Brussels, 13 July 2016 — Thank you so much for giving me the chance to say a few words on the work we’ve been doing to build a Capital Markets Union. To talk about what we’ve done so far and also to sketch out the next steps which it now falls to my friend and colleague Valdis Dombrovskis to take forward.
I know some people have been wondering whether my leaving will mean a change of direction for CMU. I have seen theories about it being significant that Valdis, with his responsibilities for the euro, is taking over. Can we expect to see a new emphasis on institutional change? Will we get a Single European Supervisor? Will Britain leaving the EU mean that CMU will become more “ambitious”? Does it mean that the brake will come off, as some have suggested? Or does it mean the brake will go on?
To all of those people, and all of the theories, I would say that the whole point about the way we have built the Capital Markets Union is that it reflects what people – member states, the industry, Parliament and others – told us they wanted. The policy priorities were the ones identified in the consultation. The step-by-step approach was agreed by the whole College of Commissioners, it was endorsed by ECOFIN and by the Parliament. There was no appetite among member states for a single European supervisor. But there was complete agreement that this is a single market project for all member states. The analysis of why we need it has not been changed by the UK’s vote to leave the European Union. Or if it has, it has been to strengthen the case.
Growth and economic activity in Europe is still not as high as it should be and forecasts are being revised down. Unemployment is of course still much too high. The global outlook is more uncertain than when we began thinking about the CMU because of slowing growth in emerging markets and the uncertainty about the UK’s future relationship with the rest of the EU. So the focus on growth and on increasing financing to the wider economy is more urgent than ever.
The argument for the CMU to improve financial stability is also as strong as ever. Our capital markets are still half the size of the US, our corporate bond markets are still a third of the size, our venture capital markets still a fifth. Our SMEs still receive 75% of their funding from banks. And the lesson the financial crisis taught us about what happens if you put all your eggs in one basket and suddenly bank liquidity dries up is still valid. It’s absolutely essential for the European Union to continue diversifying the funding sources for its economy, particularly with London outside the EU. Europe needs to develop the shock absorber function that capital markets provided after the crisis in America, and which allowed the US economy to bounce back quicker. What has changed is that without the UK the CMU might take longer to build, but to my mind that makes the need to make progress all the more urgent. And, also of course the big known unknown is the nature of the relationship the UK will have with the EU once it has left.
So far as ambition is concerned, I would say two things. If by ambition, you mean getting on with a full programme, generating early momentum and tackling some of the deepest-rooted obstacles to the free flow of capital, I would say that CMU is already very ambitious. If, however, the word ambition is being used as shorthand for institutional change and further integration, I would gently suggest that there seems to be little enthusiasm currently across Europe for more integration. There is nothing ambitious about driving full-speed into a brick wall of political opposition.
But my simplest answer to the question as to what the future holds for CMU is this: look at the Action Plan. It has a programme and a timetable and its sets out every step that will be taken between now and 2018.
I think it’s the approach we’ve taken so far that has enabled us to make good progress on the agenda that I set out last September. I know Valdis is committed to keeping it going and to picking up the pace wherever he can. To increasing the funding options available to companies that want to grow and invest. To knocking down barriers to investments across borders and improve choice for consumers. And to developing financial regulation that’s trusted, that’s proportionate and that’s as growth friendly as possible.
So what have we already achieved?
Well, the first CMU action to come on stream was the amendment to Solvency II legislation that defined infrastructure as an asset class, and reduced capital ratios for this type of investment and investments in European Long-Term Investment Funds – ELTIFs – by about a third. That change came into effect on 2nd April. Insurers invest less than 1% of their balance sheet into infrastructure projects. Even a small increase could lead to billions of additional investment in Europe’s infrastructure. In the future, it will be important to look at whether it would be sensible to extend the change to a broader set of investments.
I’m really pleased we were able to bring forward a proposal to create a Prospectus regime that is simpler, faster and cheaper. This should make a real difference for companies of all sizes that want to raise money on public markets. But it should also help investors, by giving them more choice and more accessible information about investment opportunities. I’m delighted that the Council has reached an agreement on this – and retained a key element of the proposal: to exempt the smallest companies trying to raise capital under 10 million euros. If firms are raising small amounts of money domestically, there’s no sense in forcing them into a pan European regime. Let’s be big on big things and small on small things. I hope that Parliament will be able to work with Valdis to get this finalised. Companies and investors across the EU need a better regime than we have today. And a wider review of regulatory barriers that SMEs encounter when they want to raise money on public markets is planned for next year.
For SMEs of all sizes, the work we have started to improve feedback for those who get turned down for credit should also be built on. Europe’s commercial banking associations wrote to me only recently and promised to set out the principles for how they will offer that feedback by September. This is a good opportunity to show that industry led solutions can play a role in the CMU and I welcome their offer. They’ll now have to address their letter to Valdis, but that shouldn’t change their deadline.
