Deutsche Boerse
(BRUSSELS) – The EU Commission outlined another step towards the development of its Capital Markets Union Monday by promoting alternative sources of financing and removing barriers to cross-border investments.
While the CMU will benefit all Member States, it will particularly strengthen the Economic and Monetary Union by promoting private risk-sharing.
The EU executive says the proposals will boost the cross-border market for investment funds, promote the EU market for covered bonds as a source of long-term finance and ensure greater certainty for investors in the context of cross-border transactions of securities and claims. The aim of the CMU is to mobilise and channel capital to European businesses, particularly small and medium enterprises (SMEs).
The Commission stresses the importance of speedy adoption of the proposals. “To have a genuine Capital Markets Union in Europe by 2019, we need to advance in three directions,” said Valdis Dombrovskis, EC vice-president for the Capital Markets Union: “European labels and passports for financial products, harmonised and simplified rules to deepen capital markets and more consistent and efficient supervision.”
Vice-president Jyrki Katainen added: “We want to make it easier and cheaper for companies, especially small and medium-sized ones, to get the financing they need. A deepened single market will help companies to do that and will allow them to grow.”
The proposals
European covered bonds
The Commission is today proposing common rules consisting of a Directive and a Regulation for covered bonds. With EUR 2.1 trillion in outstanding amounts, they are currently among the largest debt markets in the EU. European banks are global leaders in this market, which represent an important source of long-term financing in many EU Member States.
Covered bonds are financial instruments backed by a segregated group of loans. They are considered beneficial not only because they fund cost-effective lending, but also because they are particularly safe. However, the EU market is currently fragmented along national lines with differences across Member States.
The proposed rules are based on high-quality standards and best practices. They aim to enhance the use of covered bonds as a stable and cost-effective source of funding for credit institutions, especially where markets are less developed. They will also give investors a wider and safer range of investment opportunities.
At the same time, the proposal seeks to reduce borrowing costs for the economy at large. The Commission estimates that the potential overall annual savings for EU borrowers would be between EUR 1.5 billion and EUR 1.9 billion.
Cross-border distribution of investment funds
Investment funds are seen as an important tool to channel private savings into the economy and increase funding possibilities for companies. The EU investment funds market amounts to a total of EUR 14.3 trillion. Just over a third (37%) of UCITS funds and around 3% of alternative investment funds (AIFs) are registered for sale in more than three Member States. This is also due to regulatory barriers that currently hinder the cross-border distribution of investment funds.
Today’s proposal aims to remove these barriers for all kinds of investment funds making cross-border distribution simpler, quicker and cheaper. Increased competition will give investors more choice and better value, while safeguarding a high level of investor protection.
Law applicable to cross-border transactions in claims and securities
The assignment of a claim refers to a situation where a creditor transfers the right to claim a debt to another person in exchange of a payment. This system is used by companies to obtain liquidity and access credit. At the moment, there is no legal certainty as to which national law applies when determining who owns a claim after it has been assigned in a cross-border case. The new rules proposed clarify according to which law such disputes are resolved: as a general rule, the law of the country where creditors have their habitual residence would apply, regardless of which Member State’s courts or authorities examine the case. This proposal will promote cross-border investment, access to cheaper credit and prevent systemic risks.
The Commission has also adopted a Communication to clarify which country’s law applies when determining who owns a security in a cross-border transaction. Enhanced legal certainty will promote cross-border investment, access to cheaper credit and market integration.
Covered bonds, cross-border distribution of investmentfunds and cross-border transactions in claims and securities - background guide
