EUROPE – The European Commission has identified three main areas of action for its Green Paper on Long-Term Investment, which it hopes to launch as early as December, IPE understands.
A person working within the internal market division of the Commission told IPE that Brussels hoped to launch the Green Paper, announced by Michel Barnier at the Insurance Europe conference earlier this year, at the beginning of December.
However, the same person conceded that the paper was an "evolving" piece of work, and that the Commission had some "intense" internal processes.
So far, Brussels has identified three main actions to address the lack of funding for long-term projects such as infrastructure, climate change technology, new innovation, R&D and digital technology, the person familiar with the matter went on to say.
"There are a number of factors impacting the allocation of long-term project funding, be they public sector austerity programmes that are constraining public authorities from investing, a focus on liquidity, and cash holding, which is also tinning up capital or even bank deleveraging," the person told IPE.
According to the Commission, the underlying issues relate to capital flow and how to make sure capital is flowing in an effective way.
Additionally, Brussels is looking into ways to ensure there is not an excessive focus on short-termism, and how to incentivise behaviour that is more conducive to long-term financing.
The Commission is therefore considering boosting the securitisation market in Europe, while redefining asset managers' incentives towards long-term investments.
Earlier this month, the Commission already published a two-page "roadmap" for its Green Paper.
In this paper, it asked whether financial markets were channelling enough funds to long-term investments.
It also asked whether the interaction between financial intermediaries resulted in a bias towards the short term, with investors not asking asset managers to focus on long-term horizons, or with asset managers preferring to invest with the horizon mostly beneficial to their own remuneration.
The same roadmap also stressed that policy actions might be addressed, mainly towards financial intermediaries and institutions, while benefits should flow for investment projects, corporates and SMEs.
With regards to Solvency II and the IORP II Directive, the Commission stressed that the Green Paper would discuss prudential rules as well as the impact of those two directives on long-term investing.
The source said: "The Commission has already asked [the European Insurance and Occupational Pensions Authority] to look into the calibration of the requirements for long-term assets, precisely because some concerns have been raised, and EIOPA will report to us in the spring 2013."
The source added that if the Green Paper were to be launched in December, market participants would likely have until late February or the beginning of March to give their input.
Once the consultation process concludes, the Commission will then "commit to more concrete action" and may even make a legislative proposal if deemed appropriate.