Brussels, 17 November 2022
Keynote speech by Commissioner McGuinness at launch of the Association for Financial Markets in Europe (AFME) annual report, “Capital Markets Union – Key Performance Indicators”
Ladies and gentlemen, it is a pleasure for me to be here this morning.
Today is an important day, because we’re publishing the fifth edition of your annual report on Key Performance Indicators for the Capital Markets Union.
I was interested in the title of the slide which said ‘the long road’ to capital markets, it’s good that the road is there, but we haven’t quite reached the end of our journey.
The work that you’ve done reflects the work of yourselves and eleven other organisations.
From our side as the Commission it’s really useful, as we can take stock and review progress on the development and integration of our capital markets in the European Union.
Despite the concerns around not being there yet, I think it’s fair to say that European capital markets are stronger than they were a decade ago.
But of course they remain too fragmented, too costly and too small to properly support an economy of our size in the European Union.
That is why our work on Capital Markets Union is really important.
So I want to talk about how indicators help, how they help our work and what they show; and how our plans for CMU will shape those indicators for the better.
There are a number of questions we can ask ourselves about how the Capital Markets Union is developing.
And they include:
- Do companies have access to a wide range of funding, at all stages of their development?
- Do investors – including retail investors – have access to a diverse range of investment opportunities, including across European borders? And I wish at some point we would stop talking about “across borders” because there shouldn’t be borders in single market, but maybe we will get there.
- And lastly, we breaking down the barriers between different national capital markets?
That’s where indicators – including those published today by AFME – come in.
You all know that my services also monitor progress because we want to see if our work is having impacts. So we have our own set of CMU indicators – and we updated that in September.
Our work also draws on indicators, statistics and other input from your organisations.
It’s important to note that it is still early days for CMU.
On 1st January, we will be marking thirty years of the single market.
It took seven years of intensive legislative work from the signature of the Single European Act in 1986 to be able to launch the single market.
It was that intense, focused work that helped us remove the physical barriers and customs posts on borders within Europe.
And we’ve spent the three decades since continuing to develop the single market.
Similarly, the Capital Markets Union will not be built overnight.
And breaking down the barriers between national capital markets will take a lot of intense and focused work.
Some of the measures adopted under the 2015 CMU Action Plan and its mid-term review in 2017 – including 12 legislative proposals – are only now starting to apply.
On top of that, we should recognise the impact of the current economic climate on capital markets.
The pandemic was followed by Russia’s invasion of Ukraine.
Pressures on growth, high inflation, rising interest rates, economic uncertainty, high energy prices – these all affect capital markets.
That means that these indicators do not necessarily tell us about the success, or otherwise, of our legislative and regulatory action on CMU.
But – all that said – indicators give us a very useful sense of where we are right now.
And they help us identify areas where existing policies may need adjusting or where new policies may be needed.
So, again, indicators are a very valuable policy tool.
The report you are releasing today, like our indicators which we updated just recently, gives a mixed picture of the last couple of years.
Let’s have a look at access to capital markets.
First, with Covid-19 lockdowns, market funding dried up and firms turned to credit lines from banks – in many cases guaranteed by the State.
Cross-border investment declined.
With time, market activity resumed as normal – and in fact 2021 was buoyant.
There were many IPOs; private equity and venture capital issuance increased, and so did insurers’ holdings of equity.
But – unfortunately – this buoyancy has proved to be short lived.
Most recent figures show that economic uncertainty is now weighing negatively on several indicators.
And this adverse economic environment makes it even more important to take ambitious action to develop the Capital Markets Union.
We need to step up our efforts and our ambition.
We want to make sure that, even with bumps in the road, capital markets bring ever more benefits to EU companies and households.
Because we have a long road behind us, but also a long road ahead of us to build the Capital Markets Union.
I want to make sure that we have travelled a good distance along this road by the end of 2024.
And you referenced that next year will be the last complete year of this mandate, so time is pressing.
And by 2024, I would like to see tangible progress in the development and integration of EU capital markets.
And I hope that by then, co-legislators will have adopted most of the measures that I propose, and that we will have made significant progress on the more structural issues.
So let me talk about how we are getting on with the measures included in the 2020 CMU Action Plan.
Since its adoption, the Commission has proposed seven legislative measures.
Member States and the European Parliament are now negotiating them – and they have reached political agreement on one.
We tabled a package of measures in November last year.
The European single access point is a major innovation for our markets.
It will create a one-stop-shop for companies’ financial and sustainability data.
It will make more European companies visible to investors, while investors themselves benefit from a wider view of companies they could invest in.
You will know the Council reached a general approach on this proposal in June.
With the European Parliament now accelerating their discussions, we hope that trilogues can start before the end of the year.
The revised framework for European Long-Term Investment Funds will soon come into force, as the co-legislators have just reached agreement.
