Vice-President Jyrki Katainen
Good morning and welcome to the press conference on the CMU mid-term review.
This is an opportunity to take stock of what we have already achieved and analyse what more should be done.
CMU is an important and integral part of the Investment Plan for Europe. It is a classic single market project. It aims to improve the supply of capital through more vibrant capital markets. In particular, it aims to strengthen risk finance for expanding firms and innovative projects, and to finance long-term investments.
As you probably know, the majority of corporate finance comes from banks and only a small part from capital markets. If you compare this to the situation in the United States, it is, broadly speaking, upside down. We don't want to replace bank financing by the capital market, but we want to further develop the capital market to make it possible to provide different types of financing for different types of needs. In just twenty months we have delivered around two-thirds of our initial commitments, as set out in the original CMU Action Plan. The original CMU plan covered 33 concrete proposals, and we have covered or touched some 20 of them.
One of the innovative and refreshing aspects of the CMU was the multi-disciplinary approach to building capital markets – through a blend of regulation, non-legislative measures and public finance. One example: to increase pre-IPO risk finance, we have tabled and agreed proposals to make the EU framework for fund managers. Regulatory work has been complemented by a Pan-European Venture Capital Fund-of Funds programme, for which the Commission has tabled €400 million as an anchor investment.
While we make good progress with the implementation of the original CMU programme, new challenges have arisen. Because of the profound challenges posed by Brexit, and given economic and technological developments, we need to redouble our efforts to develop a well-functioning CMU for the EU-27.
In the mid-term review that we have adopted today, you find a renewed commitment to previously announced initiatives and a list of 9 new targeted actions, which can really make a difference. It constitutes a strong statement on the path forward in building European capital markets.
Sustainable finance is one key challenge we need to address.
Deep and efficient capital markets can make a powerful contribution to funding the transition to sustainable societies. These investment needs are far too large to be met from the public purse. Private capital will need to be mobilised. We need to reconfigure the economic and financial system so that private capital is redirected towards more sustainable uses.
There is also a financial stability dimension. Long-term investment decisions must properly internalise environmental or other risks, if financial systems are to be resilient.
But the broader challenge is more fundamental than that. To promote truly sustainable development from an economic, social and environmental perspective, we need a deeper re-engineering of the financial system. This includes developing an overall vision of sustainable finance and clear criteria for what is green or sustainable.
We have created a High-Level Expert Group to help us develop this strategy. We are eagerly awaiting their interim report. Both regulation and non-regulatory actions will be needed. Regulatory reform can be needed to "hard-wire" changes and to make them permanent - and thereby changes the incentives and decision-making processes of market participants.
A comprehensive approach, encompassing both better regulation and more effective use of public money, is urgently needed to translate our climate, environmental and sustainability commitments into tangible investments and results by 2030 and beyond.
The focus of CMU on aligning the financial system with sustainable long-term investment needs is crucial. We need enlightened regulatory reform to ensure that the regulatory system provides the right signals, incentives and obligations.
The CMU mid-term review proposes some concrete examples of work that needs to start now:
We need to be consistent throughout the investment chain in integrating sustainability considerations, for example by clarifying fiduciary duties of asset owners and asset managers.
We need to look at rating methodologies, as well as in the investment mandates of institutional investors and asset managers.
Above all, we are proposing to evaluate sustainability considerations systematically as part of all upcoming reviews of financial legislation.
But if we wish the EU to be the global centre of gravity for green assets and investments, we need support from the Member States, the European Parliament, and all interested parties to follow and support this very important work.
The CMU Mid-Term Review spells out why this mission is important and why it needs the support of everybody who has an interest in building a modern and vibrant economy.
To further support long-term finance, the Commission is presenting today measures to reduce prudential requirements for insurance companies which invest in infrastructure corporates. The changes adopted today to the Solvency II Delegated Regulation are similar to the ones made for infrastructure projects in September 2015. The equity risk calibration for qualifying infrastructure corporates is reduced by up to 27%, while the debt risk calibration is been reduced by 25% compared to the Solvency II standard formula.
