The Capital Markets Union Action Plan - September 2020 edition

Those of us involved in capital markets regulation in the European Union (EU) could be forgiven for asking if we are back in autumn 2015 rather than autumn 2020. The Commission has launched - with much fanfare - a Capital Markets Union (CMU) Action Plan. This is a priority for the Commission and its president and has the worthy aim of transforming EU capital markets to help diversify funding options for businesses and citizens. So far, that feeling of déjà vu you might be getting would be wholly justified.

The 2015 plan and 2017 mid-term review set out a framework for the EU to make important changes that can be viewed here. There is no doubt that agreements on securitisation, prospectuses, crowdfunding, as well as other measures, have helped, and will continue to help, to improve the markets environment in the EU. However, there have been suggestions that the linked dossiers did not quite form the coherent strategy to transform capital markets in the EU in the way many CMU advocates had envisaged. One example here could be a coherent approach to cross-border trade in services, given the international nature of financial markets and the capital that invests in them.

Fast forward to the September 2020 Action Plan with its overall objectives including to support a green, digital, inclusive and resilient economic recovery by making financing more accessible to European companies; make the EU an even safer place for individuals to save and invest long-term and to integrate national capital markets into a genuine single market. These objectives are important in progressing the uptake and effectiveness of capital markets in Europe. The plan anticipates 16 specific legislative and non-legislative actions, but the real question is whether these updated initiatives will facilitate a step change towards more diversified funding models that are increasingly important given the economic consequences of the Covid-19 crisis.

As ever in the EU when it comes to policymaking and agreeing financial services changes, the different nature of markets and interests across the 27 countries means that a dossier by dossier approach - as set out in the Action Plan - is a sensible one. That approach can ensure important changes are made even when other elements of the CMU are more controversial to certain member states, and lack the consensus required to finalise across the institutions. However, in taking this dossier by dossier approach the overall objective of transforming EU capital markets - to provide more funding and financing options for businesses and citizens  ? should be kept front of mind to ensure that the capital markets ecosystem is more than just a sum of its parts.

Even though the UK will shortly be finalising the terms of its new relationship with the EU outside the single market, the UK-based financial services industry still has great interest in supporting the delivery of the CMU project. A strong economy utilising diversified financial services funding models is one that will benefit all those who have an interlinked relationship with the EU. In addition, the UK-based industry has the expertise to support and deliver the objectives as well as alternative funding options.

The proposals on supporting vehicles for long-term investment (Action 3); helping banks to lend more to the real economy through securitisation (Action 6) and building retail investors' trust in capital markets (Action 8) are examples of ones where the experience and ecosystem that has developed in the UK may be useful for EU policymakers to reflect on as they develop their proposals.

It is going to be some time before we can judge the 2020 CMU Action Plan, and agreeing the 16 dossiers will certainly deliver key changes to enable and support the development of EU markets. However, to deliver that step change for capital markets in the EU it is important to keep an eye on the overall strategic objectives, as well as the important role that cross-border trade in financial services can play in delivering expertise and capital to make the 2020 Action Plan a success.