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On January 28, 2015, the European Commission stated in a press release that it had initiated plans to establish a Capital Markets Union (CMU) by holding an orientation debate at the College of Commissioners[1]. The establishment of a single market for all 28 European Union (EU) member states will aim to lower the costs of funding within the EU, remove the barriers to cross-border investment and increase sources of funding for businesses. It will also create ample job opportunities, which in turn, will lead to the growth of the economy.
The European Commission had also stated that a consultation on the CMU will be launched on February 18, 2015, and that a plan of action will be released during the third quarter of 2015.
European Commission (EC) officials under the leadership of Jonathan Hill, the Commissioner for Financial Stability, Services and CMU, is preparing to publish "green paper" in order to introduce the idea of creating a new super-regulator for the capital markets[2]. By having a single capital market, the scope of funding will widen, further contributing to the growth of the economy, which at present, is done by the banking system only. The intent of the green paper will be identification of the hindrances that stop the flow of capital and removal of those hindrances.
Some larger member states are not favouring this plan. Concerns come specifically from the EU's largest securities market in London, which fears that any proposal for a powerful EU regulator overseeing the city of London could boost Eurosceptics just before the general election in Britain, to be held in the month of May. Eurosceptics refer to people who are opposed to the idea of increasing the powers of the European Union. France, Germany, and U.K. also opposed the idea of having a super-regulator.
The green paper shall outline numerous changes that may be needed so that markets, and not banks, become the main mechanism for raising funds to help the region’s dwindling economy grow, including stronger EU-level supervisory powers. In the context of capital markets becoming increasingly integrated, further consideration could be given to the role played by the European supervisory authorities (ESAs).[3]
The green paper also states that the EU executive will consult regarding the merits and shape of an EU covered bond framework and present a range of policy options to achieve greater integration in covered bond markets.
The document, called Consultation on CMU, will also suggest harmonizing the market for covered bonds, securitization and also to create a single accounting standard for smaller companies. The benefit of having a single accounting standard will be that the standard may be customised as per the specifications required by the smaller companies, which would in turn lure cross-border investments, and eventually bring about diversification.
Reported by : Neha Somani
Dated: 17th February, 2015