Tuesday, November 11, 2014

New E.U. Financial Services Commissioner Will Consult on Capital Markets Union

As the new European Commission charts a path towards equity funding through securities offerings and away from the dominant bank funding, Financial Services Commissioner Lord Jonathan Hill said that he will launch a wide public consultation on the creation of a Capital Markets Union. In one of his first speeches since his confirmation, Lord Hill said that he favors the use of crowdfunding, angel investing and private securities placements to jump start jobs and growth, which is the Commission’s No. 1 priority.

As part of this effort, he plans to develop an E.U. framework for high-quality securitization, building on work already underway in the E.U. and globally. The current tax code must also be examined since they have a strong bias against equity and favor both corporate debt and mortgage debt.

He noted that mid-sized companies in the U.S. have five times as much funding from capital markets as their counterparts in the E.U., which get about 80% of their financing from banks, and 20% from debt securities. In the U.S., the ratios are reversed. The Commission must unlock the capital around Europe that is currently frozen, he said, and put it to work in support of businesses, particularly SMEs. And that is where the Capital Markets Union, which the Commissioner called ``a new frontier of Europe’s single market’’, comes into play.

The Capital Markets Union is a centerpiece of the new Commission as its President, Jean-Claude Juncker, readies a legislative package of measures designed for job creation and growth.

The introduction of the term Capital Markets Union has become the catalyst for developing the non-banking equity sector. A precise description is not yet available. The Capital Markets Union is a concept under construction, recently noted Stephen Maijoor, Chair of the European Securities and Markets Authority (ESMA). However, the first sketches are in the direction of an accelerated integration of E.U. capital markets encompassing all 28 Member States. As the E.U. securities markets authority, ESMA is very willing to contribute to achieving a truly integrated capital market and the development of the Capital Markets Union.