COMMISSION STAFF WORKING DOCUMENT Feedback Statement on the Green Paper "Building a Capital Markets Union" Accompanying the document Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions Action Plan on Building a Capital Markets Union
Date: 2015-09-30
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: EU financial instrument, EU investment, action programme, capital market, economic integration, investment aid, small and medium-sized enterprises

EUROPEAN 
COMMISSION 

Brussels, 30.9.2015  
SWD(2015) 184 final 

COMMISSION STAFF WORKING DOCUMENT 

Feedback Statement on the Green Paper "Building a Capital Markets Union" 

Accompanying the document 

Communication from the Commission to the European Parliament, the Council, the 
European Economic and Social Committee and the Committee of the Regions 

Action Plan on Building a Capital Markets Union 

{COM(2015) 468 final} 
{SWD(2015) 183 final} 

EN 

   EN 

 
 
 
 
  
 
Contents 

1.  

INTRODUCTION....................................................................................................... 2 

FEEDBACK STATEMENT ............................................................................................... 4 

2.   OVERVIEW OF THE RESPONSES.......................................................................... 4 

2.1.   Priorities for early action ................................................................................... 4 
2.2.   Improving access to finance .............................................................................. 5 
2.3.   Boosting institutional investment ...................................................................... 7 
2.4.   Boosting retail investment............................................................................... 10 
2.5.   Attracting international investment ................................................................. 11 
2.6. Improving market effectiveness – intermediaries, infrastructures and the 

broader legal framework.................................................................................. 12 
2.7.   Other issues ..................................................................................................... 14 

ANNEX: DETAILED SUMMARY OF INDIVIDUAL RESPONSES ........................... 15 

 
 
 
 
1.  

INTRODUCTION 

On 18 February 2015, Directorate-General for Financial Stability, Financial Services and 
Capital  Markets  Union  (DG  FISMA)  of  the  European  Commission  launched  a  public 
consultation  on  the  basis  of  the  Green  Paper  "Building  a  Capital  Markets  Union" 
(CMU).1  

The  purpose  of  the  Green  Paper  was  to  consult  all  interested  parties  on  the  European 
Commission’s overall approach to putting in place the building blocks for CMU by 2019, 
the underlying economic rationale of CMU, and possible measures which could be taken 
to achieve this objective. The main areas that the Green Paper sought to address were: 

1.  Improving  access  to  financing  for  all  businesses  across  Europe  and  investment 

projects, in particular start-ups, SMEs and long-term projects; 

2.  Increasing and diversifying the sources of funding from investors in the EU and all 

over the world; and 

3.  Making the markets work more effectively so that the connections between investors 
and  those  who  need  funding  are  more  efficient  and  effective,  both  within  Member 
States and cross-border. 

DG FISMA received some 430 responses to the consultation that ended on 13 May 2015. 
Contributions  were  made  by  a  broad  variety  of  respondent  groups,  including  capital 
market  participants  and  their  representatives,  investors,  companies,  SMEs,  consumers, 
universities, as well as regional, national,  EU and international authorities (see Chart A). 
Replies originated in the 27 EU Member States, other European countries and countries 
outside Europe (see Chart B). 

An  additional  number  of  comments,  position  papers  and  contributions  were  received 
outside  the  consultation,  including  official  positions  provided  by  some  governments. 
Even  though  they  are  not  reflected  in  the  figures  of  this  feedback  statement,  they  have 
also been taken into account in the analysis of the legal and factual situation, and in the 
preparation of the steps ahead. 

DG FISMA would like to thank the respondents for their contributions. 

This feedback statement summarises the answers received for each of the 32 questions. 
The feedback statement does not provide detailed statistical data but rather seeks to give 
a qualitative presentation of the contributions received.  

1 Green Paper "Building a Capital Markets Union", COM(2015), 18.02.2015 

2 

 
 
                                                            
Chart A – Replies by type of respondent 

Chart B – Replies by country  

3 

 
 
 
 
 
FEEDBACK STATEMENT 

2.  

OVERVIEW OF THE RESPONSES 

2.1.   Priorities for early action  

Q1.  Beyond  the  five  priority  areas  identified  for  short  term  action,  what  other  areas 
should be prioritised?  
A majority2 of the respondents supported the five priorities for early action, i.e. simple, 
transparent and standardised securitisation; the revision of the Prospectus Directive; the 
improvement  of  the  availability  of  credit  information  on  SMEs;  the  development  of  a 
pan-European private placement regime; and the taking up of ELTIFs. 

Beyond  those  five  priorities,  the  respondents  suggested  a  number  of  initiatives  for 
prioritisation, including notably: (i) a harmonised definition of SMEs in EU legislation; 
(ii) development of crowd-funding, business angels, venture capital and loan-originating 
funds; (iii) finalisation of the European Money Market Funds reform; (iv) improvement 
of corporate bond market liquidity; (v) reduction of the capital charge for infrastructure 
investments  by  insurance  undertakings  under  Solvency  II;  and  (vi)  lowering  of  the 
remaining  legal  barriers  to  support  efficient  post-trade  processes  for  cross-border 
securities transactions.      

Q2.  What  further  steps  around  the  availability  and  standardisation  of  SME  credit 
information  could  support  a  deeper  market  in  SME  and  start-up  finance  and  a  wider 
investor base?  

Respondents  clearly  highlighted  the  need  for  improving  the  standardisation  and 
availability  of  SME  credit  and  financial  information  at  a  reasonable  cost.  Different 
solutions  were  proposed  to  achieve  this:  (i)  making  more  information  on  companies 
publicly  available  through  national  centralised  systems,  as  established  already  in  some 
Member States; (ii) creating an EU-wide register to centralise the financial accounts of 
all  companies  (including  SMEs);  and  (iii)  creating  a  database  with  standardised  credit 
and/or financial information either on all SMEs - mandatory approach - or only on SMEs 
seeking capital markets funding - voluntary approach. Some respondents insisted on the 
need  to  build  a  centralised  information  system  on  SMEs,  using  already  existing 
infrastructures such as public repositories and taking into account the possibilities of new 
technology offered by fintech companies.        

Specific  suggestions  to  improve  standardisation  included:  (1)  introducing  an  EU-wide 
minimum  standard  in  respect  of  credit  information;  (2)  ensuring  consistent  accounting 
standards  and  the  systematic  disclosure  of  statutory  accounts;  (3)  developing  reporting 
guidelines  (including  financial  indicators  and  ratios)  for  SMEs  seeking  capital  market 
funding; and (4) harmonising the format in which the information is available. 

Q3. What support can be given to ELTIFs to encourage their take up?  

A  majority  of  respondents,  among  them  insurance  companies,  pension  funds  and  other 
long-term  investors,  favoured  incentives  in  the  form  of  preferential  regulatory  capital 
treatment under Solvency II and CRD IV/CRR, and tax incentives for investors in such 
funds. Many respondents stated that the use of ELTIFs could also be an appropriate way 

2 In overview of the responses, 'majority' refers to the majority of respondents that answered the 
question  

4 

 
 
 
                                                            
to  channel  long-term  finance  into  infrastructure  projects  characterised  by  new 
technologies and higher risks. Support through public guarantees or risk-taking provided 
under  the  European  Fund  for  Strategic  Investments  (EFSI)  might  be  necessary  to 
encourage the setting-up of ELTIFs for that purpose. 

The  take-up  of  ELTIFs  could  also  be  supported  by  creating  a  level  playing  field  with 
existing  national  regulatory  frameworks  for  long-term  investment  funds,  thus  avoiding 
the imposition of particular fees on ELTIFs.  

Many  respondents  suggested  that  certain  provisions  of  the  ELTIF  Regulation  entering 
into force at the beginning of 2016 might need to be reviewed, such as the obligation to 
invest  at  least  70%  into  eligible  long-term  assets  or  the  ceiling  of  20%  investments  in 
other ELTIFs, EuVECAs or EuSEFs. 

Q4.  Is  any  action  by  the  EU  needed  to  support  the  development  of  private  placement 
markets other than supporting market-led efforts to agree common standards?  

A  significant  number  of  respondents  favoured  market-led  solutions  over  a  legislative 
initiative  to  create  a  European  private  placement  regime.  Many  respondents  suggested 
that the European Commission should first review and monitor the situation more closely 
before taking any action, the more so as market-led initiatives were fairly recent and their 
effects  as  yet  unknown.  Market-led  solutions  were  preferred  because  each  private 
placement  deal  was  specific,  and  therefore  it  would  be  difficult  to  regulate  the  issue  at 
EU level. Such regulation could result in an administrative burden which would reduce 
the benefits of harmonisation.   

At the same time, many respondents suggested either some targeted legislative action at 
EU  level  or  non-legislative  action,  if  only  in  the  form  of  support  or  endorsement  of 
existing or forthcoming market-led solutions.  

The  main  actions  proposed  by  respondents,  going  beyond  market-led  efforts  to  agree 
common standards, were the following: (i) guidance on the regulatory environment; (ii) 
improvement  of    information  about  the  creditworthiness  of  issuers;  (iii)  support  for 
private  placement 
(iv) 
standardisation; (v) legislative action to create a European private placement regime; (vi) 
increase  of  the  exemption  threshold  in  the  context  of  the  Prospectus  Directive  review; 
(vii) amendment of Solvency II delegated acts to reduce the current capital treatment of 
private  placements;  and  (viii)  development  of  a  credit  scoring  system  and  a  safe 
harbour/no action regime.  

funds  of  guarantee  mechanisms; 

through  dedicated 

2.2.  

