14th May 2015

BBA response to the European Commission’s Public Consultation: “Building a Capital Markets Union”

On 14 May, BBA submitted its response to the Commission’s Green paper on Capital Markets Union (CMU). The CMU Green Paper comes at a critical time when it is essential to restore confidence in the European economy and provide certainty for businesses to enable them to move forward with investment plans. The CMU should act as a focal point to signal EU commitment to business and impetus for a diversified but cohesive funding landscape.  In addition, BBA took the opportunity to set out the impact legislation is having on market making and how this will impact liquidity and the depth of capital markets.

Alongside supporting the 5 priority work areas the Commission identifies, the BBA call on the Commission to:

1. Develop a ‘pre-Capital Markets Union’ focussed on scaling EU cross-border angel investment to support small and high growth firms through fiscal incentives and enterprise capital fund action by:

i.   Developing a pan-European Angel Co-Investment Fund, to address the lack of early stage development capital;
ii.  Removing barriers to cross-border business angel activity by setting a common framework to support cross-border angel cross border syndications; and
iii. Incentivising ‘ Corporate Venturing’ to address the follow-on funding gap and exit route by promoting and exemplifying best practice across markets.

2. Develop a simple, transparent and standardised securitisation market, including shorter-term ABCP conduits, which converges to internationally agreed standards, basing the capital requirement on a standardised, rather than a ratings-based, RWA calculation. Address prudential weightings in the CRR and Solvency II to further facilitate supply. Ensure support is given to non- bank as well as bank securitisations and to a broad range of asset classes.

3. Consider the appropriate means to incentivise businesses to seek finance through equity investment, by coordinating fiscal incentives across the Member States based on existing national best practice. Alongside this, increase the knowledge amongst SMEs of the various forms of finance and encourage business to use the right mix of finance to support growth.

4. Establish an Expert Group to provide the European Commission with recommendations based on principles of best practice in market behaviours currently in existence in Member States. Such areas include crowd-funding, peer-to-peer lending, private pensions, and mentoring. This should include consideration to passport options

5. Build investment capacity through ensuring liquidity is available to support market-makers and the specialist debt financiers so crucial to the development and evolution of the small cap markets and alternate business funding sources.

6. Implement the European Fund for Strategic Investments and target further solutions with the EIB and national promotional banks to support a greater risk appetite from the institutional investor base into infrastructure, securitised and long- term assets.

7. Review State Aid rules to ensure these remain fit for purpose and supportive to growth and job creation

8. Undertake a horizontal review of post-crisis legislation to ensure that recently adopted legislation, and proposals still under development, do not have unintended impacts on growth or undermine elements efforts that would help deliver the Capital Markets Union.

9.  Further develop the Better Regulation agenda by implementing a new cost benefit analysis at the end of the co-decision process and before adoption of legislation. At Level 2, ensure that the Commission and EU institutions particularly reflect on whether the way in which the implementing measures are shaped might unintentionally impact on the objectives of the CMU objectives unintentionally. We propose that the Commission REFIT programme be extended to Financial Services in order to reduce excessive and administrative burdens.

10.  Foster internationally competitive capital markets by:

i.   Taking a stronger role in the global policy agenda to ensure EU policy aligns with   other global players;
ii.  Improving the EU equivalence processes, migrating to focussing on an outcome based approach; and,
iii. Encouraging further initiatives to pursue market access through bi-lateral and multilateral agreements, such as the Trans-Atlantic Trade and Investment Partnership (TTIP);
iv. Support export growth through ensuring the regulatory liquidity and leverage parameters under CRDIV and EMIR support Export Credit Agency activity and the long terms needs of business in export project finance

11. Reconsider the impact of the proposed Financial Transactions Tax, particularly on investors seeking to be active across borders within the EU.

12. Propose the creation of an effective EU-wide corporate rescue mechanism (similar to UK administration or US Chapter 11) to maximise the potential for the sale of a business as a going concern rather than by disposal of its assets.

13. Target smaller and more feasible steps in the longer-term priorities of the CMU, for the benefit of investors, such as by bringing forth a proposal that ensures all insolvency proceedings within the EU are concluded within a specified number of years.

14. Encourage the European Supervisory Authorities (ESAs) to refocus resources on promoting supervisory convergence to ensure consistent application of the Single EU Rulebook. Furthermore, we encourage the ESA to further develop best practice and information sharing amongst relevant national bodies involved in retail investor education.

15. Consider whether it would be appropriate for the ESA’s to should be given the power to issue ‘non-action letters’ when problems are identified in the implementation process, similar to those issued by the SEC.

To see the details of our response please click the link below.

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