspects, etc.). The current regulatory environment of the EU and its individual Member States is not yet fully developed here and is fragmented. Besides, though the size of the EU economy is comparable to that of the USA, the scope of the European stock markets is less than ½ of the relevant US markets, and the markets of debt securities make less than 1/3 of the relevant US markets.

Using the possibilities created by the Capital Markets Union, the European Commission inter alia wants to break down barriers that are blocking investments into businesses (including small and medium-size enterprises (SMEs)), as well as into infrastructure and other long-term projects that need finance and to ensure as efficient system of distribution of these funds (the investment chain) as possible, also diversifying possible sources of funding.

The document prepared by the European Commission points out the main obstacles in the way towards creation of the really functioning single EU capital markets across all 28 Member States, that prevent cross-border investments and are a hindrance for businesses (including SMEs) or infrastructural or other long-term projects to get finance, it also introduces actions, the implementation of which by 2019 would result in the Capital Markets Union.

Several directions to be taken in order to create the single Capital Markets Union are as follows:

1. To give more financing alternatives for Europe’s businesses and SMEs by: (i) modernising regulation related to prospectuses of securities issues in order to create more favourable conditions for companies to offer their securities to the public and to have them admitted to trading on a regulated market, also reducing related costs, (ii) finding ways to increase liquidity of debt securities markets, (iii) preparing instruments for better private equity funding on the EU scale, (iv) promoting and properly regulating innovative or under-used business financing forms (crowd-funding, private placement, etc.);

2. To encourage investment and related alternatives for retail and institutional investors by: (i) increasing choice of financial products and insurance services, competition of service providers on the EU scale, also ensuring cross-border provision of these products and services, (ii) creating an effective and competitive single EU market of pensions of pillar III;

3. To facilitate cross-border investments in order that companies and infrastructural or other long-term projects could easier obtain necessary funds on the EU scale, removing regulatory and taxation obstacles created by Member States, etc.