Asset managers and insurers have applauded a green paper by the European Commission announcing details on the Capital Markets Union (CMU), amid concerns from some MEPs.
Yesterday, the Commission began its consultation on creating a single capital market within the EU to “unlock liquidity” for European businesses and infrastructure, and shift reliance from banks to institutional investors.
The commissioner for financial stability, Jonathan Hill, presented the proposals, arguing it was a “classic” single market project that would meet the approval of member states, including his native UK.
The German Investment Fund Association (BVI), representing €2.4trn of assets, said the Commission’s plan created opportunities for investors.
Thomas Richter, the BVI’s chief executive said: “This can improve the framework conditions for the macro-economic function of fund companies as intermediaries between capital offer and demand.”
This was echoed by the BVI’s UK counterpart, The Investment Association (IA), where Richard Metcalfe, director of regulatory affairs, said the Commission should “complete” the EU single market with pan-European collective investments.
“That may require imagination,” he said. “It certainly needs a consistent approach to investor protection, which does not currently operate to the same high standard for all investment products.”
However, German Green MEP Sven Giegold, member of the Parliament’s Economic and Monetary Affairs Committee (ECON) said Hill should use the opportunity to make financial markets compatible with EU-values.
“A CMU with a one-sided and short-term focus on shareholder value is exactly what the EU doesn’t need,” he said.
Giegold was reluctant to approve Hill’s position as Commissioner over his history as a banking lobbyist, describing his appointment as “provocative”.
“The harmonisation of capital markets could function in Europe, if this is accompanied by the strengthening of the EU supervisory authorities. The EU capital market must not lag behind in the supervision of cross-border actors,” he added.
He also said the Commission needs to move beyond a “tunnel vision” on the CMU and look at including the possibility for small and prudent banks to support SMEs.
Fellow German MEPs Markus Ferber, deputy chairman of the ECON and Markus Pieper said Hill’s initiative should not simply import the “Anglo-Saxon model”.
“In regions that are suffering from a dysfunctional bank lending market despite low interest rate policies, Hill’s proposals could be an addition to the existing toolkit,” they added.
“In Germany, company loans, which constitutes the majority of SME financing, can and should not simply be replaced.”
Hill said the occupational and personal pensions market would be key to moving towards market-based financing – but added prudential regulation within Solvency II could act as a barrier to attracting long-term financing.
The UK’s insurers group, the Association of British Insurers (ABI), also welcomed the proposals.
Director general Huw Evans said the organisation looked forward to engaging with the Commission given its members were well-placed to provide for long-term projects.
Deputy director general of Insurance Europe, Olav Jones, added: “The consultation covers several key areas, a primary example being the prudential treatment of long-term investments.
“Insurers are particularly hopeful that progress can be made to reduce barriers and disincentives to making long-term investments.”