On Wednesday, February 18, the European Commission (“EC”) launched its ambitious “Green Paper” consultation for the creation and completion of a European Union (“EU”)-wide Capital Markets Union (“CMU”). The release of the Green Paper has now kick-started a debate on possible measures to create a genuine EU-wide single market for capital, with the goal of eventually emulating the depth and breadth of the U.S. capital markets. Lord Jonathan Hill, Commissioner for Financial Stability, Financial Services and Capital Markets Union, is spearheading the effort, calling Europe’s overreliance on bank capital and underdeveloped capital markets a key setback towards a European economic recovery, and even a potential systemic risk. In Lord Hill’s words, the CMU is a “prize worth fighting for.”
The Green Paper asks for feedback on measures that could unlock investment in Europe’s companies and infrastructures over the next four years. Consequently, the CMU touches on almost every element of the capital markets, such as harmonizing and simplifying access to public capital markets, improving cross-border investment activity, developing a single retail market for financial products, and creating a single rulebook for capital markets intermediaries and infrastructures.
Key short-term priorities include reviewing the current prospectus regime for securities offerings; creating a common minimum set of comparable information for credit reporting for small- and medium-sized enterprises; creating a simple, transparent, and good quality securitization market; developing a pan-European private placement market, building upon common market practices throughout the EU; and boosting long-term investment through European Long-Term Investment Funds.
More broadly, the CMU also addresses whether differences in insolvency frameworks and tax regimes in Member States affect the development of a CMU. These questions will be incredibly difficult to resolve, as EU Member States will not easily cede their jurisdiction on issues of such national importance.
The comment period for the Green Paper will be open until May 13, 2015. The EC will also hold a public roundtable discussion for additional feedback this summer, followed by the release of a CMU “Action Plan.” Legislative proposals to implement the CMU are expected to be released soon thereafter.
Stakeholders—public and private companies, financial services providers, and others—are encouraged to carefully review the Green Paper and submit comments. In addition to reshaping Europe’s capital markets, the EU’s proposals will have no doubt have an effect on regulatory regimes in other countries, like the United States, or at the international level, including the Basel Committee, IOSCO, and the IAIS. Moreover, the CMU debate will highlight the relative merits of transparency versus prudential regulation. A global financial services strategy will be key for effectively competing in this new global paradigm.