Improving access to finance    

Q5. What further measures could help to increase access to funding and channelling of 
funds to those who need them?  

Respondents did not identify new policy areas to support access to funding beyond those 
identified in the Green Paper. Most respondents proposed measures to support access to 
funding  by  SMEs  such  as  an  accreditation  system  for  business  angels  and  an  EU 
framework  for 
those  representing 
to  funding  for 
institutional 
infrastructure  projects  such  as  a  reduction  in  Solvency  2  calibration  requirements  of 
capital  charges  and  creation  of  an  infrastructure  projects  pipeline.  Asset  management 
associations called for a more holistic approach to corporate reporting and for delivering 
a consolidated tape for equities. 

loan-originating  funds.  Respondents,  mostly 

investors,  emphasised  measures 

to  support  access 

5 

 
 
 
Q6.  Should  measures  be  taken  to  promote  greater  liquidity  in  corporate  bond  markets, 
such as standardisation? If so, which measures are needed and can these be achieved by 
the market, or is regulatory action required?  

A  majority  of  respondents  considered  that  there  is  a  liquidity  issue  in  the  secondary 
market for corporate bonds that would warrant action. Many respondents focused on the 
need  to  promote  or  not  standardisation.  Respondents  had  mixed  views  on  the 
standardisation of issuance parameters, such as maturity date or coupon payment dates. 
On the one hand, a majority of respondents considered that mandatory standardisation is 
not desirable because it prevents tailor-made financing solutions, might exclude smaller 
issuers and lead to excessive volatility on a limited number of trading days. At the same 
time,  some  respondents  considered  that  at  least  a  limited  standardisation  of  issuance 
parameters, on a voluntary basis, could help to reduce the overall number of new issues 
and thus concentrate liquidity in a smaller number of fixed income products. The views 
regarding  standardisation  of  bond  documentation  were  more  homogenous,  and  many 
respondents would support a market-led initiative.    

Other measures suggested to support liquidity included: (i) preserve banks' ability to hold 
inventories  and  perform  market-making  activities;  (ii)  develop  electronic  platforms  for 
corporate  bond  trading,  as  this  would  potentially  increase  the  participation  of  a  wider 
range of investors, including smaller investment funds; (iii) use the Prospectus Directive 
review  to  facilitate  the  subscription  of  bonds  by  retail  investors,  remove  the  dual-
standard for disclosure requiring more disclosures for small issues, and facilitate the re-
opening  of  old  issuances;  and  (iv)  support  the  development  of  a  consolidated  tape  of 
transactions in the secondary corporate bond market.    

Q7.  Is  any  action  by  the  EU  needed  to  facilitate  the  development  of  standardised, 
transparent  and  accountable  ESG  (Environment,  Social  and  Governance)  investment, 
including  green  bonds,  other  than  supporting  the  development  of  guidelines  by  the 
market?  

A  large  number  of  respondents  pointed  out  that  the  ESG  concept  is  still  under 
development, and that the needs of this approach to investment seem to be satisfactorily 
catered  for  by  the  industry  at  this  stage.  Almost  half  of  the  respondents  believed  that 
regulation  would  not  be  the  most  effective  way  to  promote  investment  in  asset  classes 
associated  with  the  ESG  concept  (e.g.,  green  bonds).  A  consistent  definition  of  'green' 
investments or, more broadly, investments that take into account environment, social and 
governance concerns is considered beneficial both at the point of issuance and thereafter. 
While too many different definitions might confuse investors, a majority of respondents 
preferred  to  let  market-driven  initiatives  develop  and  saw  the  role  of  the  European 
Commission  rather  in  possible  future  rules  of  a  facilitative  nature  and  measures  to 
prevent abuse of ESG initiatives ('greenwashing'). In addition, a number of respondents 
pointed  to  a  wide  variety  of  possible  other  measures  to  facilitate  a  more  sustainable 
approach to investment. 

Q8. Is there value in developing a common EU level accounting standard for small and 
medium-sized  companies  listed  on  MTFs?  Should  such  a  standard  become  a  feature  of 
SME Growth Markets? If so, under which conditions?  

Some respondents considered that the current situation is appropriate and should not be 
changed. Currently, SMEs listed on most MTFs prepare their financial reports according 
to national accounting standards, although there are already MTFs that require SMEs to 
apply  the  International  Financial  Reporting  Standards  (IFRS).  Most  respondents 
considered,  however,  that  some  kind  of  initiative  or  incentive,  legislative  or  other,  is 
needed to render EU SMEs listed on MTFs more attractive to European and international 
investors  through  enhanced  transparency  and  comparability  of  relevant  financial 
6 

 
 
information.  Rather  than  a  full  application  of  the  IFRS  or  use  of  the  IFRS  for  SMEs, 
many respondents suggested that a pragmatic IFRS-based solution be found in order to 
deliver  for  SMEs  listed  on  MTFs  the  advantages  of  a  high-quality,  comparable, 
international set of accounting rules, whilst avoiding excessive administrative burden and 
costs, particularly in relation to disclosure.  

Q9.  Are  there  barriers  to  the  development  of  appropriately  regulated  crowdfunding  or 
peer  to  peer  platforms  including  on  a  cross  border  basis?  If  so,  how  should  they  be 
addressed?  

Respondents  identified  the  following  barriers:  regulatory  barriers,  poor  availability  and 
quality  of  information,  and  other  barriers  such  as  a  lack  of  secondary  markets  and 
taxation barriers. In particular, differences in market conditions and legal status lead to 
difficulties to assess risks across borders.   

Many respondents called for some form of legal intervention at EU level, ranging from a 
light  touch  intervention  to  calibrate  existing  requirements  to  a  creation  of  a  fully 
harmonised regime. There were also some respondents who thought that soft measures, 
such as coordination or sharing of best practice, is the best way forward. Those calling 
for  EU  legislative  intervention  most  often  referred  to  the  need  to  ensure  investor 
protection. Some respondents also considered that EU intervention would facilitate cross-
border  transactions  at  lower  costs.  A  few  respondents  clearly  stated  that  no  action  was 
necessary at EU level, and that it would be better to follow a market-led approach. 

2.3.   Boosting institutional investment  

Q10.  What  policy  measures  could  incentivise  institutional  investors  to  raise  and  invest 
larger amounts and in a broader range of assets, in particular long-term projects, SMEs 
and innovative and high growth start-ups?  

Respondents  proposed  a  series  of  policy  measures,  including:  (a)  establishing  a  more 
supportive  capital  requirement  framework  for  high-quality  securitisation  (under  CRD 
IV/CRR and Solvency II), as well as for infrastructure and unlisted asset classes (under 
Solvency  II);  (b)  removing  restrictions  imposed  on  occupational  pension  funds' 
investment decisions; (c) establishing a cross-border investment-friendly tax environment 
by  removing  unfair  tax  treatment  (mainly  in  the  withholding  tax  area)  and  introducing 
tax  incentives;  (d)  increasing  the  availability  and  accessibility  of  information  on 
investment  opportunities  in  SMEs  and  infrastructure;  and  (e)  supporting  private 
investment by a targeted public support for investment in certain asset classes. 

Q11. What steps could be taken to reduce the costs to fund managers of setting up and 
marketing  funds  across  the  EU?  What  barriers  are  there  to  funds  benefiting  from 
economies of scale?  

Respondents pointed out that in spite of the passport regimes available under the UCITS 
and AIFM Directives, the EU investment fund market remains highly fragmented. Such 
fragmentation  results  in  proportionally  higher  costs  to  run  funds  and  prevents  the  EU 
fund  industry  from  realising  economies  of  scale  to  the  same  extent  as  their  US 
counterpart. Cross-border competition is hampered by domestic tax regimes and varying 
national  requirements  applicable  to  the  marketing  of  UCITS.  While  the  penultimate 
iteration  of  the  UCITS  Directive  (UCITS  IV)  provided  for  dedicated  structures  that 
support  further  consolidation  of  funds  (i.e.,  cross-border  mergers,  master-feeder 
structures)  the  take-up  of  these  vehicles  has  been  limited,  mainly  due  to  a  very 
cumbersome process or complex local tax treatments. In the context of the AIFMD, the 
administrative  fees  levied  by  some  host  authorities  for  cross-border  notifications  were 

7 

 
 
 
often  seen  as  excessive  and  opaque.  Furthermore,  the  appointment  of  a  local  paying 
agent was seen by many respondents as an additional cost and burden that is not always 
justified by its added value for local investors.  

Q12. Should work on the tailored treatment of infrastructure investments target certain 
clearly  identifiable  sub-classes  of  assets?  If  so,  which  of  these  should  the  Commission 
prioritise in future reviews of the prudential rules such as CRD IV/ CRR and Solvency 
II?  