As your report shows, there were eight new ELTIFs this year and last, but this investment vehicle remains well below its potential.
Our revision will make these funds easier to invest in, enabling more long-term investment in things like social infrastructure, digitalisation, and the green transition.
The review of the Alternative Investment Fund Managers Directive will harmonise rules on loan-originating funds.
These funds can help lend to the economy when more traditional lenders pull back in a distressed market.
The Council agreed on its general approach in June, with a vote in the Parliament expected later this month.
Then we also have the review of MiFIR, which aims to put in place a consolidated tape for trading data.
And this tape will allow all market participants and investors to have a comprehensive view of the trading landscape.
I hope that the Council can reach a general approach this year, paving the way for trilogues once the Parliament reaches its view.
We’re also progressing on the SME Initial Public Offering Fund.
This will target SMEs before, during and after their IPOs to help them get or remain listed.
The SME IPO will be managed by private fund managers, and our partner the European Investment Fund is now in the process of reviewing applications.
And there’s more work to come.
Next month, we will table three more proposals: on clearing, listing and insolvency.
If we’re serious about developing CMU, then we need to have robust and well-developed financial market infrastructures.
Central clearing capacity is an important dimension of capital markets infrastructure – but we are still over-reliant on central parties outside the European Union.
This is also a matter of financial stability: because in the unlikely case of something going wrong, we would not be in the driving seat for decisions.
So we want to increase the attractiveness of clearing in the EU, to support the development of infrastructure, and reform supervisory arrangements.
We will also propose a Listing Act to improve access to public markets for companies.
AFME’s Market Finance Indicator shows that EU companies are not making the most of the funding potential offered by capital markets.
After two record-breaking years, market-based funding, and in particular the number of IPOs, weakened again in the first half of this year.
This is similar to what happened on US and UK capital markets, and it reflects the current economic climate.
But this indicator does highlight the need for action in this area.
The Listing Act by itself will not reverse the negative trend for initial public offerings, because the decision to list is a complex one and there are many factors outside the regulator’s control.
However, it will make the listing of securities easier and less burdensome – particularly for smaller companies.
Furthermore, together with Commissioner Reynders, I will propose an initiative on corporate insolvency.
As you know, insolvency is a complex and politically sensitive issue.
But it’s a key structural issue that cross-border investors systematically name as one of the main causes of fragmentation.
It can be hard for these investors to anticipate how long bankruptcy proceedings will take and what the outcome will be in different national systems.
That hinders cross-border investment.
So our proposal will involved targeted harmonisation of rules and procedures for corportate insolvency.
We will propose EU rules for a more predictable and efficient value recovery process for creditors, where value can be distributed fairly and transparently among them.
The proposal will also make insolvency proceedings less burdensome for very small companies.
On securitisation, we published a report last month on the how the Securitisation Regulation is working, based on a stakeholder consultation and input from the European Supervisory Authorities.
And that report concludes that the Regulation generally works well, but that targeted improvements should be made, notably on the proportionality of certain requirements.
We are now waiting for a report by the European Supervisory Authorities, which should be published by the end of this year.
On the basis of that report, we will then decide on the exact way forward.
And as next year is just around the corner, let me move to 2023.
We plan to address another long-standing, structural barrier to cross-border investment – namely withholding tax procedures.
Right now, investors incur high costs, receive late refunds, or even forego the right to refund altogether, which in fact is double taxation.
Here we will come forward with targeted legislative action on withholding tax procedures in the first half of 2023.
Again, this is a complex file, and it is not an easy one because taxation initiatives require unanimity in the Council.
But it’s worth doing – because it will make a real difference for investors who want to invest in a country outside of their own.
That goes double for retail investors, who at the moment are often discouraged from investing in a different EU country by burdensome and costly procedures.
I am committed to putting retail investors at the heart of our work.
So here we’re working on a very ambitious Retail Investment Strategy to be published next year.
Issues we are looking at include the rules on how financial products are distributed, on financial advisors, and on what information investors receive, particularly in a digital environment.
I want to boost confidence and encourage consumer participation in capital markets.
We should be as ambitious as possible if we are serious about unlocking the potential of the CMU for retail investors.
To conclude, really just to express my appreciation and thanks to AFME and the other organisations that have worked very hard on this report.
Your expertise and your constructive engagement are really valuable for our work.
It helps us shape the legislative proposals for CMU, many of which I have outlined.
And taken together, all of them will help us build the Capital Markets Union.
And as the Commission makes these proposals, the ball will be increasingly in the court of the Member States and the European Parliament.
So I hope that I can count on you to engage with the co-legislators and help make sure we maintain ambition, and that the work is adopted swiftly.
I talked about the intense work that went into the Single European Act and the legislation that followed to build the single market.
Thirty years on, we will need the same commitment and intense work to deliver on the Capital Markets Union.
And we hope then to see progress reflected in your indicators a few years down the line.
Source – EU Commission