The document summarizes the European Commission's Green Paper on the Capital Markets Union. It discusses how the Capital Markets Union aims to diversify and stimulate Europe's financing environment by improving the efficiency and functioning of its capital markets. Currently, Europe relies too heavily on bank financing compared to countries like the US which have more developed capital markets. The Green Paper seeks input on a wide range of issues to develop Europe's capital markets and move the EU model closer to that of the US over time.

1. 1
2015
FEBRUARY
Unblocking the EU’s capital markets:
The European Commission’s Green Paper on the Capital Markets Union
A Cicero Group analysis

2. 2
Although integrating Europe’s capital markets is an ongoing
policy objective, the importance of doing so was brought into
sharp relief by the slow pace at which Europe has recovered
from the financial crisis. As ECB Executive Board Member,
Yves Mersch put it, “The euro area economy is like a plane
flying on only one engine: bank financing.
To increase the speed and stability of the plane, it would be
good to add a second engine: capital market financing”. The
Capital Markets Union can therefore be seen as an effort to
diversify and stimulate Europe’s financing environment by
improving the efficiency and functioning of its capital markets.
The reliance on bank financing draws inevitable comparisons
with the US, which has a more diverse financing environment
and has recovered from the crisis far more quickly. Mid-
size companies in the US receive approximately five times
more funding from capital markets than their equivalents and
European companies are currently going to the US to access
private placement markets rather than stay in the EU.
Rates of saving are twice as high in the EU as the US,
suggesting that EU markets are less effective at channelling
the vast sums of savings into productive forms of investment.
Given that European savings accounts for 20 per cent of
Europe’s GDP this is a significant sum that can be put to use.
European officials are quick to point out that the EU is not
the US but it is clear that one of the primary objectives of
the Capital Markets Union is to move the EU model in that
direction.
The moniker of “Capital Markets Union” is also slightly
misleading for its similarity to the Banking Union. In contrast
to Banking Union, the Capital Markets Union will apply to
all 28 Member States and doesn’t automatically assume a
push towards central supervision of capital markets. This
hasn’t prevented suggestions from figures such as Jeroen
Dijsselbloem, President of the Eurogroup and Roberto
Gualtieri, Chair of the ECON Committee that ESMA should
take on a greater supervisory role – although for now such a
move seems unlikely.
In contrast to the clear policy objective and actions contained
in the Banking Union, today’s Green Paper suggests a
policy response as broad and complex as capital markets
themselves. A set of short term actions gives way to a wide
ranging mix of discussion, suggestions and questions.
The ambition of the Capital Markets Union is evident
throughout the paper and responses are sought on issues
that have been frustrating the industry and policymakers for
years. The Commission asks for examples of best practice
on how to develop risk capital markets or how to encourage
institutional investors to invest in a wider range of assets.
There are questions on how create a more successful private
equity and venture capital regime after the lack of interest in
the specific EU venture capital and social entrepreneurship
funds.
A review of the prudential regime for insurers is also
promised to encourage investment in complex and long term
infrastructure investments.
Cicero analysis - New phrase but old idea
The phrase “Capital Markets Union”, may be new but
the idea is not. As our timeline shows, better integration
of Europe’s capital markets is a policy objective
intertwined with the creation of the Single Market, an
objective rooted in the 1957 Treaty of Rome.
A mere 58 years later, Jonathan Hill has taken office
with great expectations that in the short and medium
term (the next five years), critical barriers to more
integrated capital markets will be removed and a more
strategic plan to remove longer term barriers will be
developed. Unlike other Commissioners then, Lord Hill
will have a quantifiable key performance indicator – the
establishment of a Capital Markets Union by 2019.
Treaty of Rome (1957)
Founding treaty establishing Free Movement of Capital
Single European Act (1987)
Provides impetus towards integration of capital markets
Treaty of Maastricht (1992)
Free movement of capital becomes a Treaty right
Giovannini Report (2003)
Identified 15 barriers to integrated financial markets
Single Market Act I/II (2011/12)
Renewal of EU Single Market to boost growth
Contents
• Capital Markets - EU vs US 4
• Europe’s capital markets 5
• Next steps 6
• The Green Paper dissected 7

3. 3
There is a real sense from the Commission that if a good
idea can be presented to them then they will rigorously
explore whether it can be made to work.
However, the success of the Capital Markets Union
project could be limited by the fact that it is in reality,
new momentum for tackling old problems. European
policymakers have been trying to diversify funding and
integrate capital markets for many years. Increasing the
range of assets in which institutional investors can safely
invest for example is not something that can be achieved
through a simple legislative proposal.
Barriers to capital market integration are also complex
and often impinge on national competences. National
insolvency laws, differing tax regimes and pension
provision all impede the ability of funds to be accumulated
and channelled cross-border. These are all complicated
areas which for many different reasons, have remained
divided along national lines despite years of integration in
other sectors.
Consequently the Green Paper represents a process
that needs to be both ambitious and realistic. There is
a clear demand for ideas from the Commission and a
sense of willingness to tackle difficult issues. A valuable
role could be played by the newly established unit for
the Capital Markets Union to coordinate its actions and
proposals across multiple teams and directorates – energy
infrastructure investment being an obvious example.
Jonathan Hill has until the autumn to present his blueprint
and until 2019 to create his Capital Markets Union. Much
progress can be made but few expect it to be complete
by then.
Cicero analysis - New phrase but old idea
James Hughes
Account Director
Helena Walsh
Executive Director
Alexander Kneepkens
Senior Account Executive
Sebastian Damberg-Ott
Account Executive