Respondents, including industry associations, generally favoured a tailor-made treatment 
of  infrastructure  investments  and  asked  for  a  definition  of  a  (sub-)  asset  class  which 
reflects  the  long-term,  lower  risk  nature  of  such  investments.  Such  treatment  should 
include  preferential  regulatory  capital  requirements  under  Solvency  II  for  insurers  and 
CRD IV/ CRR for banks. In this context, many respondents, notably from the insurance 
sector,  stated  that  the  current  standardised  approach  under  Solvency  II  determines 
inappropriately high capital requirements for infrastructure investments. A review and a 
risk-sensitive  recalibration  would  remove  currently  existing  disincentives  for  insurance 
companies  to  invest  in  long-term  infrastructure.  A  considerable  number  of  respondents 
made  reference  to  the  current  public  consultation  conducted  by  EIOPA  with  respect  to 
proposing a suitable definition of infrastructure, criteria for an infrastructure asset class 
and adequate treatment under Solvency II. 

Some respondents, including investment firms and some EU Finance Ministries, however 
opposed  any  preferential  capital  treatment  for  infrastructure  investments  in  the  light  of 
protecting investors and avoiding wrong incentives for a particular asset class. 

Q13.  Would  the  introduction  of  a  standardised  product,  or  removing  the  existing 
obstacles to cross-border access, strengthen the single market in pension provision?  

A large number of respondents supported a European Personal Pension Product (EPPP) 
that  provides  a  cross-border  alternative  to  existing  national  schemes.  This  could 
circumvent  widespread  obstacles,  many  of  which  are  due  to  national  social  and  tax 
legislation. 

Consumer organisations favoured a European approach to personal pensions. They called 
for  a  product  that  offers  value  for  money,  certainty  and  mobility.  They  stressed  that 
multiple fees and charges have a significant impact on capital accumulation over the life 
of  a  pension,  and  that  this  has  a  very  detrimental  effect  on  the  real  return  of  pension 
products. Moreover, weak disclosure practices add to the opacity of often very complex 
personal  pension  products.  An  EPPP  should  allow  for  several  investment  options, 
withdrawal restrictions with some key exceptions and several pay-out options. 

Most personal pension providers recognised the importance of looking at possible ways 
of  encouraging  and  supporting  citizens  to  save  for  their  retirement  at  EU  level.  The 
insurance  industry  was  generally  open  to  considering  an  EPPP,  but  insisted  that  its 
features  be  carefully  assessed.  Notably,  EPPPs  should  have  an  explicit  retirement 
purpose  (to  distinguish  them  from  other  investment  products),  restrict  early  withdrawal 
(to create long-term liabilities) and provide savers with the possibility to purchase cover 
against longevity risk (guarantees). The investment fund industry was strongly in favour 
of  an  EPPP  and  considered  that  this  would  boost  competition.  Some  respondents 
suggested  that  the  need  for  an  EPPP  is  likely  to  be  higher  in  smaller  Member  States 
where there is currently no or limited access to retirement savings vehicles. 

Q14. Would changes to the EuVECA and EuSEF Regulations make it easier  for  larger 
EU  fund  managers  to  run  these  types  of  funds?  What  other  changes  if  any  should  be 
made to increase the number of these types of fund?  

8 

 
 
The  majority  of  those  who  responded  to  this  question  believed  that  changes  should  be 
made, notably as regards the following issues: (i) many respondents advocated a revision 
of the calibration of the threshold before the AIFMD authorisation requirement applies; 
(ii)  many  respondents  called  for  clarifying  that  fully  authorised  and  above-threshold 
AIFMs are equally entitled to set up and market EuVECA and EuSEF funds; (iii) some 
respondents indicated that additional requirements in different jurisdictions, in particular 
as  regards  setting-up  fees  and  costs  for  host  registration,  constitute  an  impediment  to 
setting up EuVECA or EuSEF funds; (iv) some respondents indicated that the minimum 
investment commitment of €100.000 could dissuad e potential investors, particularly non-
professionals  and  retail  investors;  and  (v)  some  respondents  proposed  broadening  the 
range of eligible assets.  

Some respondents, mostly public authorities, believed that no changes are needed to 
those two regulations, or that it is too early to conclude that there is a need for changes. 
They argue that further assessment is necessary. 

Q15.  How  can  the  EU  further  develop  private  equity  and  venture  capital  as  an 
alternative source of finance for the economy? In particular, what measures could boost 
the scale of venture capital funds and enhance the exit opportunities for venture capital 
investors?  

Many  respondents  focused  on  issues  around  the  regulation  of  investment  funds, 
including: barriers to the AIFMD marketing passport across the EU and the extension of 
this  passport  to  fund  managers  from  third  countries.  Respondents  suggested  changes  to 
the EuVECA Regulation in order to lower the entry ticket for investors and increase the 
threshold for using the label by fund managers. A large number of respondents identified 
taxation  issues  as  important  to  foster  private  equity  and  venture  capital  in  Europe. 
Several  respondents  underlined  that  an  increasing  number  of  Member  States  is  already 
encouraging  venture  capital  investment  through  tax  incentives.  Several  respondents 
argued for a recalibration of the capital requirements under CRD IV/CRR and Solvency 
II to have risk weights more suitable for investment by banks and insurance companies in 
private equity and venture capital. 

Some  respondents  stressed  that  some  form  of  risk  sharing  with  the  public  sector  is 
essential  to  increase  the  scale  of  venture  capital  funds  in  Europe.  In  particular, 
respondents suggested creating new types of risk capital funds, such as a private sector-
managed  pan-European  fund-of-funds  partially  funded  from  the  EU  budget  and  with  a 
high commitment to venture capital. 

Q16.  Are there impediments to increasing both bank and non-bank direct lending safely 
to companies that need finance?  

Respondents  identified  a  number  of  impediments  both  to  bank  lending  (e.g.,  some 
aspects  of  prudential  regulation,  the  high  level  of  non-performing  loans,  and  weak 
demand  for  credit  from  SMEs)  and  to  non-bank  lending  (e.g.,  elements  of  prudential 
regulation of insurance companies, restrictions on loan-originating funds, regulatory and 
supervisory requirements, and lack of an EU-wide harmonisation in insolvency, taxation, 
property and company law).  

Respondents  also  provided  some  suggestions  on  how  to  develop  alternative  sources  of 
finance (e.g., establish a consistent legal framework for loan-originating funds across the 
EU,  regulate  non-bank  credit  platforms  and  crowdfunding  activities,  and  improve  the 
availability of credit data to enhance competition between banks and alternative finance 
providers).  At  the  same  time,  some  respondents  underlined  the  importance  for  investor 
protection of appropriate regulation and supervision of financial stability risks stemming 
from  market-based  lending.  Some  respondents  also  stressed  the  need  to  ensure  a  level 

9 

 
 
playing field for all actors engaged in direct lending activities, whether they are banks or 
not. 

2.4.   Boosting retail investment    

Q17.  How can cross-border retail participation in UCITS be increased?  

Respondents  mentioned  that  increasing  cross-border  retail  participation  in  UCITS 
requires the re-establishment of trust in capital markets, unbiased and affordable advice 
and  transparency,  as  well  as  the  removal  of  barriers  to  cross-border  sales.  First,  it  was 
proposed  to  restore  the  public's  confidence  in  financial  markets  by  providing  a  stable 
legal  framework  which  entails  the  proper  and  consistent  enforcement  of  existing  rules. 
Second,  the  public  should  be  provided  with  better  financial  education,  thus  enabling 
retail investors to assess  the risk  profile  of  funds  vis-à-vis deposits or other investment 
products. Respondents mentioned (as in question 11) burdens incurred by asset managers 
seeking  to  sell  their  UCITS  on  a  cross-border  basis  related  to  taxation,  marketing  and 
distribution.  A  number  of  respondents  highlighted  the  importance  for  UCITS  of  cross-
border  retail  markets  outside  Europe,  i.e.,  the  US  and  Asian  markets.  Respondents 
mentioned  that  while  UCITS  constitute  the  strongest  brand  in  Asia,  the  European 
Commission  must  preserve  a  strong  footprint  by  exploring  opportunities  to  engage  in 
strategic partnerships in the region.    

Q18.  How  can  the  ESAs  further  contribute  to  ensuring  consumer  and  investor 
protection?  

Many  respondents  from  all  respondent  categories  considered  that  the  ESAs  would 
contribute  to  ensuring  consumer  and  investor  protection  through  focusing  more  on 
achieving  supervisory  convergence  and  consistent  and  effective  implementation  of  EU 
rules. Many respondents considered that effective fulfilment of these tasks might receive 
more resources. Some consumer associations and a few national authorities saw a need 
for  improving  the  governance  of  the  ESAs  –  ESMA  in  particular  -  in  order  to  give  a 
stronger  weight  to  the  EU-wide  interests.  Several  banks  and  asset  managers  called  for 
improving  the  reporting  channels  and  for  developing  centralised  IT  systems  as  they 
considered  that  some  reporting  requirements  overlap  or  have  to  be  performed  under 
different formats. 

Q19.  What policy measures could increase retail investment? What else could be done 
to empower and protect EU citizens accessing capital markets?  

A majority of respondents acknowledged that CMU needs to be complemented by policy 
measures  enabling  retail  investors  to  invest  more  directly  into  capital  markets  and 
ensuring  adequate  investor  protection.  This  requires  investors  to  have  the  confidence, 
trust, knowledge and support necessary to understand the risks and benefits of different 
products and services in order to make informed investment decisions. Many respondents 
asked  for  consistent  and  clear  information  disclosure  requirements  for  all  retail 
investment products, as well as for high-quality distribution channels within an effective 
investor  protection  framework.  Several  respondents  suggested  that  it  is  necessary  to 
implement  solid  and  secure  investor  compensation  schemes  to  ensure  their  effective 
operation in cross-border scenarios. Some respondents urged the European Commission 
to present a proposal for the establishment of a European collective redress mechanism. 

