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Article (28/267)
European regulation update: Capital Market Union
European regulation update: Capital Market Union

European regulation update: Capital Market Union


Focus on the latest European regulatory developments on CMU as of  June 2018

Sustainable finance

EU Commission published its action plan on financing sustainable growth (8 March). It sets out an EU strategy on sustainable finance and provides a roadmap for future work across all relevant financial systems. The recommendations include:

  • Establishing a taxonomy to define what is sustainable and identify areas where sustainable investment can make the biggest impact
  • Creating labels for green financial products
  • Clarifying the duty of asset managers and institutional investors
  • Requiring insurance and investment firms to advise clients on sustainability
  • Incorporating sustainability into prudential requirements
  • Enhancing transparency in corporate reporting 

The Committee on Economic and Monetary Affairs (ECON Committee) published a report on sustainable finance which contains a motion for an European Parliament resolution (16 May). The main recommendations include the creation of a legislative framework based on its action plan:

  • Establishing a 'green finance mark' by end 2019
  • Adopting a delegated act for establishing whether a PRIIP targets specific environmental or social objectives
  • Mandating ESMA to require credit rating agencies to incorporate sustainability risks into their methodologies
  • Establishing a binding labelling system indicating compliance with the Paris Agreement and ESG goals

EC adopted legislative package and consulted on MiFID II & Insurance distribution directive (IDD) sustainability requirements (24 May).The legislative proposals are comprised of 3 regulations on:

  • The establishment of a framework to facilitate sustainable investment
  • Disclosures relating to sustainable investment and sustainability risks and amending the IORP II Directive
  • Amendments to the Benchmarks Regulation to create a new category of benchmarks that are low-carbon versions of standard indices and the positive-carbon benchmarks.

Fintech action plan and crowdfunding  

EU Commission launched a fintech action plan and legislative proposal on crowdfunding (8 March). It sets out 23 steps aimed at innovative business models. The steps include:

  • Hosting an EU fintech laboratory
  • Reporting on the challenges of crypto-assets later in 2018
  • Working on a  distributed ledger technology (DLT) strategy addressing all sectors of the economy
  • Promoting the digitisation of information
  • Improving cybersecurity information-sharing
  • Presenting best practices on regulatory sandboxes

The other legislative proposal aims to make it easier for crowdfunding platforms to offer their services and improve access to innovative forms of finance for businesses. It would allow platforms to apply for an EU label in order to offer their services across the EU.  Additionally, the Commission has adopted a proposed Directive to amend MiFID II in order to exempt from its provisions persons authorised as crowdfunding.

Completing CMU action plan

The EU Commission has published communication on completing the action plan (8 March). It proposes additional measures to develop new products and labels and to integrate capital markets, in particular:

  • A European label for investment-based and lending–based crowdfunding platforms to enable cross-border activity and address risks for investors in a proportionate manner
  • An EU-enabling framework for covered bonds
  • Measures to reduce regulatory barriers to the cross-border distribution of investment funds in the EU

The proposals should be adopted before the European Parliament elections in 2019. The communication also sets out the Commission's view that progressing with the CMU has become more pressing given the UK's future withdrawal from the EU.

Covered bonds

The EU Commission has issued legislative proposals (12 March) which lays down the conditions that covered bonds have to respect in order to be recognised under EU law, and strengthens investor protection by imposing specific supervisory duties. In particular, it:

  • Provides a common definition of covered bonds
  • Defines the structural features of the instrument
  • Defines the tasks and responsibilities for the supervision of covered bonds
  • Sets out the rules allowing the use of the ‘European Covered Bonds' label

The proposed directive is complemented by a proposal for a regulation amending the Capital Requirements Regulation (CRR) with regards to exposures in the form of covered bonds.

Assignment of claims

The EU Commission issued a legislative proposal on the assignment of claims and communication clarifying conflict-of-law rules for securities (12 March). Referring to cross-border cases where a creditor transfers the right to claim a debt to another person, the proposed regulation intends to clarify which law should govern dispute resolution. Under the proposal, as a general rule, the law of the country where creditors have their habitual residence would apply, regardless of which Member State's courts or authorities examine the case. The EC has also adopted a communication on the applicable law to the proprietary effects of transactions in securities, which is intended to clarify which country's law applies when determining who owns a security in a cross-border transaction.

Cross-border distribution (12 March)

The EU Commission issued legislative proposals on cross-border distribution of investment funds. The European commission (EC) is concerned that Member States' marketing requirements, regulatory fees and administrative and notification requirements represent a significant disincentive to the cross-border distribution of funds. The proposals are intended to:

  • Amend certain provisions in the AIFMD UCITS directive with the purpose of reducing regulatory barriers to the cross-border distribution of investment funds in the EU
  • Reduce the cost for fund managers of going cross-border
  • Support a more integrated single market for investment funds
  • Support more cross-border marketing of investment funds

Retail investment products (24 April)

The EU Commission published a study on retail investment products, in order to support further the CMU policymaking by providing facts and figures on the current functioning of European markets for retail investment products and identifying obstacles facing investors looking to buy funds, pension products or life insurance.The Commission intends to organise a public hearing on how to improve consumer financial services on 29 June 2018.

Pan-European personal pension product (PEPP)

Presidency compromise text on proposed PEPP regulation was published (15 May). It makes amendments to the proposed regulation, which sets out, among other things, the standard features of, and legislative framework for, PEPPs.

Small and medium-sized enterprise (SMEs) financing

The EC adopted legislative proposal on SME financing. The proposed regulation would introduce proportionate requirements for SMEs listing and issuing securities on SME Growth Markets, a new market of trading venue dedicated to small issuers. The legislative proposal includes technical amendments to the Market Abuse Regulation (MAR) and Prospectus regulation. The EC is also consulting on further technical amendments to delegated acts under MiFID2 on certain registration conditions to promote the use of SME Growth Markets for the purposes of MiFID2.

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