4. 4
Capital Markets - EU vs US
284%
90%
EU 300% of GDP vs US 70% of GDP
Source: EBF, 2014, International Comparison of Banking Sectors
VS
Banking system assets
$33.1bn$7.4bn
EU $7.4bn (15% of global market) vs US $33.1bn (68% of global market)
Source: EY, 2014, Adapting and evolving
VS
Venture capital market
70% 70%
30% 30%
EU 70% Bank loans & 30% Market financing vs US 30% Bank loans & 70% Market financing
Source: EBF, 2014, Capital Markets Union: what is at stake?
VS
Bank vs Market based financing
EU 10.56% vs US 4.90%
Source: Trading Economics, 2015, European Union Personal Savings
VS
Personal savings rates
10.56% 4.90%

5. 5
Europe’s capital markets
Supply of funding Access to finance
Real economy
SMEs | Mid-Cap | Large
Companies
Improving the investment chain
Mobilising
pensions and
savings
Expanding
range of assets
for institutional
investors
Stimulating
non-bank
finance fora
Promoting
cross-
border retail
investment
Simplifying
investments in
SMEs
Facilitating
infrastructure
financing
Promoting new forms of finance,
e.g. securitisation, covered
bonds, crowdfunding
Harmonised
trading
environment
including
liquidity
Improving
company
mobility
Common
approach to
insolvency
Better reporting
of market data
Easing
collateral flow
Promoting supervisory
convergence
Sound financial infrastructures

6. 6
Next steps
2016
Q4
Q2
Q3
Q1
Publication of the
Green Paper
18 February
2017
2018 2019
2015
Publication of the consultations
on the Prospectus Directive and
Securitisation
18 February
EP plenary vote on
ELTIFs
March
EC Conference
on CMU
Summer
Publication
CMU Action
Plan
H2
Evaluation of
Insolvency
Framework
H2
Legislative
proposal on
Resolution of
CCPs
H2
Delegated Acts
on SME Growth
Markets (MiFID II)
H2
Consultation on
EU Covered Bond
Framework
H2
Launch of Target 2
Securities
H2
Solvency II takes
effect
2016
EC Work
Programme
December
Introduction of
MiFID II / MiFIR
2017
Capital Markets
Union in place
2019
CMU
consultation
deadline
13 May
EIOPA advice on
single market for
personal pension
products
February

7. 7
The Green Paper dissected
Priorities for early action
Area Initiative Status
Review the Prospectus Directive Consultation published
Set up a framework to enable a comprehensive approach to securitisation in the EU Consultation published
Set up a framework for common minimum and comparable information for SMEs to
improve SME credit information
EC will hold workshops
Set up a framework for private placements to take away barriers including insolvency
laws and lack of standardisation in processes, documentation and information
Evaluating market-led
approach
Expand the take up of ELTIFs Potential policy opportunity
Access to finance
Increase issuance of quoted shares for large companies Potential policy opportunity
Incentivise long term investments and infrastructure investments in addition to the
existing EFSI initiative
Potential policy opportunity
Develop simplified, common and high quality accounting standards tailored to
companies listed on MTFs
Potential policy opportunity
Set up a central EU-level website for infrastructure projects Policy action identified
Set up framework for covered bond market by adopting best practices Consultation coming in 2015
Consider setting up framework for standardisation in corporate bond market, either
being market led or by regulatory intervention
Potential policy opportunity
Monitor industry framework to Green bonds Potential policy opportunity
Review possibilities for a cross-border approach to crowdfunding Potential policy opportunity

8. 8
The Green Paper dissected
Supply of funding
Area Initiative Status
Identify policy measures to incentivise institutional investors to invest in a broader
range of assets
Potential policy opportunity
Institutional investors – Review prudential rules for lower risk debt and equity
investments
Policy action identified
Institutional investors – Examine a standardised product (29th regime) to create single
market for personal pension provision
Policy action identified
Institutional investors – Explore how to widen range of market participants in EuVECA
and EuSEF and potentially remove the EUR 500 million cap on size of investors
Potential policy opportunity
Examine what measures can be taken to create a better environment for business
angels, venture capital and initial public offerings
Potential policy opportunity
Explore the barriers to entry for new and innovative financing vehicles such as peer to
peer lending
Potential policy opportunity
Retail investors – Incentivise standardised or simple financial products to restore
consumer confidence in financial markets
Potential policy opportunity
Retail investors – Enhance cross-border competition in retail financial services,
especially in electronic and mobile financial services
Potential policy opportunity
Retail investors – Preparatory work on how a single market for retail financial services
can deliver more benefits to consumers
Policy action identified
International investors – Increase the attractiveness of EU markets to international
investors
Potential policy opportunity
Institutional investors - Amend prudential requirements for pension provision through
the IORP II Directive
Legislative proposal in
progress
International investors - Facilitate direct marketing of EU investment funds and other
investment instruments in third countries
Potential policy opportunity