As  regards  further  measures  to  empower  and  protect  retail  investors,  respondents  from 
the  financial  industry  stressed  the  importance  of  a  simple,  predictable  and  consistent 
regulatory framework, as well as clear and, where possible, convergent fiscal rules. The 
representatives  of  retail  investors  were  of  the  opinion  that  better  access  to  independent 

10 

 
 
 
and affordable financial advice or guidance for consumers would improve their access to 
capital markets. Further proposals to support retail investment included improving cross-
border redress and facilitating the creation of comparison websites. 

Q20.  Are  there  national  best  practices  in  the  development  of  simple  and  transparent 
investment products for consumers which can be shared?  

Respondents representing consumers, public authorities and financial industry provided a 
number  of  national  and  European  examples  of  product  schemes  which  they  considered 
simple  (e.g.,  UCITS).  At  the  same  time,  industry  representatives  raised  concerns 
regarding  the  definition  of  simple  products  and  expressed  their  strong  support  for  the 
market  to  design  products  which  allow  for  innovation  and  increased  competition. 
Consumers pointed to the problem of mis-selling and lack of understanding of complex 
products,  and  therefore  suggested  improving  the  enforcement  of  existing  rules  (e.g., 
MiFID) and developing an affordable and simple advice model. In addition, the need for 
better  product  design  and  governance  by  providers  and  oversight  by  regulators  was 
stressed. 

2.5.   Attracting international investment  

Q21. Are there additional actions in the field of financial services regulation that could 
be taken to ensure that the EU is internationally competitive and an attractive place in 
which to invest?  

towards 

Few  particular  measures  that  could  complement  the  CMU  were  proposed.  In  itself,  the 
increasing  Europe's 
CMU  was  perceived  as  a  positive  movement 
competitiveness and making it a more attractive place for investments. In the same vein, 
the pursuit and success of current EU trade policy was considered widely as an essential 
tool to  improve  competitiveness and attract more investments. Although not numerous, 
more  specific  proposals  for  new  measures  included  a  better  assessment  of  the  overall 
impact of financial regulation, in particular cross-sectoral effects, and a closer alignment 
of EU regulations with international standards. Concerning the interactions between the 
CMU  and  non-EU  investors  /  investments,  the  attention  of  the  European  Commission 
was drawn to the possibility to improve provisions governing third-country access in the 
current  legislation,  especially  "equivalence"  provisions.  An  increased  participation  of 
foreign financial operators was supported; this would imply the extension of passporting 
rights to non-established financial services providers if new passporting rights were to be 
created. 

Q22.  What measures can be taken to facilitate the access of EU firms to investors and 
capital markets in third countries?  

The  respondents  welcomed  the  fact  that  the  European  Commission  had  identified  this 
issue  in  the  Green  Paper.  Developing  the  framework  for  global  coordination  towards 
regulatory convergence would facilitate and improve the access of EU firms to investors 
and capital markets in third countries. However, harmonisation at global level would take 
time,  and  therefore  a  shorter-term  approach  based  on  mutual  recognition  is  needed  to 
facilitate  the  development  of  cross-border  business.  While  it  is  important  to  attract 
foreign investment into Europe, respondents considered that there is also a need to ensure 
that the European players have a similar treatment in third countries. For this Free Trade 
Agreements (FTAs) were seen to be instrumental.   

11 

 
 
 
2.6. Improving market effectiveness – intermediaries, infrastructures and the 
broader legal framework  

Q23.  Are  there  mechanisms  to  improve  the  functioning  and  efficiency  of  markets  not 
covered  in  this  paper,  particularly  in  the  areas  of  equity  and  bond  market  functioning 
and liquidity?  

Many  respondents  recommended  policy  actions  to  improve  market  liquidity  on  the 
secondary  markets  for  equity  and  bonds,  calling  for  the  preservation  of  market-making 
activities and an appropriate regulatory framework for these activities. 

Many  respondents  saw  the  MiFID  II  pre-  and  post-transparency  proposals,  particularly 
those  relating  to  transparency  of  corporate  bonds,  as  having  the  potential  to  influence 
secondary  market  trading  conditions.  Respondents  also  underlined  that  the  bank 
structural  reform  proposal  would  restrict  banks’  market-making  activities  and  notably 
their ability to hold inventories. 

Many respondents also highlighted that the Financial Transaction Tax could discourage 
financial  transactions  and  reduce  market  liquidity.  Some  respondents  supported  an 
assessment of the cumulative impact of legislation adopted in recent years to be followed 
possibly by targeted legislative measures addressing any issues. Other respondents were 
in favour of a greater use of electronic platforms for corporate bond trading. Respondents 
also underlined the importance of a European consolidated tape containing all executed 
transactions in equity and non-equity markets.  

Q24.  In  your  view,  are  there  areas  where  the  single  rulebook  remains  insufficiently 
developed?  

Many respondents from all categories called for taking stock of the impact of legislation 
passed  in  recent  years,  especially  in  view  of  identifying  possible  unintended  negative 
effects on market participants arising from inconsistencies or overlaps. There was also a 
strong  call  from  a  large  number  of  respondents  for  a  better  supervision  of  the 
implementation  of  the  single  rulebook  in  order  to  ensure  its  correct  and  consistent 
implementation  and  to  avoid  gold  plating.  Respondents  who  called  for  extending  the 
single rulebook mentioned the following areas in particular: crowdfunding, consolidated 
tape, CCP recovery and resolution, macro-prudential supervision, licensing requirements, 
sanctions, as well as securities law, collateral, insolvency law, company law and taxation.  

Q25.  Do  you  think  that  the  powers  of  the  ESAs  to  ensure  consistent  supervision  are 
sufficient? What additional measures relating to EU level supervision would materially 
contribute to developing a capital markets union?  

Most  governments  and  industry  associations  considered  ESMA's  current  powers  as 
sufficient.  Some  public  authorities  and  market  participants  called  for  more  or  stronger 
powers  that  evolve  over  time,  e.g.  with  regard  to  enforcement,  consumer  protection, 
IFRS  endorsement,  supervision  of  critical  market  operators  such  as  CSDs  and  CCPs, 
benchmarks, classification of complex instruments and issuance of no-action letters. 

As regards EU level supervision, the EIB and the ECB suggested that over the longer run 
consideration  should  be  given  to  a  single  capital  markets  supervisor.  However,  other 
respondents  raised  concerns  about  this  because  of  a  weak  link  between  supervisory 
responsibility  and  fiscal  accountability.  To  ensure  effective  supervision  on  an  EU-wide 
basis, respondents made several suggestions, including creating a supervisory handbook 
for  the  CMU,  better  using  supervisory  colleges,  empowering  ESMA  to  promote 
enhanced cooperation on data and IT issues, and putting in place more harmonised tools 
such as the creation of a Common European Reporting Platform.    

12 

 
 
 
Q26.  Taking  into  account  past  experience,  are  there  targeted  changes  to  securities 
ownership rules that could contribute to more integrated capital markets within the EU?  

A majority of respondents favoured targeted changes to securities ownership rules. Some 
respondents, however, considered it best for the European Commission to abstain from 
any  legislative  action,  hinting  at  the  complexity  of  the  matter  and  past  attempts  at 
harmonisation.  The  majority  of  respondents  were  in  favour  of  harmonising  certain 
aspects  of  substantive  securities  laws  at  EU  level.  A  small  number  explicitly 
recommended a solution based on the Unidroit Geneva Securities Convention of 2009. In 
addition,  many  respondents  advocated  a  uniform  rule  that  determines  which  of  the 
different national securities laws shall apply to cross-border holdings (uniform conflicts-
of-law rule). 

Q27.  What  measures  could  be  taken  to  improve  the  cross-border  flow  of  collateral? 
Should work be undertaken to improve the legal enforceability of collateral and close-out 
netting arrangements cross-border?  

Respondents  primarily  suggested  to  review  the  Financial  Collateral  Directive  of  2002 
with  a  view  to  placing  a  greater  emphasis  on  aligned  implementation  across  the  EU, 
introducing targeted amendments to strengthen enforceability of collateral, extending the 
existing  rules  to  a  broader  range  of  cross-border  issues,  avoiding  opt-outs,  and  even 
replacing  the  Directive  with  a  Regulation.  They  also  suggested  revising  the  Settlement 
Finality  Directive  of  1998  in  order  to  adapt  it  to  the  new  regulatory  environment  and 
further  harmonise  the  rules  on  settlement  finality.  Some  respondents  recalled  that 
meaningful  harmonisation  in  the  field  of  collateral  would  require  harmonisation  of  the 
underlying securities holding and national insolvency rules. 

Several  respondents  asked  the  European  Commission  to  remove  persisting  legal 
obstacles  to  the  effectiveness  of  close-out  netting  arrangements  in  national  insolvency 
laws.  They  suggested,  inter  alia,  a  legislative  definition  of  close-out  netting  and 
harmonisation  of  both  fundamental  mechanisms  of  close-out  netting  and  eligible 
transaction types / market participants. 

Q28.  What  are  the  main  obstacles  to  integrated  capital  markets  arising  from  company 
law,  including  corporate  governance?  Are  there  targeted  measures  which  could 
contribute to overcoming them?  

