Capital Markets Union: Make do and mend
Jonathan Hill has eschewed grand ambition for practical reality in his CMU green paper.
“Capital Markets Union is about complementing the role of banks, not displacing them. It is about European solutions, not aping American ones.” So declared Jonathan Hill, European commissioner for financial services and CMU after the launch of his green-paper consultation on February 18.
Hill has set out his stall: CMU will build on what Europe already is, rather than try to impose an idealistic version of what some believe it should be. He describes CMU as “a major upgrade to a network that connects those who need financing with those who have money to invest”, saying that he wants to make that network “faster, more developed and more efficient”. As such he has taken a refreshingly realistic approach, recognizing that evolution not revolution is the name of the game.
Given the speed at which things move in Brussels, an evolutionary timeframe might not be too wide of the mark. The 2019 target for CMU’s objectives to be implemented is but a heartbeat away in European terms. Indeed, it will have taken nearly four years for one initiative close to CMU’s heart to emerge: European long-term investment fund (Eltif) regulation.
Eltifs are a hybrid between institutional alternative investment funds and retail Ucits funds and are targeted at institutional and retail investors looking to invest in long-term, illiquid assets. They are being established – along with the European Fund for Strategic Investments – to boost long-term investment in projects and capital markets instruments. The initial EC consultation on Eltifs took place in January 2013 and even if the EU Parliament and Council adopt the regulation as anticipated it will not come into effect until late 2015 or early 2016.
With this kind of precedent, any entirely new regulation proposed under CMU should probably be kept to a minimum.
The green paper avoids institutional change, such as the establishment of a pan-European regulatory body to rival the SEC, which would have ushered in years of political infighting.
Hill is rightly focusing on what one London-based analyst describes as “not an empty new page to write a new regulatory framework” but “a page margin for notes to fix the most deviant parts of the existing regulatory framework”.
It is the right approach to take. Only time will tell if it can actually be done.
Private placements have usurped securitization as Europe’s great SME financing hope. The financial markets support EU commissioner Jonathan Hill’s Capital Markets Union initiative to promote it. But the thriving US market will be hard to compete with, let alone replicate. Which leaves two questions: Can the EU build it? And, even if it can, will issuers and investors come?