9. 9
The Green Paper dissected
Area Initiative Status
Enforcing the single rulebook and avoiding gold-plating to prevent divergent
implementation of EU law
Policy action identified
Explore a single framework to govern the treatment of cross-border investment Potential policy opportunity
Act on the possible improvements on the ESAs set out in the EC’s report on the func-
tioning of the ESAs
Policy action identified
Use the ESAs to prevent national supervisory regimes from creating differing investor
protection standards and barriers to cross-border investments
Potential policy opportunity
Consider appointing commercial entity to run consolidated tape if market-led efforts fail Policy action identified
Review if more work is needed to improve trade data and reporting Policy action identified
Set up common IT approaches for certain reporting requirements under EU legislation
involving national authorities and ESAs
Policy action identified
Proposal for recovery and resolution of systemically relevant financial institutions
such as CCPs
Legislative proposal to be
published
Potentially remove barriers to facilitate flow of collateral throughout the EU Potential policy opportunity
Assess need for changes to the securities ownership rules Potential policy opportunity
Examine potential improvements to market liquidity Potential policy opportunity
Examine legal certainty in cross-border transfer of claims Report planned in 2015
Review company law on cross-border establishment, operation of companies and
company mobility
Policy action identified
Improving the investment
chain

10. 10
The Green Paper dissected
Area Initiative Status
Review conflict-of-law rules on the internal functioning of companies and
consequences for third parties of transfers of claims
Policy action identified
Evaluate the EC Recommendation on a new approach to business failure and
insolvency to prevent further divergence of national insolvency frameworks
Evaluation planned in 2015
Examine the tax treatment of cross-border investments by life insurance companies and
by pension funds in real estate
Policy action identified
Will take action if discriminatory tax rules are found on cross-border investments by life
insurance companies and by pensions funds in real estate at a later stage
Policy action identified
Simplify withholding tax relief procedures related to post-trading and link in to OECD
TRACE project
Policy action identified
Examine the treatment of debt and equity and consider harmonised definition Potential policy opportunity
Consider targeting tax incentives for R&D expenditure at young innovative companies Potential policy opportunity
Consider measures to increase the use of modern technologies and integrate the
benefits of digitalisation
Potential policy opportunity
Improving the investment
chain

11. Communications
and PR expertise
Cicero has strong media and PR
experience, having worked across
print, broadcast and online media for
a number of clients. Cicero maintains
strong relationships with target media to ensure a best-
in-class offering for clients. Cicero’s communications
team has worked with major organisations in the UK and
beyond, and has worked with BBC News, Sky News,
Bloomberg, Reuters, all leading national newspapers and
trade outlets.
Government relations
Cicero was founded in 2000 and
has grown from one client in the UK
to more than 200 in 22 countries
around the world today. Our public
affairs business works across retail
and investment banking, commodities, insurance and
asset management. Cicero was named Public Affairs
News Specialist Consultancy of the Year in 2011 and
2012.
Political monitoring
and intelligence
Novares, Cicero’s market-leading
public policy intelligence tool, is the
foundation of our monitoring and
intelligence offering. Services we provide include:
Bespoke monthly issue-tracking grids;
In-depth analysis of set-piece events; and
Verbal consultant reports and under-the-radar
intelligence based on Cicero’s wide contact base with
Government, Parliament, Whitehall, regulators, think-
tanks, and industry sources.
Digital
For a communications strategy to be
successful in today’s world of 24-hour
media, integration with digital media
is essential, particularly through
social media. Cicero’s digital team
has worked with leading financial services organisations,
including GE and Invesco Perpetual, to deliver digital
media monitoring, consultancy and execution to ensure
effective delivery of key messages online.
Thought leadership
Cicero has managed thought
leadership projects since 2000.
In overseeing every aspect of the
project, from initial questionnaire
design through to results, analysis and reporting, we
attempt to ensure that the client is able to generate
as many outcomes as possible. Cicero has previously
undertaken thought leadership projects for organisations
including HSBC, AXA, Scottish Widows and HM
Treasury.
Design
In a world where design is
playing an ever increasing role in
the success of businesses and
companies, we recognise that
communication needs to be clear,
quick and simple. Our corporate background means
we see the bigger picture and can integrate design
throughout the process. We implement communication
strategies in new and engaging ways, while managing
your reputation through clear and consistent design.
www.cicero-group.com
Cicero Group is an integrated communications agency specialising in corporate PR, government relations,
digital communications and market research aimed at business, consumer and policy audiences. This means we
understand more than any other agency the complex interaction between media, politics and policy. We have offices
in London, Brussels, New York and Singapore.
Contact us
Please contact Helena Walsh, Executive Director, with any further questions.
Helena.Walsh@Cicero-Group.com
+32 (0) 2 612 8152
+44 (0) 7900 242 584
@CiceroBrussels