Many respondents considered divergent company law and corporate governance regimes 
an obstacle to cross-border investments and further integration of capital markets. Cross-
border  exercise  of  shareholder  rights,  particularly  voting  rights  in  an  operationally 
complex  holding  chain,  was  a  cause  for  concern  and  led  to  calls  for  a  digitalisation  of 
corporate  action  procedures.  Protection  of  minority  shareholders  and  governance  rules 
that take into account the situation of listed SMEs were considered desirable, as was the 
facilitation  of  cross-border  company  mobility.  On  the  whole,  investors  seemed  to  see 
more of a need for further harmonisation measures than companies. 

Q29. What specific aspects of insolvency laws would need to be harmonised in order to 
support the emergence of a pan-European capital market?  

Various respondent groups expressed distinct views. Investors overall considered that a 
CMU would need more efficient insolvency regimes; companies supported this view but 
with  a  focus  on  improving  the  operational  aspects  of  insolvency.  In  the  public  sector, 
central  banks  and  national  supervisors  tended  to  expect  considerable  benefits  from  a 
further  harmonisation  of  insolvency  laws,  whereas  Finance  Ministries  express  more 
reservations. The latter pointed to the complex links with other areas of civil law which 
are purely national and policy choices regarding (e.g., the treatment of employees in an 
insolvency).  

13 

 
 
Q30.  What  barriers  are  there  around  taxation  that  should  be  looked  at  as  a  matter  of 
priority  to  contribute  to  more  integrated  capital  markets  within  the  EU  and  a  more 
robust funding structure at company level and through which instruments? 

Tax issues that were recurrently cited by many respondents as challenges to a CMU were 
withholding  taxes  on  cross-border  securities  income,  the  lack  of  harmonisation  of  tax 
systems  in  the  EU  and  the  Financial  Transaction  Tax  (FTT).  A  few  respondents  also 
cited  the  debt-equity  tax  bias,  the  discriminatory  taxation  of  pension  funds  and  life 
insurance  companies,  some  recommendations  from  the  OECD  Base  Erosion  and  Profit 
Shifting  System  (BEPS)  project  and  inconsistencies  in  national  tax  regimes  as  running 
against the goals of a CMU.  

While  acknowledging  that  tax  issues  are  difficult  to  address  at  EU  level  due  to  EU’s 
limited  competence  in  the  area,  many  respondents  called  on  the  EU  to  use  the 
instruments  at  its  disposal  to  address  these  challenges,  for  example  by  supporting  the 
establishment  of  streamlined,  efficient  and  simple  procedures  to  reclaim  excessive 
withholding  tax,  or  by  taking  actions  to  eliminate  or  reduce  the  debt-equity  tax  bias. 
Many respondents also encouraged the European Commission to support tax incentives 
that  would  contribute  to  achieving  the  goals  of  the  CMU,  in  particular  as  regards 
investment into SMEs and long-term projects. 

Q31. How can the EU best support the development by the market of new technologies 
and business models, to the benefit of integrated and efficient capital markets?  

A  majority  of  the  respondents  focused  on  the  role  of  regulation.  Amongst  those,  some 
respondents considered that the EU should not intervene and leave the market to develop 
itself, while an equal number were in favour of some form of EU intervention (including 
public  funding).  A  few  respondents  thought  that  financial  legislation  should  target  the 
fintech sector specifically. Some respondents considered that financial legislation should 
be  loosened  to  allow  new  business  models  to  develop.  Many  respondents  advocated  a 
regulatory framework that strikes the right balance between the need to establish a clear 
legal framework ensuring legal certainty for platforms, companies and investors, and the 
need to allow the nascent fintech industry to develop. 

Many  respondents  suggested  that  the use of common and  integrated reporting channels 
and  standardised  IT  formats  would  enable  regulators  to  better  use  the  vast  amount  of 
information  for  supervisory  purposes  submitted  to  them.  Some  respondents  also 
mentioned  that  the  EU  can  support  market-led  developments  of  new  technologies  and 
business  models 
trading,  clearing  and  settlement,  electronic 
communication  (e.g.,  signature,  identity  and  voting),  crowdfunding,  data-related  issues, 
financial advice, cybersecurity, collaboration with third countries, and better SME credit 
information. 

the  areas  of 

in 

2.7.   Other issues    

Q32.  Are  there  other  issues,  not  identified  in  this  Green  Paper,  which  in  your  view 
require action to achieve a Capital Markets Union? If so, what are they and what form 
could such action take?  

Respondents  generally  considered  that  the  Green  Paper  had  identified  the  key  policy 
actions  to  achieve  a  CMU.  Some  respondents  identified  other  issues,  including  the 
following  four:  (i)  a  review  of  recent  legislative  measures  to  assess  any  unintended 
consequences  and  remove  inconsistencies;  (ii)  the  importance  of  a  well-functioning 
banking  system  for  the  success  of  the  CMU  as  market-based  and  bank  financing  are 
complementary;  (iii)  consideration  of  new  initiatives  to  improve  the  functioning  of 
derivatives markets in Europe; and (iv) the importance of stability and legal certainty for 
investment. 

14 

 
 
ANNEX: DETAILED SUMMARY OF INDIVIDUAL RESPONSES 

Question 1 – Beyond the five priority areas identified for short term action, what 
other areas should be prioritised? 
A majority3 of the respondents supported the five priorities for early action, i.e. simple, 
transparent and standardised securitisation; the revision of the Prospectus Directive; the 
improvement  of  the  availability  of  credit  information  on  SMEs;  the  development  of  a 
pan-European private placement regime; and the taking up of ELTIFs. 

Beyond those five priorities, respondents suggested that the following initiatives should 
also be prioritised: 

•  Some respondents, suggested introducing a harmonised definition of SMEs in EU 
legislation, as well as a definition for mid-tier enterprises (MTEs). A respondent 
proposed the creation of a single definition of quoted SMEs in the EU in order to 
provide them with the regulatory framework they need. 

•  Some  respondents  considered  that  one  priority  should  be  to  promote  the 
development  of  venture  capital  finance  and  business  angels.  Other  respondents 
believed that closed-ended funds should be allowed to originate loans themselves 
(loan-originating  funds),  without  undue  restrictions.  This  will  increase  and 
diversify the sources of funds available to SMEs. As regards crowdfunding, some 
respondents  underlined  that  national  laws  which  are  starting  to  govern  this  new 
funding  technique  may  soon  lead  to  normative  differences.  In  order  to  reduce 
legislation asymmetries and facilitate cross-border use of this source of funding, 
some  respondents  considered  that  it  would  be  important  to  encourage  a 
homogenous legislation on crowdfunding across the EU. 

•  For  some  respondents,  one  of  the  key  priorities  in  the  short  term  should  be  the 
finalisation  of  the  European  Money  Market  Funds  (MMFs)  reform.  Some 
respondents  were  concerned  about  the  definition  of  eligible  assets  and  liquidity 
ratios that have been discussed. For instance, one respondent underlined that the 
creation  of  "government  MMFs"  treated  more  favourably  than  other  MMFs, 
would be detrimental to the short financing of companies. Likewise, if the final 
regulation  unduly  restricted  the  ability  of  MMFs  to  invest  in  Asset-Backed 
Commercial Paper, a key funding source for many SMEs and unlisted companies 
could be greatly impaired.   

•  Some  respondents  put  the  emphasis  on  the  corporate  bonds  market.  While  this 
market  represents  an  important  source  of  funding  for  EU  companies,  those 
respondents considered it imperative that banks and brokers remain able to act as 
market makers. Furthermore, they were of the opinion that greater standardisation 
of  information  related  to  issuance  and  voluntary  standardisation  of  larger  issues 
could help improve liquidity. 

•  Many  respondents  considered  that  infrastructure  investments  by  insurers  should 
their  specific 
that 
be  subject 
characteristics,  such  as  lower  risk  of  default,  higher  recovery  rates  and  more 
stable cash flows than corporate bonds. Therefore, they called for the creation of a 

reflect  appropriately 

to  capital  charges 

3 In the detailed summary of individual responses, 'majority' refers to the majority of respondents that 
answered the question  

15 

 
 
 
                                                            
new  and  separate  infrastructure  asset  class  within  Solvency  II  in  order  to 
incentivise  long-term  investments  (both  in  debt  and  equity)  in  infrastructure 
projects by insurance companies. The European Commission should give priority 
to  the  work  of  EIOPA  on  developing  a  definition  of  infrastructure  for  the 
purposes of Solvency II. 

•  Some respondents considered that one priority should be to lower the remaining 
legal  barriers  (e.g.,tax  and  legal  restrictions)  as  identified  in  the  two  so-called 
"Giovannini"  reports  of  2001  and  2003  in  order  to  support  efficient  post-trade 
processes for cross-border securities transactions.   

•  For  some  respondents,  a  priority  area  should  be  the  establishment  of  an 
appropriate  European  fiscal  framework  that  is  more  conducive  to  investment  in 
securities, reducing tax arbitrage between equity and debt financing, and offering 
a more favourable tax treatment to long-term investment. For those respondents, 
tackling the tax bias against equity could also encourage companies to strengthen 
their  equity  base  and  discourage  high  levels  of  leverage,  which  would  improve 
financial  stability.  Some  respondents  considered  that  the  adoption  of  tax 
incentives for specific financial products, such as ELTIFs, should be identified as 
a short-term action. 

to  address 

•  Some respondents recommended, as a priority, an analysis and a subsequent set 
of  proposals 
third-country  equivalence  concerns.  Inconsistent 
approaches to equivalence of regulatory regimes across jurisdictions and different 
pieces  of  legislation  have  stifled  the  ability  of  non-EU  businesses  and  financial 
institutions to access the EU market. In particular, some respondents suggested a 
more  generic  recognition  process  to  be  implemented  by  the  EU  authorities 
(particularly  ESAs)  when  assessing  the  equivalence  of  third  countries’  financial 
market legislations. 

