European regulation update: long-term investment initiatives
Focus on the latest European regulatory developments
Focus on the latest European regulatory developments
On 23 March 2017, the European Commission (EC) published a consumer financial services action plan. The plan objective is to deepen the single market by enhancing competition and enabling firms and consumers to obtain financial services, regardless of whether providers are domestic or from another Member State.
The action plan draws on the Commission's conclusions from its Green Paper on retail financial services, which was published in December 2015, and has been prepared as one of the Commission's commitments under the Capital Markets Union action plan. The actions are grouped into three main strands:
On 24 March 2017, the EC adopted a report on tackling national barriers to cross-border investments in the EU. The Commission adopted a first version of the report on 27 February 2017, but was made aware of certain inaccuracies, mainly due to incomplete or conflicting information, and has consequently adopted an amended version.
The report is based on the work of an expert group of Member States' representatives alongside the Commission to map national barriers to cross-border capital flows and find the best ways of tackling barriers identified as being not justified by public interest considerations or as being disproportionate. The report follows a call from the ECOFIN Council in 2015 for a roadmap to tackle national barriers and relates to the Commission's work on creating a Capital Markets Union.
The report distinguishes different types of national barrier:
For each type of barrier, the report builds on the Commission's discussions with the expert group and proposes next steps. The barriers identified include withholding tax procedures, residence requirements imposed on the management of financial institutions and a lack of financial literacy.
The report calls on the Member States to endorse the proposed roadmap and take action accordingly.
On 5 April 2017, the EU Parliament's plenary session adopted the new Prospectus Regulation, which is intended to reduce burdens, deliver shorter prospectuses and provide better and more concise information for investors and a fast track regime for companies that frequently tap capital markets. Under the new rules, the information that a prospectus provides must enable investors to make an informed assessment of assets, liabilities, profits, losses and rights attached to investment products. Prospectuses should include an accurate, clear seven-page summary, providing:
The Regulation, which is part of the EU Commission's Capital Markets Union initiative, still needs to be formally approved by the EU Council before publication in the Official Journal and will apply from 24 months after its entry into force.
On 7 April 2017, the EC launched a consultation on conflict of laws rules for third party effects of transactions in securities and claims, which is intended to examine the possibility of making conflict of laws rules on securities and claims ownership more consistent across the EU.
The EU Commission's CMU Action Plan, adopted in September 2015, envisages action on securities ownership rules and third party effects of assignment of claims in order to facilitate cross-border investing. The purpose of the consultation is to gather stakeholders' views on the practical problems and types of risks caused by the current state of harmonisation of the conflict of laws rules on third party effects of transactions in securities and claims and to gather views on possibilities for improving such rules. Responses will feed into the Commission's assessment of legal risks, the problem's scale and possible EU action. Comments on the consultation are due by 30 June 2017.
Alongside the consultation, the Commission has also established an expert group on conflict of laws regarding securities and claims, which is intended to provide the Commission with specialist advice on private international law and financial markets. An impact assessment on the problems to be addressed and possible solutions was previously published in February 2017.
On 11 April 2017, in his speech at the public hearing on the CMU mid-term review, Valdis Dombrovskis, EC Vice-President in charge of Financial Services, underlined that the CMU needs to strengthen new forms of risk finance for infrastructure and sustainable investment, alongside a restored bank credit mechanism. He also mentioned potential legislative initiatives on cross-border passporting of funds. On Brexit and the consequent loss of London as the largest capital markets hub in Europe, Dombrovskis underlined the need for more advanced capital markets in the rest of the EU to complement bank lending with other sources of funding, stressing particular market segments such as derivatives trading and clearing, or management of alternative investment funds. He also touched on the need to strengthen supervisory convergence and to recognise the role of technological innovation in transforming capital markets.
On 16 May 2017, the EU Council has adopted the new Prospectus Regulation. The Regulation, which is part of the EU Commission's Capital Markets Union initiative, is intended to reduce burdens, deliver shorter prospectuses and provide better and more concise information for investors and a fast track regime for companies that frequently tap capital markets. Most provisions will apply 24 months after entry into force.
On 30 May 2017, the EU Council and EU Parliament have reached political agreement at trilogue negotiations on rules governing investment funds in relation to venture capital and social enterprises. The proposal adjusts the Regulations on European venture capital funds (345/2013 - Euveca) and European social entrepreneurship funds (346/2013 - Eusef) in order to make the funds available to fund managers of all sizes and to amend the range of companies that the funds can invest in. The amendments are also intended to make the cross-border marketing of relevant funds cheaper and easier. The agreed text will be submitted to the Permanent Representatives Committee (COREPER) for endorsement on behalf of the Council. The Parliament and Council will be called on to adopt the proposed regulations at first reading.
At the same date, the EU Council and EU Parliament have reached political agreement in trilogue negotiations on a package of proposals for simple, transparent and standardised (STS) securitisation.
The proposals form part of the EU Commission's CMU Action Plan and are intended to facilitate the development of the securitisation market in Europe. The agreed text will be submitted to the Permanent Representatives Committee (COREPER) for endorsement on behalf of the Council. The Parliament and Council will also be called on to adopt the proposed regulations at first reading.
On 8 June 2017, the EC has published a communication on the mid-term review of the Capital Markets Union Action Plan. The proposal highlights the prioritisation of outstanding legislative proposals focusing in particular on a pan-European personal pension product (PEPP), an EU-framework on covered bonds, as well as on securities law.
The communication sets out nine new priority actions. These include, among others:
EC Vice-President Jyrki Katainen, in charge of investment, underlined sustainable finance as a key challenge to address, whilst EC Vice-President in charge of financial services and CMU Valdis Dombrovskis highlighted the importance of the upcoming proposal for a PEPP.
Alongside, the EC launched a consultation on post-trading services and progress in removing remaining barriers in the EU, as part of the broader context of the CMU Strategy. The stakeholder feedback will feed into an EC communication foreseen to be published in Q4 2017, which will outline a future strategy in post-trade services and identify areas for targeted action. The consultation is open for four weeks as of 8 of June 2017