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Capital Markets Union (CMU) - regulation memo
Capital Markets Union (CMU) - regulation memo
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Capital Markets Union (CMU) - regulation memo

12/03/2018

The Capital Markets Union comprises several initiatives which collectively aim to create deeper and better integrated capital markets within the European Union

About the Capital Markets Union

The CMU initiative is not legislation in itself. It comprises several projects, which collectively aim to create deeper and more integrated capital markets within the European Union (EU).

The CMU covers:

  • Capital raising on public markets and safe securitisation
  • Long-term investments in infrastructure projects and sustainable investments
  • Retail and institutional investments
  • Cross-border investment (between EU countries and also investing from outside the EU)

 Scope

The CMU covers:

  • Better access to financing
  • Diversifying sources of funding
  • Enabling market efficiency

A European Commission (EC) green paper issued in February 2015 identified the key principles to underpin the CMU and also the “quick wins” and longer-term topics. This division was maintained in its Action Plan published on 30 September 2015. Quick wins include “simple, transparent and standardised” securitisation, changes to the Transparency Directive; long term investment funds; venture capital and improved investor information.

In parallel to the green paper, the EC conducted a call for evidence on the impacts of the past 6 years of financial reform.

Following the mid-term review of the CMU, the EU institutions published a communication on the way forward, including consistent supervision to be achieved by strengthening the powers of the European Supervisory Authorities (revision in progress).

As regards post-trade, the European Post-Trade Forum (EPTF) reviewed the European landscape to deliver its final report in August 2017. The EC conducted a public consultation on post-trade and set up a working group on conflicts of law applicable to securities and claims that finished in July 2017.

The CMU initiative also includes work on fintech and sustainable finance.

Industry implications

  • For institutional and retail investors: a greater choice of investments, accessible at lower costs, more effective investor protection
  • For SMEs: better access to financing and fewer restrictions on financing
  • For banks and insurers: more favourable conditions to connect financing (particularly long-term financing) to the real economy by means of a legislative proposal for simple, transparent and standardised securitisation, and the re-calibration of both the Capital Requirements Regulation (CRR) and Solvency II for financing infrastructure and large scale industry projects
  • For financial institutions, investment firms and financial intermediaries: more competitive, better regulated and integrated EU capital markets with greater scale and depth
  • For banks, in their role as intermediaries: better-functioning markets with fewer barriers to cross-border investments and an increase in the levels and values of transactions, both domestically and across the EU

BNP Paribas Securities Services’ view

We welcome this entire initiative - it should result in stronger integration of financial markets in the EU and should facilitate access for all investors to wider sources of financing.

Nonetheless, it is critical that the EU regulatory framework as a whole is consistent with the objectives of the CMU. At present, many EU regulations are complex and interwoven and have had unintended consequences. Our hope is for a better understanding of the real impacts of existing measures before the introduction of any new legislation – and ultimately a more comprehensive legislative environment for capital markets.

Concerning financial markets infrastructures, important changes are currently being implemented and we favour an approach where organisations first see the benefits of T2S, CSDR and EMIR before making further changes.

In parallel, the EC needs to consider how to reconcile economic growth with new standards that could be adopted by the Basel committee, and which could substantially increase prudential requirements.

Key dates

September 2015

  • Adoption of the action plan on the CMU

June 2017

  • Mid-term review conclusions
  • Updated action plan

August 2017

  • Publication of the EPTF report

November - December 2017

  • Publication of consultations and positions on sustainable investments, corporate bonds markets, withholding tax guidelines, SME listing and risk-sensitive rules for investment firms
  • Analysis of best practice for relief at source from withholding tax procedures

Q1 2018

  • Expected action plan on post-trade

2019

  • Expected fully functioning CMU

Download the regulatory memo:

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