•  Some  respondents  suggested  that  one  priority  of  the  European  Commission 
should  be  a  consistent  implementation  of  EU  legislation  that  has  been  passed 
since the financial crisis. Many respondents invited the European Commission to 
grant  a  "pause"  from  regulatory  interventions,  in  order  to  adequately  assess  the 
cumulative  impact  of  existing  and  incoming  EU  legislation  -  such  as  CRD 
IV/CRR,  MiFID  II/MiFIR,  EMIR,  CSDR,  AIFMD,  UCITS  V,  MAR  -  on 
economic growth and employment. The goal of this evaluation would be notably 
to  identify  inefficiencies,  negative  synergies,  duplication  of  obligatory  reporting 
or  even  contradictions  negatively  influencing  the  functioning  of  the  capital 
market.  

•  Some respondents highlighted that the Financial Transaction Tax (FTT) must be 
avoided,  as  it  would  decrease  the  liquidity  in  stock  markets,  thereby  creating  a 
hurdle  for  smaller  companies  to  successfully  use  capital  markets  as  a  source  of 
financing.  Some  respondents  also  underlined  that  the  FTT  would  inevitably 
imply, on the basis of a reinforced cooperation among only 11 Member States, a 
fragmentation of capital markets.   

Question  2  –  What  further  steps  around  the  availability  and  standardisation  of 
SME  credit  information  could  support  a  deeper  market  in  SME  and  start-up 
finance and a wider investor base? 

Respondents  clearly  highlighted  the  need  for  improving  the  standardisation  and 
availability  of  credit  and  financial  information  on  SMEs  for  non-bank  investors  at  a 

16 

 
 
 
reasonable cost in order to create a deeper market in SME and start-up finance.  

Many respondents were  in  favour of  an increased level of standardisation of credit and 
financial  data  to  improve  the  comparability  of  such  data  across  Europe.  Credit  and 
financial data should inform investors’ assessment of the quality of a potential borrower, 
with  definitions  consistent  across  the  EU.  Specific  suggestions  included  introducing  an 
EU-wide  minimum  standard  in  respect  of  credit  information,  ensuring  consistent 
accounting  standards  and  the  systematic  disclosure  of  statutory  accounts,  developing 
reporting  guidelines  (including  financial  indicators  /  ratios)  for  SMEs  seeking  capital 
market  funding  and  harmonising  the  format  in  which  the  information  is  available  (for 
example, convergence to XBRL). Respondents mainly recommended that work start on 
improving  the  standardisation  and  availability  of  credit  and  financial  information  on 
SMEs through non-legislative measures. 

Credit and financial data should be readily available to a range of investors – and not just 
banks  –  thereby  reducing  barriers  to  entry  and  expansion,  and  enhancing  competition. 
Different solutions were proposed:  

•  A first possible solution would consist in making more information on companies 
publicly  available  through  national  centralised  systems.  A  number  of  Member 
States  such  as  France,  Germany,  Italy,  Spain  and  Portugal  already  operate 
publicly-accessible comprehensive business registers. Initiatives could be taken to 
further develop national credit registers across the EU to open up data access on 
SMEs.  In  countries  with  a  well-developed  privately  managed  credit  reporting 
infrastructure,  an  alternative  way  to  improve  the  availability  of  credit  and 
financial  data  would  be  by  broadening  access  to  the  existing  credit  reporting 
systems.  

•  The  creation  of  a  centralised  EU-wide  system  containing  standardised  credit 
and/or  financial  information  would  be  another  possibility  to  facilitate  the 
transparency  and  dissemination  of  information  to  potential  investors.  Different 
ideas  were  proposed,  among  which  the  creation  of  a  single  register  centralising 
the  financial  accounts  of  all  companies  (including  SMEs)  and  the  creation  of  a 
database  containing  standardised  credit  and/or  financial  information  (including 
research)  either  on  all  SMEs  -  mandatory  approach  -  or  only  on  SMEs  seeking 
capital  markets  funding  -  voluntary  approach.  The  majority  of  respondents 
highlighted the need for adopting a voluntary approach and restricting access to 
data as crucial success factors of such information system; the participating SMEs 
should  have  full  control  over  the  dissemination  of  their  data.  Adopting  a 
voluntary  approach  would  present  the  additional  advantage  of  making  willing 
firms more visible to prospective investors across Europe.  

•  Finally,  some  respondents  suggested  building  such  a  centralised  information 
system on SMEs, using already existing infrastructures such as public repositories 
and  taking  into  account  the  possibilities  of  new  technologies  offered  by  fintech 
companies.        

Respondents underlined the importance of avoiding any disproportionate burden and cost 
on  SMEs,  for  example  by  imposing  new  disclosure  requirements  and/or  additional  ad-
hoc  financial  standards  to  all  SMEs.  A  voluntary  opt-in  approach  would  offer  optimal 
results  in  that  regard.  It  is  also  crucial  to  ensure  that  participating  SMEs  will  not  be 
overburdened  by  the  level  of  data  they  will  have  to  provide  and  to  limit  the  disclosure 
requirements  to  the  most  crucial  information  to  increase  their  possibilities  of  getting 
funding  on  the  European  capital  markets.  A  differentiated  approach  should  be  adopted 
based  on  the  size  of  a  company;  disclosure  requirements  should  be  minimal  in  early 
stages. Finally, any proposed measure to increase the standardisation and availability of 
17 

 
 
SME credit and financial information should firstly consider what is already proposed by 
the public authorities and the industry in that regard. 

Some other related messages emerged from the consultation: 

•  Respondents  had  mixed  views  on  the  necessity  to  develop  a  European  credit 
scoring system for SMEs. Some respondents highlighted the positive impact that 
initiatives in that area would have on the funding of SMEs. Others, however, did 
not consider this as a priority for SMEs, underlining the drawbacks of mechanical 
scoring  approaches,  especially  for  newly  created  SMEs  with  limited  historical 
data.  Suggestions  included  (i)  working  on  an  EU-wide  standardisation  of  SME 
scoring  methodologies  based  on  a  minimum,  simple  and  shared  set  of  data,  (ii) 
making  available  credit  scores  computed  by  central  banks  and  other  public 
authorities  in  a  cost  effective  manner,  and  (iii)  promoting  a  private  or  public 
European SME scoring agency that would score SMEs upon their own demand. 
The potential negative impact (crowding-out effect) of any public initiative on the 
private scoring industry was also stressed by respondents.   

•  Some  respondents  highlighted  the  importance  of  increasing  the  education  and 
awareness  of  SMEs  on  the  alternative  (non-bank)  sources  of  funding.  On  the  one 
hand,  better  financial  education  of  growth  companies  would  allow  them  to  explain 
their business models in an investor-friendly way. SMEs and business owners should 
be  more  aware  of  the  existence  of  their  credit  score  and  financial  profile,  and  the 
elements that contribute to its strengths/weaknesses. On the other hand, it is crucial to 
raise  the  awareness  of  SMEs  about  the  way  capital  markets  are  structured  and  the 
range  of  investment  possibilities.  Alternatives  proposed  included  Member  States 
providing user-friendly platforms to educate firms on the variety of available funding 
options.  The  European  Commission  could  use  its  convening  power  to  share  best 
practice about financial education for SMEs. Respondents also suggested that when a 
small business is rejected for financing by a bank, the bank should be obliged to direct 
the business to sources of information on alternative financing options. 

•  The  majority  of  the  respondents  also  agreed  that  banks  should  not  be  forced  to 
disclose  information  about  their  borrowers  due  to  confidentiality  and  competition 
reasons. 

•  Some  respondents  called  for  a  harmonised  definition  of  SMEs  in  EU  legislation.  A 
single  definition  would  allow  having  a  proper  debate  about  what  information  is 
appropriate  at  different  stages  of  growth  and  would  help  industry  and  government 
support SMEs. 

•  Several  respondents  strongly  encouraged  the  Commission  to  ensure  that  Level  2 
provisions  currently  under  adoption  as  part  of  MiFID  II  do  not  negatively  impact 
financial research coverage of SMEs. 

Question 3 - What support can be given to ELTIFs to encourage their take up? 

Some  respondents,  including  some  Finance  Ministries  of  some  EU  Member  States, 
regarded particular support for ELTIFs as unnecessary, unjustified or counter-productive. 
Those  respondents  either  questioned  the  usefulness  of  ELTIFs  as  such  as  they  may 
compete with already established long-term funds under national jurisdictions or did not 
see advantages of ELTIFs for investors (unattractiveness due to a lack of incentives). 

18 

 
 
 
A majority of respondents, however, amongst them insurance companies, pension funds, 
large  banks,  fund  managers  and  other  investors,  were  in  favour  of  support  to  ELTIFs. 
Those respondents put forward the following main suggestions:  

1.   Preferential  regulatory  capital  treatment  under  Solvency  II  and  CDR  IV/CRR 
reflecting the (potential) lower-risk nature of typical investments of ELTIFs (notably 
infrastructure).  

