February 20, 2015 The Capital Markets Union
Furthering its aim to level the playing fields for organisations across Europe, on 18th February the EU launched one of its flagship policies, the Capital Markets Union (CMU). The project aims to “unlock funding for Europe’s businesses and to boost growth in the EU’s 28 Member States with the creation of a true single market for capital.”
Within the EU area, businesses are more heavily reliant on bank finance than in some other parts of the globe where capital markets are more robust. For example, if the EU venture capital market matched that of the US then it is estimated that between 2008 and 2013, €90 billion more would have been available to business. The CMU aims to address the funding gap by clearing the way to make the investment chain as open as possible, enabling those who have funds available to invest to easily reach those who are looking for funding.
With this aim in mind the EU has now launched a Green Paper, signalling the start of a three month consultation on unlocking non-bank funding for businesses and capital projects across Europe. The project also looks towards making SME fundraising sit on a level playing field with larger organisations, remove barriers to cross-border investments and lower the cost of borrowing. The key principles which underpin these aims include building on firm foundations of financial stability and ensuring an effective level of investor protection.
With reducing the cost of borrowing as one of the key aims, the Green Paper contains various proposals including reviewing when a fundraising prospectus is required and simplifying the information which needs to be contained in fundraising literature. To enable SMEs to enter the playing field at a lower level the EU is also looking at launching a ‘high quality’ securitisation initiative.
Key to the success of the CMU is the drive by the EU and regulatory authorities to improve the standards of governance and reporting across organisations. Investors are only going to respond to the funding initiative if they have confidence that their investments are secure. This gives the CMU’s sponsors a dilemma; on the one hand they want to cut the costs of preparing funding literature and related disclosures, on the other they want to provide a measure of investor protection. It will be interesting to watch the progress of the consultation as interested parties have their say. But in the end the more that can be done to widen the ability of businesses to raise capital and for investors to look to cross-border projects the better. As EU Commissioner Jonathan Hill said at the launch of the project:
“The free flow of capital was one of the fundamental principles on which the EU was built. More than fifty years on from the Treaty of Rome, let us seize that opportunity to turn that vision into reality.”