Lord Hill's capital markets plans receive business backing

LANDMARK proposals to create a US-style single market for capital in the European Union designed to improve small companies’ access to finance and boost to the EU’s flagging economies have received widespread backing from UK business groups.

Lord Hill, the new EU commissioner responsible for capital markets [pictured], published proposals yesterday for a Capital Markets Union (CMU) which aims to create a single market for capital by 2019 and make it simpler for businesses – particularly SMEs and start-ups – to raise money on debt and equity markets.

Mathew Fell, director for competitive markets at the Confederation of British Industry, said the proposals are a “welcome sign that the European Commission has decided to put growth at the heart of its financial policy”.

The European Commission said it wants to remove barriers to cross-border investment and reduce the cost of raising capital by cutting charges on some securitised debt by creating a new class of simple asset-backed securities.

“Developing a private placement market and supporting high-quality securitisation are good first steps” towards “making quick, concrete progress on some of the biggest barriers to capital markets for businesses”, Fell added.

Banks currently provide around 70% of finance to Europe’s businesses, compared to 20% in the US and Lord Hill wants the EU to emulate US capital markets, which generate five times the amount of investment for medium-sized companies that they do in the EU.

As much as €90bn of funds would have been available to finance companies between 2008 and 2013 if the EU’s venture capital markets were as deep as in the US, the EC said in its green paper. And if SME loan securitisations recovered to only half the levels seen before the financial crisis a further €20bn of additional funding could be unlocked,

“The direction we need to take is clear: to build a single market for capital from the bottom up, identifying barriers and knocking them down one by one. Capital Markets Union is about unlocking liquidity that is abundant, but currently frozen, and putting it to work in support of Europe’s businesses, and particularly SMEs,” said Hill.

“The free flow of capital was one of the fundamental principles on which the EU was built. More than fifty years on from the Treaty of Rome, let us seize that opportunity to turn that vision into reality.”

The Green Paper also seeks views on how to overcome other obstacles to the efficient functioning of markets in the medium- to long-term, including how to reduce the costs of setting up and marketing investment funds across the EU; how to further develop venture capital and private equity; whether targeted measures in the areas of company, insolvency and securities laws as well as taxation could materially contribute to CMU; and the treatment of covered bonds, with a specific consultation in 2015 on a possible EU framework.

Following the public consultation, the EC will adopt an Action Plan in the summer setting out its roadmap and timeline for creating a CMU.