2.  Tax incentives for investing into ELTIFs: the view shared by many respondents was 
that preferential fiscal treatment for ELTIFs is needed to make them attractive or, at 
least,  the  application  of  the  'most  favoured  nation  clause'  to  ELTIFs;  this  would  put 
them at par with other forms of long-term investment funds governed by national laws 
and tax regimes (such as FPE in France or Venture Capital Trusts in the UK). 

3.  Some respondents, amongst them supervisors, governments and industry, proposed to 
combine ELTIFs with public support under the Investment Plan for Europe (i.e., the 
European  Fund  for  Strategic  Investments,  EFSI,  through  risk-taking  or  direct 
investment, and the European Investment Project Pipeline) in order to increase finance 
for infrastructure projects. In view of using ELTIFs as vehicles to attract capital from 
different sources and channel it to longer-term infrastructure investments in innovative 
technologies  in  areas  like  energy,  transport  and  ICT,  some  respondents  proposed  to 
use financing and risk-sharing possibilities of the EFSI/ EIB. The EIB should either be 
a  (first-loss)  guarantor  to  other  investors  in  ELTIFs  or  invest  in  ELTIFs  alongside 
other  investors.  EFSI  support  for  ELTIFs  should  be  clearly  labelled  and  ELTIFs 
should make use of the upcoming European Investment Project Pipeline as a tool to 
identify potential projects for investment.  

4.  Many  respondents  expressed  concerns  about  certain  provisions  in  the  ELTIF 
Regulation. A number of issues would need to be addressed in a review of the ELTIF 
Regulation  to  make  ELTIFs  more  attractive  for  long-term  investors.  The  following 
issues were raised by respondents: 

•  Review  the  10%  cap  for  the  aggregate  portfolio  of  a  retail  investor  as  this 
excludes  certain  categories  of  retail  investors  (wealthy  clients)  that  could 
significantly increase investment volumes into ELTIFs; 

•  Provide more flexibility on redemption rights and lifetime of ELTIFs; any risks 
stemming  from  such  flexibility  could  be  mitigated  by  full  and  transparent 
disclosure of terms to investors; 

•  Review  the  current  70/30  percent  rule  (obliging  ELTIFs  to  invest  at  least  70% 

into eligible long-term assets) as this might be too restrictive; 

•  Change  the  current  limits  of  the  UCITS  Directive  in  order  to  allow  UCITS  to 

invest into ELTIFs up to 20% of their assets; 

•  Facilitate  the  marketing  and  distribution  of  ELTIFs  by  simplifying  ELTIFs' 
prospectus obligations (compliance with disclosure and monitoring requirements) 
which would make capital raising from investors more expensive than necessary; 

•  Review investment definition and allow inclusion of real estate investments that 
can  contribute  to  smart,  sustainable  and  inclusive  growth  in  the  EU;  current 
unclear wording would hamper the take-up of ELTIFs; 

•  Widen  the  scope  of  eligible  investments  to  include  high-quality  securitisation 

backed by appropriate assets (such as infrastructure projects' receivables); 

•  Review limitation of ELTIFs to invest into other ELTIFs, EuVECAs or EuSEFs 
that have not invested themselves into ELTIFs more than 10% of their assets and 

19 

 
 
limitation  of  ELTIFs  to  invest  a  maximum  of  20%  of  their  capital  into  other 
ELTIFs,  EuVECAs  or  EuSEFs  as  those  restrictions  make  it  impossible  to  use 
ELTIFs as fund-of-funds vehicles. 

5.  Some  respondents  voiced  concern  about  the  possible  limitations  of  ELTIFs' 
investment capacity, notably regarding loan finance. Although ELTIFs are entitled to 
make equity investments and provide loan finance, restrictions in some Member States 
may exclude loan finance provision by ELTIFs as the origination of loans is restricted 
to financial institutions with a banking licence. 

6.  A  limited  number  of  respondents  stressed  that  avoidance  of  any  fees  charged  on 
ELTIFs  at  national  level  will  be  important  for  the  funds'  take-up.  The  European 
Commission must ensure that Member States do not impose such fees on ELTIFs. 

Question 4 - Is any action by the EU needed to support the development of private 
placement  markets  other  than  supporting  market-led  efforts  to  agree  common 
standards? 

A significant number of respondents underlined that there was a problem with regard to 
private  placement  in  the  EU,  but  favoured  market-led  solutions  over  a  legislative 
initiative  to  create  a  European  private  placement  regime.  Many  respondents  suggested 
that the European Commission should first review and monitor the situation more closely 
before taking any action, the more so as market-led initiatives were fairly recent and their 
effects were yet to be known. Market-led solutions were preferred because each private 
placement  deal  was  specific,  and  therefore  it  would  be  difficult  to  regulate  the  issue  at 
EU level. Such regulation could result in an administrative burden which would decrease 
the benefits of harmonisation.   

At the same time, many respondents suggested either some targeted legislative action at 
EU level or non-legislative action, if only in the form of support or endorsement of the 
existing or any forthcoming market-led solutions.  

The  main  actions  proposed  by  respondents,  going  beyond  market-led  efforts  to  agree 
common standards, were the following: 

1.  Guidance: Among the non-legislative measures suggested, there was often reference 
to  guidance  the  European  Commission  could  issue  on  the  current  regulatory 
treatment of private placement deals.  

2.  Credit  rating,  credit  information  and  data  on  SMEs:  As  information  about  the 
creditworthiness  of  issuers  is  considered  crucial,  many  respondents  suggested 
improvements  in  this  area.  Some  suggestions  were  general,  e.g.  requesting  that  the 
availability  of  credit  and  scoring  information  be  improved,  restrictions  on  the 
availability  of  credit  data  be  removed,  and  information  about  SMEs  be  easily 
accessible  and  understandable  in  every  Member  State.  Others  were  more  concrete 
such  as  the  creation  of  (i)  a  pan-European  rating  agency,  (ii)  a  pan-EU  private 
placement  transaction  database  with  respect  to  the  lack  of  information  on  the 
creditworthiness of issuers, or (iii) central repositories with the information needed to 
monitor and control systemic risk. Some respondents saw benefit in the development 
of  online  platforms  for  distributing  information  on  SME  private  placement  on  a 
cross-border basis. Ratings should, however, not become mandatory. There were also 
concerns about data privacy with respect to SMEs.  

3.  Funds  and  guarantees:  Respondents  suggested  that  the  European  Commission 
support  private  placement  through  dedicated  funds  for  guarantee  mechanisms.  For 
example,  a  pan-European  hybrid  debt  fund  could  provide  medium  to  long-term 

20 

 
 
 
financing to smaller SMEs or some form of guarantee / co-investment from the EIB 
or EIF to 'kick start' and 'boost' the broader EU investor pool for private placements.  

4.  Standardisation: There was no clear view as to whether this should be done through 
legislation  or  not.  Issues  suggested  for  standardisation  include  the  requirements  for 
private placement in the EU, the procedures for taking and enforcing security, or the 
loan documentation. 

5.  Legislative  action  to  create  a  European  private  placement  regime:  This  was 
proposed  by  some  respondents,  with  suggestions  ranging  from  a  clear  definition  of 
private placement through well-calibrated and strict rules to a European passport for 
private placement.   

6.  Prospectus Directive: This Directive should be amended to increase the exemptions 
from  the  prospectus  requirement  in  order  to  allow  for  private  placement  without  a 
prospectus, as well as to clarify the definition of private placement which so far was 
only implicitly defined as 'non-public offer'.  

7.  Solvency II (delegated acts): These acts should be amended in order to review the 
current  capital  treatment  of  private  placements  and  improve  the  calibrations  by 
adapting  the  spread  risk  capital  weightings  for  insurers.    This  would  foster  greater 
investment  from  insurers  into  non-listed  SME  credit.  Respondents  noted  that 
insurance companies face near prohibitive regulatory restrictions on investing in debt 
securities that have no daily pricing. 

8.  Inspiration from the US: Respondents referred to the US as the model to follow, in 
particular with regard to the US NAIC credit scoring system and the safe harbour/no 
action regime.  

9.  Education:  Respondents  saw  a  need  for  a  better  financial  education  in  general,  as 
well  as  education  of  SMEs  and  other  potential  issuers  and  investors  about  private 
placement in particular.  

10. Taxation: Some respondents referred to specific taxes, in particular an unfavourable 
withholding  tax  for  investors  in  private  placement.  Others  suggested  a  more 
favourable tax treatment for investors or tax harmonisation. 

Question  5  -  What  further  measures  could  help  to  increase  access  to  funding  and 
channelling of funds to those who need them? 

Respondents did not identify new policy areas that support access to funding in addition 
to the ones identified in the Green Paper.  

1.  Most  of  the  respondents  mentioned  the  following  measures  to  support  access  to 

funding by SME:   

a.  Business  angel  associations  called  for  a  common  accreditation  system  for 
business angels and for organising EU campaigns to promote, recruit and train 
business angels' syndicates in order to boost angel financing. 

b.  Few  respondents  among  which  a  central  bank  and  some  associations  called 

for a single definition of SMEs. 

c.  Some  asset  management  associations,  a  central  bank  and  a  credit  rating 
agency  called  for  a  harmonised  framework  for  loan  origination  outside  the 
banking sector. 

d.  Setting up consortia engaged in equity financing of SMEs was supported by 

one central bank and several private banks. 

