Next Wednesday, Jonathan Hill, the EU’s commissioner for financial services, will launch his marquee project, the Capital Markets Union. It’s a day we’ve been looking forward to since the spring.
A draft of the action plan and the first batch of accompanying legislation obtained by POLITICO shows what is coming next week. Here are five takeaways from the file.
1. First off, the Capital Market’s Union isn‘t a thing. Don’t expect to see Hill standing in a black turtle-neck and blue jeans in soft light in the European Commission press room sprouting Steve Jobs-like superlatives about a new miracle product.
“There is no single measure that will deliver a Capital Markets Union,” the action plan reads.
Instead Hill has been explaining his constellation of plans for months, repeating this message: The Capital Markets Union is a classic EU single-market project that attempts to link savings with growth.
Put simply, the idea is to get Europe’s money moving and to make it easier for firms and individuals to invest their money in new ways that strengthen the European economy as a whole.
A big part of the undertaking is aimed at helping small- and medium-sized businesses get money to grow, taking away unnecessary hurdles for corporate investors and giving non–investment savvy citizens better options .
2. As simple as it sounds, the details are complex. Over the next three years at least, the CMU will go to work in the deep plumbing of financial markets — trying to winnow financial regulations passed in response to the crisis; changing capital requirements for insurance funds; simplifying the documents companies searching for investment capital have to produce; attempting to harmonize 28 member states’ insolvency laws and tax codes where possible — while simultaneously making the realm of financial investments more welcoming for regular citizens with little expertise or financial literacy.
How Hill is able to master that chasm between technical complexity and approachability will be one of the most interesting plot lines as the CMU evolves. There will be annual progress reports, but the real measure of his success will be whether the project changes Europe’s business landscape — for example, will we see European tech firms, who have been forced to seek venture capital and angel investors overseas, looking for their capital on the Continent?
3. The big push comes next year.
For the remainder of this year, the commissioner’s first steps include:
- Adjusting the requirements for insurers to make it easier to invest in specific assets (the rulebook is called Solvency II). Hill wants to smooth the way for insurance companies and pension funds to invest in European infrastructure and long-term investment funds
- Gathering evidence on the impact of financial regulations passed during the crisis to see what has hobbled investment instead of protecting the economy
- Launching a project to increase competition between EU states in the consumer banking and insurance markets, so citizens can have better options for handling their cash, savings and insurance policies
- Building an EU-wide securitization market with legislation to standardize the definition of what securities are across the bloc
- A consultation on an EU-wide framework for covered bonds, an investment product — Europe’s answer to asset-backed securities — favored in countries like Germany and Denmark but less popular elsewhere
- Simplifying the document requirements, known as the Prospectus Directive, for firms that want to raise money on the market
Then, his docket for 2016 includes:
- Creating a pan-European venture capital “fund-of-funds”
- Publishing a report on crowdfunding — think of the American company Kickstarter — and deciding how to build up this type of investment in Europe
- Developing a standard accounting solution for small- and medium-sized firms that are raising investment money on markets, in coordination with the International Accounting Standards Board
- Introducing legislation on the Common Consolidated Corporate Tax Base
- Investigating the idea of a competitive pan-European market for personal pensions
- Examining hurdles that investment funds face when trying to operate across borders, including differences in marketing requirements and tax administrations
- Where needed, helping some EU countries develop their capital markets. This will be done in collaboration with the Commission’s new technical assistance team, the Structural Reform Support Service
- Introducing legislation to help harmonize tax refund practices and insolvency procedures in EU member states — a big barrier to cross-border investment
The timetable mentions further plans for 2017, along with a “stock-take” on how to proceed. The CMU will remain a living project that evolves in response to economic developments and the outcome of investigations built into the first two years.
4. The onus is also on the private sector. “The success of the CMU will also depend on market participants,” the action plan reads. In other words: Be the change you want to see in the financial markets.
Hill, who has a background in public relations, has been building ownership and enthusiasm for his project all along — the action plan describes this as “creating a sense of momentum, and sparking a growing confidence.” Hill’s success relies on his ability to continue keeping the financial industry on his side.
5. Worried, for example, about capital requirements for insurers who want to invest in certain asset classes? POLITICO can set your mind at rest — according to the leaked document, it’s as simple as:
From the European Commission’s “amending Commission Delegated Regulation (EU) 2015/35 concerning the calculation of regulatory capital requirements for several categories of assets held by insurance and reinsurance undertakings.”