In the framework of the creation of a Capital Markets Union (“CMU”)1, the European Commission issued on the 18th of February 2015 a Green Paper on the subject marking the beginning of a three month consultation that aims at clearly defining the obstacles to this project and gaining consensus on the appropriate solutions.
At the same time, and in relation with the Green Paper on the CMU, two other, separate public consultations were launched by the European Commission with the objective to make an early progress regarding the creation of the CMU, being (i) an assessment of the Prospectus Directive2 and (ii) a consultation on high quality securitisation.
The first consultation launches the review of the Prospectus Directive which has been accelerated to concur with the agenda of the CMU project, whereas the second one aims at the restructuring of the securitisation process in the EU.
Both consultations, as well as the CMU related one, have the same deadline for submission of feedback, being Wednesday 13th of May 2015.
The immense changes ultimately expected from these three projects are part of the bigger so-called Investment Plan for Europe. In November 2014, President Jean-Claude Juncker announced the launch of this ambitious project under which over 300 billion Euros of public and unlocked private investments will be invested in the EU economy between 2015 and 2017:
Green Paper on building the CMU
In addition to what has been recently published here, the following may further be noted with regard to the publication of the Green Paper:
Two documents have been issued alongside the Green Paper in the meantime: (i) a Commission Staff Working Document3 which describes the present situation of the capital markets in the EU and details the obstacles to remove in order to realise the CMU and (ii) a Q&A4 on the Green Paper on building a CMU which summaries the philosophy and the objective of the CMU from the point of the main stakeholders.
In Luxembourg, the Green Paper was transmitted to the members of the Luxembourg Parliament’s Commission of Economic Affairs on the 3rd of April. Their task will thus consist, for the 13th of May 2015, in providing the European Commission with a feedback response on the following questions:
- Beyond the five priority areas identified for short term action5, which other areas should be prioritised?
- Which further steps around the availability and standardisation of SME credit information could support a deeper market in SME and start-up finance and a wider investor base?
- Which support can be given to ELTIFs6 to encourage their take up?
- Is any action by the EU needed to support the development of private placement markets other than supporting market-led efforts to agree common standards?
The said answers are currently under preparation.
Consultation Paper regarding the review of the Prospectus Directive
As stated above, the European Commission’s review of the Prospectus Directive has been brought forward in line with the agenda of the creation of the CMU and the publication of the CMU Consultation Paper.
The review concerns every aspect of the Prospectus Directive including its existence as such. In this regard, the first question of the Consultation Paper has been drafted as follows: “Should a prospectus be necessary for admission to trading on a regulated market, or for an offer of securities to the public?”
The aim of the review is to address several shortcomings such as complexity, expenses, approval procedures and timing issues.
The review is therefore focused on three fundamental questions:
- When is a prospectus needed?
- What information should the prospectus contain?
- How is it approved?
Accordingly to the objective of the CMU, the main goal of the review of the Prospectus Directive is to find the balance between easing the entry of SMEs into the capital market and maintain a sufficient level of investor protection.
The European Commission wishes thus to find the most appropriate way to deal with the overlap of different disclosure and publication requirements such as the prospectus itself, its various versions (for instance the prospectus summary, the base prospectus, IPO prospectus, etc.), the application of the Transparency Directive7, and the new PRIIPs Regulation8.
Consultation Paper regarding a “simple, transparent, and standardised securitisation”
Before entering into the details of the consultation as such, one should note following figures: Securitisation issuances in Europe amounted to approx. €216 billion in 2014 compared to approx. €594 billion in 2007. The issuance level by SME securitisations still stands at only roughly half the amount prior to the crisis (approx. €77 billion in 2007 compared to approx. €36 billion in 2014).
The relevant consultation seeks views from interested parties on how best to implement a high quality securitisation definition in the EU legislation, and which requirements should apply to it in terms of capital and solvency requirements, due diligence and transparency obligations.
In its introduction, this consultation is presented as a first step towards delivering an EU securitisation framework with a view to:
- restarting markets on a more sustainable basis, so that simple, transparent and standardised securitisation can act as an effective funding channel to the economy;
- allowing for efficient and effective risk transfers to a broad set of institutional investors;
- allowing securitisation to function as an effective funding mechanism for some non-banks as well as banks; and
- protecting investors and managing systemic risks.
On the basis of these objectives, the consultation will look again at the EU approach to securitisation, from a bank, investor and broader economic perspective in order to come up with an effective and targeted initiative. The objective is thus to benefit from a deep, liquid and robust market for securitisation, which is able to attract a broader and more stable investor base in order to help allocating finance where it is most needed.
The details of the above described consultations can be found on the European Commission’s dedicated CMU website9.
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2 Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 on the prospectus to be published when securities are offered to the public or admitted to trading and amending Directive 2001/34/EC
3 Commission Staff Working Document – Initial reflections on the obstacles to the development of deep and integrated EU capital markets, SWD(2015) 13, 18 February 2015
4 Q&A on the Green Paper on building a Capital Markets Union, MEMO 15 – 4434, 18 February 2015
5 - lowering barriers to accessing capital markets through a review of the current prospectus regime
- widening the investor base for SMEs by improving credit information on SMEs
- developing proposals to encourage “high quality” securitisation and free up banks’ balance sheets so they can lend more
- supporting take up of long-term investment funds such as ELTIFs (see definition below)
- supporting industry led work to develop European private placement markets
6 European Long Term Investment Funds as regulated by the future ELTIF Regulation adopted by the European Parliament and the Council and to be published in the coming days.
7 Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC
8 Regulation (EU) n° 1286/2014 of the European Parliament and of the Council of 26 November 2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs)