1. law, govt and politics
2. legal issues
3. legislation

1) Beyond the five priority areas identified for short term action, what other areas should be
prioritised?
The UK welcomes the open nature of the Commission’s consultation, which should provide a firm
evidence base on which to base policy responses. The Action Plan must set out, on the basis of this
consultation, a set of evidenced priorities that have impact.
In the immediate term, Capital Markets Union should focus on:
1. Restarting the securitisation market
 The Commission should adopt a proposal for a Directive on simple, transparent and
standardised securitisation.
 The Directive should establish a clear set of criteria to designate ‘qualifying’
securitisations and an effective and robust verification mechanism.
Legislation should enable appropriate prudential capture of risk, ensure appropriate incentives for
issuers and investors and enable securitisation to compete fairly with other asset classes. In
particular this would enable medium sized banks, which typically use standardised models, to take
advantage of opportunities to diversity their funding and serve the real economy.
2. Lowering the barriers to accessing capital markets
 The Commission should review the Prospectus Directive to strike a better balance
between access to capital markets and investor protection. This should:
i. Raise the exemption thresholds, so more small offers can be carried out
without a prospectus
ii. Review prospectus content to prevent excessively lengthy documents
iii. Review whether the current arrangements for ex ante approval of
prospectuses are appropriate in all cases
iv. Ensure the costs faced by SMEs are significantly reduced
Responses to a UK Government consultation in 2010 suggested that preparing a
prospectus for a £5m (€7m) public offer can cost between £350,000 and £600,000
(€490,000 - €840,000), putting the capital market beyond the reach of too many
SMEs. Reforms in the areas outlined above would allow more SMEs to access
markets at lower cost, without compromising investor protection.
3. Supporting development of a pan-European private placement market
 The Commission should:
i. Support the development of market standards, standard legal
documentation, and in due course, a secondary market
ii. Share best practice, particularly of successful withholding tax initiatives.
iii. Explore the costs and benefits of emulating the US National Association of
Insurance Commissioners credit scoring system
Last year, the UK introduced a new exemption from withholding tax for private placements. In
response, six major institutional investors committed to invest around £9 billion (€13 billion) in
private placements and other direct lending to UK companies over the next five years. Other
Member States should consider their own exemptions and the Commission should seek to establish
and share best practice.
In the US, National Association of Insurance Commissioners credit scores are a key feature of the
successful private placement market. The NAIC, a central body for state-level insurance regulators,
provides ratings services to US insurers investing in private placements The Commission could carry
out a cost-benefit analysis of the idea of an EU equivalent.
4. Opening the market for SME lending by establishing minimum standards for SME credit
information
 The Commission should recommend minimum standards to ensure:
i. Credit information is of a high quality which includes both positive data,
such as payment performance, and negative data, such as defaults.
ii. There is adequate infrastructure in place to allow data to be shared.
iii. Information is shared on an equal basis between banks and non-banks.
There is currently a high degree of diversity in the EU in terms of what credit information is shared,
by whom, how it is shared and who has access to it. This diversity means harmonisation in this area
is likely to be difficult to achieve in the short term, while the largely domestic nature of these
markets also points towards Member State action being more effective than European legislation in
tackling the issue.
We support the excellent work of the Commission in mapping the information that is currently
available throughout the EU. The Commission should use this work to establish best practice and
form the basis of official recommendations.
5. Removing barriers to funds operating cross-border
 The Commission should support the role of investment funds as alternative finance
providers and identify and remove barriers to their operation across the EU.
 The Commission should review UCITS and AIFMD:
i. Removing scope for Member States to impose additional requirements
ii. Removing requirements for UCITS to appoint paying agents in each
jurisdiction
iii. Ensuring digital media is on an equal footing to traditional paper disclosure
methods
Investment funds are a significant source of funds in the EU. Commission work should focus on
increasing this source of non-bank funding by identifying and removing barriers to growth and their
operation cross border.
Under both the AIFMD and the UCITS passports, some national regulators have imposed superequivalent requirements. This increases legal uncertainty for managers, adds cost, and discourages
them from operating in other jurisdictions. The Commission should review these Directives in order
to identify barriers with a view to achieving greater consistency, which would encourage funds to
market cross border, increasing competition and choice in the market and creating new investment
and financing opportunities. Legislation should also be updated to ensure it reflects emerging
electronic distribution practices.
In the medium term, Capital Markets Union should focus on:
6. Establishing vibrant venture capital markets in every Member State
 The Commission should study the effectiveness of Member State interventions in
venture and seed capital markets with a view to establishing best practice and
issuing Country Specific Recommendations.
 The EIB and EIF should publish details and analysis of their investment returns.
Member States take varied approaches to supporting venture capital, but there has been little
independent study comparing interventions. The Commission should establish best practices to
assist Member States in designing effective interventions tailored to their jurisdictions.
Institutional investment in European venture capital is hampered by a perception of poor returns.
As a significant investor in the sector, EIB and EIF should publish details of their investment returns
to the fullest extent possible under their transparency framework.
7. Developing European corporate bond markets
 ESMA should ensure MiFID II pre-trade transparency requirements are appropriately
designed to support liquidity.
 The Commission should undertake a root-and-branch review of European corporate
bond markets including drawing upon the conclusions of the UK’s Fair and Effective
Markets Review.
MiFID II brings significant reforms to the transparency of corporate bond transactions. Inappropriate
calibration in this area could have significant impact on secondary market liquidity. ESMA should
introduce new requirements very carefully, closely following the level 1 provisions.
There are a range of views regarding the extent and nature of possible illiquidity problems in
European corporate bond markets and the likely efficacy of potential solutions. A comprehensive
review in this area would enable any future policy interventions to be appropriately targeted. This
review can build on international work looking at market-based finance and shadow banking
including the UK’s Fair and Effective Markets Review, which will report in June.
8. Promoting international consistency, cooperation and trade
 The Commission should actively engage in dialogue with key international partners
to promote internationally consistent standards.
 The Commission should agree to a set of principles aimed at ensuring third country
provisions are appropriately designed.
Divergent standards lead to market fragmentation and regulatory arbitrage, undermining financial
stability and European competitiveness. The Commission should seek to promote international
consistency, making it easier for businesses to operate and capital to flow across international
borders.
Europe must remain open to international business. The Commission should establish a set of
principles governing the design of third country provisions to ensure that, where regimes are
appropriate, they are tailored to their justification for existence and are coherent with the
international regulatory context. Equivalence assessments must be outcomes-based and
proportionate.
9. Ensuring the ESAs contribute to a competitive Europe
 The ESAs should focus on fulfilling their existing mandate.
 The Commission should review the ESA Regulations, to include a binding
requirement for all ESAs to consider competition.
The ESAs have a critical role to play in ensuring high standards of implementation and co-ordinated
supervision, which are fundamental to the success of CMU. While new ESA powers are not necessary
for the development of CMU, the institutions can become more effective. To this end, the ESAs
should have a binding requirement to consider competition when discharging their existing powers,
particularly when drafting legislation. Competition is at the heart of efficient, open, and resilient
economies and must therefore be at the heart of a successful Capital Markets Union. The ESAs
should employ competition considerations as an additional tool to make financial services markets
work better and more efficiently for all participants.
Over the longer term, Capital Markets Union should focus on:
10. Building capability in all Member States
 The Commission should undertake a comprehensive review of capital markets
capability to:
i. Establish best practices for Member State interventions aimed at promoting
capital markets capability and assisting national governments where
necessary
ii. Recommend an EBRD technical assistance programme aimed at improving
capability in Member States with underdeveloped capital markets
iii. Support Member States to create business and investor education
programmes and cross border apprenticeships
Attitudes, awareness, and capability in respect of market based financing are not uniform across the
EU, with the need more acute in some Member States. These Member States need assistance on a
fundamental level to address local cultural barriers and build supply and demand from the bottom
up. The Commission should assist these Member States where necessary, helping them to design
business and investor education programmes and cross border apprenticeships to build skills and
experience and pursue an EBRD technical assistance programme.
We believe there is a very positive and substantial agenda for action required to develop a strong
capital markets union including a mix of industry led initiatives, reviewing and refining the existing
legal framework and indeed further legislation. However, we do not see value in progressing the
following measures:
1. Transfer of direct supervisory responsibilities to European institutions
 Supervision of market infrastructures such as Central Counterparties and Central
Securities Depositaries must remain at Member State level. Creation of a single
supervisor would not remove barriers to capital flows or have relevance to the
development of markets.
2. A 29th regime for harmonisation of personal pensions
 This would not contribute to CMU objectives and cannot be justified on subsidiarity
or proportionality grounds.
3. Tax harmonisation
 Member States tailor tax systems to the specific features of their jurisdiction.
Measures to attempt tax harmonisation that would be lengthy and difficult to
achieve given direct tax is a Member State competence and decided by unanimity.
Furthermore, it is unlikely that such measures could be justified on subsidiarity
grounds.
4. Harmonisation of insolvency laws
 Full harmonisation of insolvency laws is not practicable in the short or medium term.
 CMU should provide Member States with the impetus to consider whether their
insolvency regime acts as a barrier to cross border investment.
The Commission should focus on supporting Member States to build effective infrastructure and
supporting professional services.