The review is about creating new ways to increase investments in Europe. It is about providing capital to different types of needs. It is also about creating new markets, such as sustainable finance which is one of the opportunities we have to unlock. I want to thanks Valdis, his team and our services for the good work and cooperation on this. Thank you.
Vice-President Valdis Dombrovskis
As Jyrki said, completing the Capital Markets Union is an important part of our strategy to boost investment in Europe, to strengthen the recovery and build our future economy - an economy that is resilient, competitive and sustainable.
The prospect of the EU's largest financial centre leaving the EU means the rest of the EU economy needs advanced capital markets more than ever.
We want to create the right conditions for more funding to flow to the real economy, so that European start-ups and SMEs can get the finance they need to invest, innovate and grow.
For this, we need to break down barriers to cross-border investment, improve access to alternative finance, improve the ability of SMEs to tap capital markets, and more.
One of our main objectives is to unlock European savings and put them to work. EU households have one of the highest savings rate worldwide: they save at least one out of every ten euros they earn. But too few of these savings are being put to long-term productive use.
This is a wasted opportunity: savings held in bank deposits currently earn very low levels of interest, depriving savers of crucial revenue and our economy of much needed investment.
In less than two years since the launch of the Capital Markets Union project, we have already made good progress, by delivering about two thirds of the original action plan.
Let me give you some recent examples:
Last week, we reached a deal in principle to restart securitisation markets. These markets could unlock up to €150 billion of lending to households and companies.
We also reached political agreements on rules to strengthen venture capital and social entrepreneurship.
Just a couple of days ago, EU banks agreed on new high-level principles for quick and constructive feedback to SMEs seeking credit.
And for consumers, we tabled this spring our Action Plan to provide greater choice and better access to retail financial services across the EU. It will complement our work on the Single Euro Payments Area by addressing the high costs of making certain payments within the EU.
Today we are putting forward a revised action plan that significantly raises our ambitions for integrating EU capital markets by 2019.
Let me give you a few examples:
First, we will explore how to further ease conditions for SMEs seeking funding on public markets. Building on the input received from stakeholders and results of the Call for Evidence, we will look at ways to alleviate regulatory requirements for listed SMEs, such as reporting for supervisory purposes, and focus on targeted amendments to EU legislation by the second quarter of 2018.
Second, we will assess the case for an EU licensing and pass-porting framework for fintech activities by the end of this year. We want our innovative companies to scale up in a single European market, stay in Europe, and compete globally.
Third, we are determined to lead global work on supporting green finance. We will follow up on the advice currently being prepared by our High-Level Expert Group in the first quarter of 2018.
Fourth, we want to promote consistent supervision across the EU and beyond. By autumn this year (Q3), we will act on the findings in our ongoing public consultation to strengthen the European Securities and Markets Authority's powers in targeted areas, including by granting direct supervision where needed.
Fifth, we will take action on non-performing loans, which is constraining credit flow to the economy in some Member States. Finance Ministers will debate this issue next week at the ECOFIN meeting in Luxembourg.
And we will soon put forward new legislative proposals on personal pensions, on covered bonds, and on cross-border securities ownership.
In a few weeks we will put forward our proposal for a Pan-European Personal Pension Product, or PEPP.
Pension funds are currently underused in the EU: Only 27% of Europeans between 25 and 59 years old have enrolled themselves in a pension product.
A Pan-European Pension Product would be a unique 'portable' savings product that could contribute to unlocking this huge potential.
It would create a 'toolbox for businesses' to propose safer, more cost-efficient and transparent personal pension products on a pan-European scale.
For savers, PEPP would be a new option, with the advantages of easier switching and mobility across borders.
In this way, Pan-European Pension Products could help provide the investment Europe needs, while generating additional income for pensioners - an important point given the demographic challenge Europe faces.
These are just some of the initiatives we are presenting in today's Mid-Term Review.
Today's reviewed action plan demonstrates our commitment to step up our efforts to further strengthen and integrate EU capital markets.
But we cannot succeed alone.
We count on the support of the European Parliament, Member States, and market participants to turn these actions into successful outcomes, and complete our Capital Markets Union.