The European Commission is consulting until early August on the 17 recommendations of its High Level Forum (HLF) on Capital Markets Union (CMU).
The recommendations are wide-ranging, and several are of direct relevance or interest to asset managers and fund managers.
The three overarching themes of the report are promoting simplicity, enabling competition and creating an equity culture. The 17 recommendations are grouped into four clusters, one of which is removing obstacles to cross-border investment. The suggested timelines for achieving the recommendations are mostly during the next two years.
Given that Commission President, Ursula von der Leyen has made the completion of CMU one of her key objectives, we can expect the Commission to seek to progress all 17 of the recommendations, although some will be more difficult to deliver than others. It is important that the asset management industry engages fully in the ongoing discussions.
Issues identified by the HLF
The HLF report delivers the clear message that the EU needs CMU more than ever and that it is now “vital and extremely urgent” that it is accomplished. Many businesses require substantial equity funding, which bank lending alone cannot deliver. The structural changes imposed by Brexit could exacerbate the weaknesses of the EU financial structures and national capital markets are generally too small to attract global investors. Fully functioning, integrated capital markets are needed.
The report picks up three themes that have come to the fore for regulated firms and regulators: use of technology/digitalisation, sustainable finance and cross-border activity.
The HLF states that mastering and leading digitalisation will help drive significant efficiency gains in EU financial markets and that only sustainability can ensure prosperity in the long run. CMU is needed to deliver the EU’s New Green Deal and to enable the EU to compete globally.
The HLF’s recommendations
The HLF proposes a set of measures to:
- enhance trust and confidence of EU citizens in capital markets
- simplify existing rules and reduce legal uncertainty from different national approaches
- address unintended consequences of existing legislation and high compliance costs
- improve access to and reduce the costs of information
- review investment barriers
- incentivise the use of new digital technologies
The proposals are grouped into four clusters: the financing of business, market infrastructure, individual investors’ engagement and obstacles to cross-border investment.
Of special note for asset managers and investment funds are the recommendations: to undertake a targeted review of the ELTIF framework and the introduction of tax incentives; a targeted review of the Shareholder Rights Directive II; and (grouped as one recommendation):
- Targeted amendments to IDD, MiFID II and PRIIPs Regulation to improve disclosure
- Amendments to IDD, MiFID II to improve the fairness and quality of financial advice
- Creation of a voluntary pan-European quality mark (label) for financial advisors
- Other non-legislative measures, including a study on the role of inducements for the adequacy of advice