Τhe European Commission put forward today a package of proposals to further strengthen the Capital Markets Union and the Banking Union. The new measures consist of four parts: risk-reduction rules that will allow market-led solutions for the development of sovereign bond-backed securities (SBBS), first tangible measures to allow the financial sector become a powerful actor in fighting climate change, new rules that will make it easier for smaller businesses to get financing through capital markets and strengthened EU rules on motor insurance.
Risk reduction proposal to enable sovereign bond-backed securities
The Commission also proposed new rules that will allow market-led solutions to support further integration and diversification within Europe’s financial sector, leading to a stronger and more resilient Economic and Monetary Union.
Today’s proposal will remove unwarranted regulatory obstacles to the market-led development of sovereign bond-backed securities (SBBS). These securities would be issued by private institutions as claims on a portfolio of euro-area government bonds. SBBS would, by design, not involve mutualisation of risks and losses among euro area Member States. Only private investors would share risk and possible losses. Investing in such new instruments would help investors such as investment funds, insurance companies, or banks to diversify their sovereign portfolios, leading to more integrated financial markets. It would also contribute to weakening the link between banks and their home countries, which—despite recent progress—remains strong in some cases. SBBS would not negatively affect existing national bond markets.
Making the financial sector a powerful actor in fighting climate change
Finally, the Commission delivered the first concrete actions to enable the EU financial sector to lead the way to a greener and cleaner economy.
Today’s proposals confirm Europe’s commitment to be the global leader in fighting climate change and implement the Paris Agreement. The involvement of the financial sector will greatly boost efforts to reduce our environmental footprint while enhancing the sustainability and competitiveness of the EU economy.
Following up on the first ever EU Action Plan on Sustainable Finance, the proposals will allow the financial sector to throw its full weight behind the fight against climate change.
The key features of the measures consist of:
- A unified EU classification system (‘taxonomy’): The proposal sets harmonised criteria for determining whether an economic activity is environmentally-sustainable. Step by step, the Commission will identify activities which qualify as ‘sustainable’, taking into account existing market practices and initiatives and drawing on the advice of a technical expert group that is currently being set up. This should provide economic actors and investors with clarity on which activities are considered sustainable so they take more informed decisions. It may serve as the basis for the future establishment of standards and labels for sustainable financial products, as announced in the Commission Action Plan on Sustainable Finance.
- Investors’ duties and disclosures: The proposed Regulation will introduce consistency and clarity on how institutional investors, such as asset managers, insurance companies, pension funds, or investment advisors should integrate environmental, social and governance factors in their investment decision-making process.
- Low-carbon benchmarks: The proposed rules will create a new category of benchmarks, comprising the low-carbon benchmark or “decarbonised” version of standard indices and the positive-carbon impact benchmarks. This new market standard should reflect companies’ carbon footprint and give investors greater information on an investment portfolio’s carbon footprint.
Making it easier for smaller businesses to get financing through capital markets
The Commission has today proposed new rules to give small and medium enterprises better access to financing through public markets. Part of the EU’s Capital Markets Union agenda, today’s initiative should help EU companies to tap market-based funding more easily and cheaply so that they can expand.
Despite the benefits of stock exchange listings, EU public markets for small and medium enterprises can struggle to attract new issuers. This is why the Commission, as announced in the Mid-Term Review of the CMU Action Plan in June 2017, wants to adapt existing EU rules on access to public markets. This complements a comprehensive series of measures already adopted by the Commission since the launch of the CMU to improve access to market-based finance for SMEs.
The aim is to cut red-tape for small and medium companies trying to list and issue securities on ‘SME Growth Markets’, a new category of trading venue dedicated to small issuers, and to foster the liquidity of publicly-listed SME shares. The new rules will introduce a more proportionate approach to support SME listing while at the same time safeguarding investor protection and market integrity.
Stronger insurance rules to protect victims of motor vehicle accidents
The European Commission proposed to strengthen EU rules on motor insurance to better protect victims of motor vehicle accidents and improve the rights of insurance policyholders.
Today’s proposal will ensure that victims of motor vehicle accidents receive the full compensation they are due, even when the insurer is insolvent. The revamped rules will also ensure that those who have a previous claims history in another EU Member State are treated equally to domestic policyholders, and potentially benefit from better insurance conditions.
Concretely, the Commission proposes the following changes:
- Insolvency of an insurer: If the insurer of the vehicle responsible for an accident is insolvent, victims will be rapidly and fully compensated in their Member State of residence. In cross-border situations, this will ensure that the ultimate financial responsibility is borne by the insurance sector of the home Member State of the insurer, while allowing for quick compensation to victims.
- Claims history statements: Insurers will have to treat claims history statements issued by an insurer in a different Member State equally to those issued domestically. This should ensure that citizens purchasing insurance abroad can benefit from more advantageous insurance premiums, on the same level as domestic consumers.
- Uninsured driving: Member States’ powers to combat uninsured driving will be reinforced. This should help to tackle uninsured driving which increases premiums for honest motorists.
- Minimum amounts of cover: EU citizens will benefit from the same level of minimum protection when travelling in the EU. The proposal sets out harmonised minimum protection levels for personal injury and material damage across the EU, as current minimum levels differ slightly between Member States.
Compliments of the European Commission