Other measures to increase funding to the wider economy include our securitisation proposals. This is one measure that could really help get lending to Europe’s SMEs going. So let me encourage my friends in the European Parliament to judge our proposal on its merits. I no longer have any skin in this game, but I genuinely believe we’ve achieved a balanced approach that we urgently need to take forward. There is no trade off with EDIS, or any other file for that matter. The longer the proposal takes to get through, the longer we take to boost lending.
Tomorrow, as my last announcement, I will be coming forward with proposals to strengthen venture capital markets in Europe. They’re important for smaller companies in their start up-phase, and to retain talent and entrepreneurship in Europe, rather than seeing it go to America in search of financing. So we’ll be proposing a revision of the EuVECA regulation to increase the range of businesses in which venture capital funds can invest and opening up the EuVECA label to more fund managers. I’ll also be suggesting some changes to the EUSEF regulation to get more funding behind these funds that channel money to socially minded businesses. In parallel, Carlos Moedas is looking at how we can use public money to attract more private sector investment through a pan-European fund of funds.
I have always been clear that consumers need to be at the heart of a Capital Markets Union. That’s why I launched a Green Paper to look at financial services from their point of view. I think that digital innovation provides us with a great opportunity to link up our markets better in Europe. We’ve already published a report on crowdfunding that’s an exciting new source of financing for young, innovative companies, particularly when they move from start-up to the next stage of development. This is an area where we can learn from each other about what works best. New approaches to regulation like FinTech hubs and regulatory safe spaces – or sandboxes – are the sort of best practice we should be sharing.
The responses to our Green Paper have identified a number of questions that we’re looking at more closely. How can we encourage systems that can identify consumers remotely without compromising important security requirements? How we can improve the access to information for consumers to make informed decisions about financial products in other countries than their own? How can the transparency of foreign exchange fees can be improved? These are the sorts of issues we’ll be addressing when the Commission sets out its thinking on how to follow up. And, as the holiday season is upon us, I do hope that Valdis will share my frustration at the car hire market and take forward ideas to make prices more transparent. The plan is still for the Commission to come forward with follow up actions on how we can deepen the single market for retail financial services this autumn. We’ll be publishing a summary of responses tomorrow.
We’ve started really important work in several areas to dismantle barriers to investment across borders that I hope can also be pushed forward. To strengthen the cross border distribution of investment funds, like UCITS, we’ve only recently launched a consultation to get a better idea of the barriers to cross border service provision, so that we can work out how to overcome them. We should be aiming for a system where investors can get hold of enough information, where they’ve got more choice and where investment funds can genuinely compete with each other in the Single Market.
Now we’ve built the momentum, we’ve started to press ahead with ambitious work that will take longer to deliver. For example, by the end of the summer, we will launch a consultation to look at how to create the right conditions for a European personal pensions market. This is important if we’re to inject more savings into capital markets. This could provide the economies of scale we need to reduce costs and increase choice for savers who are putting money aside for their retirement.
We have also been working hard on proposals aimed at reducing differences between national insolvency regimes that should be ready by the end of this year. If we can make company restructuring easier, if we can increase certainty for those wanting to invest across borders, this can only be beneficial. So I hope you can keep the focus on addressing the most important barriers, and building on national regimes that work well.
As part of the CMU Action Plan, we said we’d look at the financial services legislation that we have passed to make sure it is working as intended. To do this we launched a Call for Evidence on all the financial services regulation. This responded to the case that the European Parliament made. It was never intended to question the architecture that was put in place in response to the crisis. Rather, the goal was to check whether everything was working as we’d hoped and was as growth friendly as possible.
I set out our analysis of the Call for Evidence responses yesterday, with some specific recommendations on how we might increase funding to the wider economy; make our legislation more proportionate; and reduce the compliance burden for businesses.
Ladies and gentlemen,
Building a Capital Markets Union was never going to be easy. I was never under any illusions about that. But today, my message to people would be to stick with it, to keep hammering away at the barriers to free movement of capital for the years ahead. I’d urge Valdis Dombrovskis and colleagues in the European Parliament to do that because, with or without the UK on board, it’s the right thing to do. I think we’ve laid the foundations with an ambitious agenda. Progress so far has been good. Step by step, I feel we’ve put in place a range of measures to strengthen trust in the financial system, increase competition and choice. This is work that can support the growth and investment we need to create jobs in Europe. So I wish my successor, the members of ECON and many of you here tonight who have already invested so much energy into the project, every success in taking it forward. Businesses need it. Europe needs it. Long live the Capital Markets Union.
Compliments of the European Commission.
On a personal note we enjoyed working with Commissioner Hill and his team and wish Lord Hill all the best for his next assignment.