The European Commission has issued three proposals aimed at promoting alternative sources of financing and removing barriers to cross-border investments. The package comprises: a directive and regulation on covered bonds; a directive and a regulation amending the UCITS Directive and AIFMD; and a regulation and a communication relating to the law applicable to cross-border transactions in claims and securities.
The Commission is pushing for quick adoption of these proposals by the European Parliament and Council, along with other outstanding proposals. Of the twelve CMU-related proposals presented to date by the Commission, only three have been agreed so far.
Covered bonds are financial instruments backed by a segregated group of loans. They are currently among the largest debt markets in Europe, with EUR 2.1 trillion in outstanding amounts, and European banks are global leaders in this form of instrument. However, the EU is fragmented along national lines.
The Commission describes the proposed rules as based on existing standards and best practices. They are intended to provide a harmonised EU framework, giving investors a wider and safer range of investment opportunities and reducing borrowing costs by an estimated EUR 1.5 - 1.9 billion each year.
Over recent years, the Commission has undertaken a number of consultations on barriers to the cross-border distribution of funds - both UCITS and AIFs - within the single market. It is now proposing a directive and a regulation that amend the UCITS Directive and AIFMD. Among other things, it proposes a definition of “pre-marketing”.
Questions have been raised about whether this could have an indirect impact on the working of other pieces of legislation that refer to marketing but do not definite it. The wider question is whether yet more rules will have the intended effect - to remove unnecessary “red tape”. See the March Asset Management Regulatory Update for more details.
The third part of the package of proposals deals with the situation where a creditor transfers the right to claim a debt to another person, which is used by companies to obtain liquidity and access credit. There is no legal certainty as to which national law applies when determining who owns a claim assigned cross-border.
The proposed rules seek to clarify to which law cross-border disputes are resolved. As a general rule, the law of the country of residence of the assignor would apply, regardless of which courts consider the case. The Commission has also issued a communication on which law applies when determining who owns a security in a cross-border transaction.
In addition to the usual types of concern and resistance that accompany any proposal to move from national fragmented regimes to a harmonised EU framework, all three of these issues are technical and complex in nature but with wide-ranging consequences. Given that there are now nine CMU-related proposals that have still to be agreed with the co-legislators, it is questionable whether adoption of all elements of this package will be speedy.