The European Securities and Markets Authority (ESMA) has today unveiled their position paper outlining a 20-point plan for a more effective and attractive capital market union through a unified approach.
The overarching idea from the authority is for more concrete actions to be taken and a holistic approach to change adopted, wherein all 20 points should be taken on board as a whole.
Christine Lagarde
Verena Ross, ESMA’s chair speaking at the launch event for the position paper today, detailed the motivations behind the proposals: “EU capital markets remain underdeveloped and fragmented in comparison to global peers. In the face of a changing world and new challenges, renewed momentum and greater commitment is needed to boost the role of capital markets in supporting growth, innovation and competitiveness in the European economy.
“Neither public budgets nor banks will be able to support this large scale investment effort alone. Private and public market-based financing must play a more fundamental role. This underlines the critical importance and urgency of developing a better European capital market ecosystem.”
The regulator made clear that the proposals are directed towards capital market supervisors, EU member states, the European Commission and to co-legislators, the rest of the financial industry, and to ESMA itself.
ESMA’s proposals are split in three, with points under different dimensions, specifically addressing: citizens (seven proposals), companies (seven proposals) and the EU regulatory and supervisory framework (6 proposals).
For EU citizens, this focus will understandably be on empowering individuals and increasing financial education in order to foster long-term investments. For companies across the EU, diversity and sustainability of financing options is at the fore, set to enhance the notion of a Pan-European market.
For the EU’s regulators and supervisors it is all about aligning, withmodernisation and consistency of protocols being key, ESMA said. In addition, further centralisation of supervision at an EU level has also been flagged.
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Christine Lagarde, president of the European Central Bank, highlighted that currently Europe is arguably unprepared and shared her support for ESMA’s proposals.
“At this pivotal moment for Europe, we are confronted with new challenges stemming from geopolitical fragmentation, slowing productivity growth and mounting climate change. Meeting these challenges will require unprecedented investments and create financing needs that far exceed the capacity of our fragmented markets.
“We have the opportunity to anchor our capital market union in a unifying project encompassing green, digital and geopolitical transitions […] we must move from a bottom up to a bold top down approach.”
Specifically, this approach entails two crucial elements, to shift from fragmented legislation to a single rule book with a unified set of “directly-applicable” rules for capital markets and enforcing this through a supervisor with a broad mandate.
These moves will work to effectively facilitate cross-border trading and competition, as well as extending ESMA’s powers to directly supervise systemic firms, explained Lagarde.
Looking at the details of the position paper, key points include: creating an EU-label for basic and simple investment product suitable for retail investors; re-evaluating tax incentives for retail investors; stimulating equity funding to support innovation and growth; reviving the securitisation market in the EU; creating conditions for Pan-European partnerships.
In addition, when it comes to ‘improving regulatory agility, supervisory agility and global competitiveness,’ ESMA’s recommendations link to key structural changes, such as: reviewing financial regulation with a more holistic vision; improving supervisory consistency amongst EU NCAs; and accounting for the EUs global competitiveness in policy making.
Speaking to the potential of ESMA’s position paper, Lagarde enthused: “These opportunities, if seized, would empower innovative European firms, boost diffusion of technology and enhance Europe’s competitiveness and strategic autonomy in a changing world. We need all parties to rally around building a genuine capital market union.
“Our prosperity, our future depends on it, so let’s embrace this historic opportunity together.”