Coronavirus response: Making capital markets work for Europe’s recovery
The European Commission has today (24 July) adopted a Capital Markets Recovery Package, as part of the Commission’s overall coronavirus recovery strategy.
On 28 April, the Commission had already proposed a Banking Package to facilitate bank lending to households and businesses throughout the EU.
Today’s measures aim to make it easier for capital markets to support European businesses to recover from the crisis. The package proposes targeted changes to capital market rules, which will encourage greater investments in the economy, allow for the rapid re-capitalisation of companies and increase banks’ capacity to finance the recovery.
The package contains targeted adjustments to the Prospectus Regulation, MiFID II and securitisation rules. All of the amendments are at the heart of the Capital Markets Union project aimed at better integrating national capital markets and ensuring equal access to investments and funding opportunities across the EU.
Requirements for European firms
The Commission is today proposing to make some targeted amendments to MiFID II requirements, in order to reduce some of the administrative burdens that experienced investors face in their business-to-business relationships.
Lesser-experienced investors (such as households investing their savings for retirement) will remain just as protected as before.
These amendments refer to a number of requirements that were already identified (during the MiFID/MiFIR public consultation) as being overly burdensome or hindering the development of European markets.
The current crisis makes it even more important to alleviate unnecessary burdens and provide opportunities to nascent markets.
The Commission therefore proposes to recalibrate requirements to ensure that there is a high level of transparency towards the client, while also ensuring the highest standards of protection and acceptable compliance costs for European firms.
In parallel, the Commission has today opened a public consultation on amendments to the MiFID II delegated directive to increase the research coverage regime for small and mid-cap issuers and for bonds.
In particular, SMEs need a good level of investment research to give them enough visibility to attract new investors. We are today also proposing to amend the MiFID rules affecting energy derivatives markets.
This is intended to help the development of euro-denominated energy markets – important for the international role of the euro – as well as allow European companies to cover their risks, while safeguarding the integrity of commodity markets, especially for agricultural products.
Capital Requirements Regulation
The Commission is today proposing a package of measures amending the Securitisation Regulation and the Capital Requirements Regulation. Securitisation is a tool through which banks can bundle loans, turn them into securities, and sell them onto capital markets.
The aim of these changes is to facilitate the use of securitisation in Europe’s recovery by enabling banks to expand their lending and to free their balance sheets of non-performing exposures.
It is helpful to let banks transfer some of the risk of SME (small and medium-sized enterprises) loans to the markets so that they can keep lending to SMEs.
In particular, the Commission proposes creating a specific framework for simple, transparent and standardised on-balance-sheet securitisation that would benefit from a prudential treatment reflecting the actual riskiness of these instruments.
In addition, the Commission proposes to remove existing regulatory obstacles to the securitisation of non-performing exposures. This can help banks offload non-performing exposures that can be expected to grow because of the coronavirus crisis.
Today’s changes are based on extensive work and analysis carried out by the European Banking Authority in 2019 and 2020.