The capital market union (CMU) is a new emphasis in Brussels and Jonathan Hill, the new Commissioner for financial services, mentioned the subject repeatedly at his initial vetting by MEPs.
The Commissioner’s briefing from Jean-Claude Juncker, the new Commission president, was clear. Juncker told Hill that “to strengthen economic recovery and to build a Europe that delivers jobs and growth for its citizens” he should bring about “a well-regulated and integrated capital markets union, encompassing all member states, by 2019”.
Hill indicated to parliament’s economic and monetary affairs (ECON) committee that he will willingly continue the work done by Michel Barnier, whose team produced a flood of 40 sets of reforms.
The Commissioner designate told MEPs of the need to “help unlock the capital around Europe that is currently frozen and put it to work in support of Europe’s businesses, particularly SMEs”. Larger investment pools would be created “via liquid and transparent secondary markets for corporate bonds”.
Hill said careful study “to identify obstacles in the way of a free flow of funds in the market” would be necessary. “I want to take this step by step in order to identify impediments to achieve investment in high-quality securitisation,” he said.
Hill will no doubt take into account suggestions from the Brussels-based European Capital Market Institution, which notes that the market for investment products is “fraught with difficulties for consumers in terms of the ease of comparing products, trust in suppliers and consumer satisfaction”.
Among particular measures necessary to encourage CMU is corporate reporting designed to suit the needs of professional investors. Relevant here are rules such as the Accountancy Directive (2013/34/EU), which simplifies requirements for small companies.
There is also the Commission’s IAS Regulation (1606/2002). Implemented in 2005, this set out to replace a hotchpotch of national accounting rules across the EU with a single set of internationally recognised rules.
However, there is still work to do, according to MEP Theodor Dumitru Stolojan. He says there is still much disagreement in Parliament around the definition of ‘prudence’ in company accounts, referring to the need to reflect the reality of a company’s position.
Stolojan, the parliamentary co-ordinator on financial reporting and auditing activities, also said the debate on international financial reporting standards (IFRS) was “far from over”.
Others mentioned the lack of uniform implementation of accounting rules as a brake on capital flows. Claes Norberg, representing BusinessEurope, warns against the danger of an “uneven playing field”.
There is another dark cloud – notably increasing references to ‘E’ FRS, a non-existent European version of IFRS. This reflects a protest voice against the international standards from some countries, especially France.
Uniform implementation of IFRS could be imperilled by pressure from national governments. The commission is due to report on the impact of IFRS in the EU by December 2014.
Other issues pertinent to CMU are inconsistent legal systems, including differing listing rules for stock exchanges.
Furthermore, the cornerstone MiFID and MiFIR rules (markets in financial instruments directive and associated regulation), may require attention under the delegated act procedure.
As for the subject of company law, Mirzha de Manuel Aramendia, Brussels-based director of capital markets at the CFA Institute, also cites the lack of harmonisation in areas such as bankruptcies as an impediment to cross-border investment.
Internationally, the Madrid-based International Organization of Securities Commissions, which brings together the world’s securities regulators, is investigating the important role of audit committees in improving audit qualit