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AFME Capital Markets Union


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AFME Capital Markets Union

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AFME Capital Markets Union

  1. 1. Association for Financial Markets in Europe 1 Goals for a Capital Markets Union 26 November 2014 Robert Fergusson MD Institutional & Corporate Relationships, AFME
  2. 2. 2 Capital Markets Union • The new European Commission, under the presidency of Jean Claude Junkers, has identified Capital Markets Union (CMU) as a flagship initiative for its five-year mandate. This reflects a welcome tilt in EU policy towards a Growth agenda. • The previous Commission focused on the reform of the system for financial regulation, in Europe and globally. Promoting growth was, understandably, not always the top priority • The economic case for CMU is that it will:  create larger and more efficient capital markets;  strengthen financial resilience in Europe; and  support transmission of monetary policy • The process needs to examine legislative and regulatory issues affecting EU capital markets, market impediments and business practices in order to identify the key steps forward
  3. 3. 3 The legal base for CMU • Since the 1970s, the EU has adopted a number of legislative measures which have, directly or indirectly, sought to promote a CMU. • These include:  liberalisation in banking and insurance;  legislation on company law, accounting, audit and credit ratings;  legislation on listing, prospectus requirements and market abuse;  reforms to liberalise capital movements and remove barriers to establishing in other countries;  the rulebook approach pursued in MiFID, EMIR and AIFMD; and  the development of pan-European supervisory authorities (eg EBA and ESMA). • We will encourage the Commission to look at the existing statutes to see what has worked well, and what has not
  4. 4. 4 The economic base for CMU • The EU could define its ambitions for a CMU by reference to the most developed and larger marketplaces in economies around the world • Comparison of EU and U.S. capital markets shows that:  around 25% of debt funding in Europe is provided by the capital markets, compared to around 80% in the US;  the overwhelming majority of SME funding in Europe is provided by the banking system, unlike the U.S.; and  the stock of listed equity in the US is around 120% of GDP in the U.S., compared to c.75% in Europe • How much of the gap to the U.S. can be closed? Some basic structural differences will always remain – e.g. language, taxation, govt policy
  5. 5. 5 An outcomes-focused project • We will encourage the Commission to consider setting hard targets reflecting clear economic ambitions for CMU, e.g.  increasing the capital markets’ share of debt financing;  increase Europe’s stock market capitalisation;  growing the share of capital market funding to SMEs. • There should be a strategic approach to policy development – with a very small number of new regulatory proposals • On each issue where action is required, there should be detailed analysis of the appropriate form of intervention, e.g.:  industry-led initiatives;  review of existing EU regulation;  action by Member States and regulators; and  new EU legislation.
  6. 6. 6 Three pillars of capital markets union • To achieve the targets put forward, AFME proposes that the work programme for CMU is organised under three pillars with complementary objectives:  Issuance – developing more efficient and liquid markets for issuance of financial instruments;  Investment – harnessing long-term savings to promote investment;  Infrastructure – promoting open, integrated market infrastructure. • The end-user’s perspective must be embedded in all CMU initiatives – the goals are lower costs, greater choice and market confidence • For each objective we propose a limited number of high impact interventions, as follows:
  7. 7. 7 Three pillars of capital markets union 1. Issuance of capital market instruments (the supply side) • Fixed income:  Reduce the regulatory penalisation of securitisation  Develop a pan-European market for private placements  Improve the European infrastructure finance market;  Harmonise the regimes for covered bonds. • Equity:  Development of a pan-European takeover code;  Review the disclosure requirements for IPOs and the ongoing reporting regime  Consider targeted tax deductions for SME equity;  Harmonise withholding taxes on cross-border dividend payments.
  8. 8. 8 Three pillars of capital markets union 2. Investment in the capital markets (the demand side) • Greater product choice for investors • Harmonisation of EU insolvency rules • Appropriate calibration of the capital framework for institutional investors so as not to discourage discouraging long-term investment • Maintaining a viable model for paying for capital markets research (of particular concern to SMEs raising equity)
  9. 9. 9 Three pillars of capital markets union 3. Infrastructure for capital markets issuance and trading • Integration of clearing and settlement infrastructures • Clarify securities law relating to collateral ownership when trading cross-border • Removal of barriers to cross-border collateral use, including standardising forms of collateral, where appropriate • Affordable access to real-time market data, including a European Consolidated Tape to give reliable post-trade data
  10. 10. Supervisory convergence and the role of ESMA • CMU should not mean strengthening ESMA at the expense of national supervisors 10 • Explore governance reforms aiming at greater independence and effectiveness for all European Supervisory Authorities (ESAs) • Develop a single European rulebook, based on principles of clarity, efficiency, openness, transparency and evaluation • Consider improving the funding arrangements for ESAs
  11. 11. 11 International dimension to CMU • A guiding principle for CMU initiatives should be promoting open and attractive EU markets for inward investment • ...while maintaining investor protections and a level playing field between EU and international players • We would emphasise the following priorities:  consistent approach to third country equivalence across different EU legislation;  strengthen framework for global regulatory coordination;  reduce reliance of public and private sector issuers on local funding markets.
  12. 12. 12 CMU and Growth • Supporting growth is a key element of the EU’s policy agenda. The Commission’s 2013 Green Paper on long term finance was followed by the Communication on Long Term Financing earlier this year, leading into the CMU initiative • President Juncker’s €315bn Investment Plan, announced on 27th November, is the latest development in this broad agenda • In 2014, AFME has been pursuing growth-related initiatives in four areas, following up on recommendations from our 2013 report, “Unlocking Finance for European Growth”, published with Oliver Wyman
  13. 13. 13 AFME Growth Initiatives • Boston Consulting Group (BCG) has been engaged to prepare a new Growth Report, based on interviews with global investors, to identify key differences between US and EU capital markets, leading to insightful recommendations for improving the ability of EU capital markets to finance growth • AFME is a member of a cross-industry working group producing a set of guidelines and documentation for a pan-European private placement market, targeted at unlisted mid-size corporates • An AFME-ICMA working group, including banks, infrastructure investors and law firms, is producing a practical guide on how to access capital markets to finance infrastructure projects • An AFME working group, including banks, rating agencies and law firms, is preparing a guide on sources of finance for European SMEs, both loan and equity finance, with details of EU and national support programmes.
  14. 14. 14 Conclusion The rewards for delivering CMU will be substantial: • Deeper, more diverse capital markets • More stable financial system • New businesses, new jobs and new investment in Europe
  15. 15. AFME represents a broad range of European and global participants in the wholesale financial markets. Its members comprise pan-EU and global banks as well as key regional banks and other financial institutions. AFME advocates stable, competitive and sustainable European financial markets that support economic growth and benefit society. 15 London Brussels St Michael’s House Rue de la Loi 82 1 George Yard 1000 Brussels London EC3V 9DH Belgium United Kingdom Tel: +44 (0) 20 7743 9300 Tel: +32 (0)2 401 8724