21 

 
 
 
e.  Several  respondents  from  all  categories  of  respondents  called  for  education 

initiatives for SMEs.  

2.  Respondents,  mostly  those  representing  institutional  investors,  mentioned  the 

following measures to support access to funding for infrastructure projects:   

a.  Most  of  the  insurers,  asset  managers  and  their  associations  called  for  an 
amendment  of  Solvency  II  to  give  more  incentives  to  insurers  to  invest  into 
infrastructure projects.  

b.  Institutional  investors  saw  a  need  for  creating  a  pipeline  of  infrastructure 
investment 

informed  about  potential 

to  be  better 

in  order 

projects 
opportunities. 

3.  A  few  respondents  mentioned  measures  to  support  access  to  funding  through  bank 

lending:   

a.  One  respondent  proposed  the  creation  of  a  new  financial  instrument  –  the 
European  Secured  Note  -  which  would  cover  a  funding  segment  located 
between covered bonds and high-quality securitisation. It would complement 
the long-term funding toolkit for European lenders financing SME loans and 
potentially other types of assets, such as infrastructure loans. 

b.  One  government  called  for  the  establishment  of  an  optional  simplified 
regulatory  regime  for  small  banks  in  order  to  support  the  local  financing  of 
very small businesses. 

4.  Asset  management  associations  supported  a  more  holistic  approach  to  corporate 

reporting and advocated the delivery of a consolidated tape for equities. 

5.  Two governments and a bank considered it important to promote digital platforms in 
order to reduce administrative burden and minimise cost , for example for issuers and 
investors. 

6.  A few governments considered it necessary to further analyse barriers resulting from 
differences  in  tax,  insolvency  and  company  law.  Some  insurers  and  pension  fund 
associations  called  for  a  harmonisation  of  insolvency  law.  Several  banks,  issuer 
associations, stock exchanges and fund industry associations considered it essential to 
address  the  debt-equity  tax  bias.  The  withholding  tax  on  cross-border  securities 
income  was  also  seen  as  an  issue,  notably  because  procedures  to  reclaim  excessive 
withholding tax are considered to be overly complex. 

Question  6  -    Should  measures  be  taken  to  promote  greater  liquidity  in  corporate 
bond markets, such as standardisation? If so, which measures are needed and can 
these be achieved by the market, or is regulatory action required? 

A  majority  of  respondents  considered  that  there  is  a  liquidity  issue  in  the  secondary 
market for corporate bonds that would warrant measures. Only a few benchmark bonds 
enjoy real liquidity with large daily transactions. For other corporate bonds, reasonably 
active liquidity is limited to periods when they are issued, the weeks following issuance 
and when there is a new issuance by the same issuer.  

1)  

Standardisation or not?  

Most respondents took the view that mandatory standardisation of issuance parameters of 
corporate bonds (such as maturity date or coupon payment dates) is not desirable. Four 
arguments were developed by those respondents. First, some respondents underlined that 
the  benefits  of  standardisation  are  unproven:  bond  investors  tend  to  follow  a  buy-and-

22 

 
 
 
hold  strategy  and  would  not  need  high  liquidity  for  their  bonds.  Second,  some 
respondents were concerned that mandatory standardisation of the issuance process could 
reduce the ability of companies to tailor capital market solutions to their funding needs. 
Some respondents also pointed out that standardisation of issuance conditions – such as 
covenants  -  would  be  inappropriate  as  contingencies  vary  greatly  from  issuer  to  issuer 
and  from  issue  to  issue.  Third,  respondents  argued  that  any  constraint  on  issuance 
practices  could  limit  or  exclude  certain  issuers  –  especially  smaller  firms  -  from 
accessing the market. Moreover, mandatory standardisation would impose clear costs to 
issuers  who  have  clear  preference  for  specific  terms  of  the  bonds  (specific  maturities, 
types  of  interests  paid,  issue  size…).  Four,  standardisation  of  issuance  dates,  coupon 
payment  dates  and  maturity  dates  would  equate  to  having  an  entire  quarter's  worth  of 
bond activity in one day. Such a concentration of maturity and/or coupon payment dates 
may create volatility or give rise to market manipulation.  

However, some respondents expressed the view that at least a limited standardisation of 
issuance  parameters,  on  a  voluntary  basis,  could  help  to  reduce  the  overall  number  of 
new issues and thus concentrate liquidity in a smaller number of fixed income products. 
Indeed,  some  respondents  explained  that  large  issuances  tend  to  be  more  liquid  than 
smaller ones. A smaller number of larger bonds would also reduce the cost of borrowing 
for issuers over time. Moreover, any voluntary standardisation in corporate bonds would 
not  deprive  issuers  of  the  flexibility  they  currently  enjoy  to  issue  bespoke  bonds. 
Nevertheless,  some  respondents  underlined  that  standardisation  would  only  be  relevant 
for large and frequent issuers.  

Standardisation  of  information  and  processes  is  distinct  from  standardisation  of 
instruments,  and  many  respondents  would  support  a  market-led  initiative  that  seeks  to 
promote  standardisation  of  bond  documentation.  Some  respondents  explained  that 
standardising  elements  of  the  information  provided  on  fixed  income  securities  and  the 
processes for distribution and trading can broaden the investor base. Some of them were 
in favour of a standardised term sheet (containing information on the terms relating to the 
bond issuance such as amount, denomination, interest rate, nominal price, credit rating, 
yield to maturity, collateral clauses, voting rights…). According to them, a standardised 
term  sheet  that  would  be  available  to  any  investor  would  likely  add  liquidity  and 
transparency  to  the  corporate  bond  market.  Respondents  argued  that  standardisation  of 
bond documentation could also decrease analytical costs for investors and attract them to 
the  corporate  bond  market.  A  few  respondents  also  supported  standardised  bond 
covenants. Nevertheless, some respondents highlighted that, whilst there may be benefits 
in  standardising  documentation  around  bond  issuance,  this  would  not  by  itself  be  a 
significant factor for the development of deeper corporate bond secondary markets.  
A  respondent  also  suggested  that  a  possible  way  forward  would  be  to  develop  a  29th 
regime  in  order  to  harmonise  commonly  used  terms  and  standardise  some  of  the 
procedural issues of corporate bond issuances (e.g., cross-border voting, proxy advisors 
and joint representatives).  

2)  

Other measures suggested 

The cumulative impact of different pieces of legislation on market-making activities 

Many  respondents  underscored  that  market-makers  are  critical  in  ensuring  there  is 
sufficient liquidity in corporate bond markets, insofar as secondary markets for corporate 
bonds are characterized by much larger and fewer trades than equity markets. This makes 
the  role  of  market-makers  more  important.  Therefore,  these  respondents  recommended 
preserving banks' ability to hold inventories and perform market-making activities.  

23 

 
 
Some  respondents  pointed  out  the  dangers  of  some  of  the  European  regulatory 
frameworks  and  their  negative  cumulative  impact  on  market-making  activities.  For 
instance,  a  certain  number  of  respondents  considered  that  pre-  and  post-trade 
transparency  requirements  of  MiFID  II  should  be  developed  so  as  to  avoid  reducing 
corporate bond market liquidity. In particular, the definition of what constitutes a "liquid 
bond"  to  which  pre  and  post  trade  transparency  requirements  apply  must  be  carefully 
calibrated.  Some  respondents  warned  that  if  this  is  not  done  properly,  banks  may  be 
unwilling  to  make  markets  in  these  bonds  which  would  lead  to  wider  spreads  with 
increased  costs  for  investors.  There  was  also  a  concern  that  if  post-trade  transparency 
deferral periods are not sufficiently long, potential investors would be unlikely to invest 
due to concerns about their ability to hedge risk before the market moves against them. 
Other  respondents  considered  that  research  provisions  on  corporate  debt  should  not  be 
considered  as  inducement  under  MiFID  II/MIFIR  because  there  is  no  evidence  that 
trading spreads will change as a result of separately paid research.  

Some  respondents  underlined  that  the  interplay  of  higher  capital  requirements  being 
implemented through CRD IV/CRR for Basel III with new requirements like liquidity or 
leverage ratios is leading banks to massively reduce inventories on their trading books, 
resulting in lower liquidity in bond markets across all sectors. Some respondents argued 
that  the  mandatory  buy-in  rules,  under  the  Central  Securities  Depositary  Regulation 
(CSDR), would make it harder for market-makers to borrow corporate bonds through the 
repo markets. Consequently, market-makers could face difficulty to short bonds.  

For  other  respondents,  a  further  regulatory  obstacle  could  arise  from  the  future  EU 
framework  on  bank  structural  reform,  as  the  separation  of  capital  markets  operations 
from  retail  banking  is  likely  to  increase  pressure  on  bank  balance  sheets  and  hence 
reduce  banks'  propensity  to  make  markets.  Some  respondents  highlighted  that  the 
Financial  Transaction  Tax  (FTT)  could  also  reduce  trading  in  financial  markets  which 
would make price discovery more difficult.  

Some  respondents  supported  a  "root-and-branch"  study  to  be  undertaken  by  the 
Commission in order to evaluate the EU's corporate bond markets and the impact of post-
crisis regulatory reforms on them. 

The development of electronic bond platforms 

Many respondents supported the development of electronic platforms for corporate bond 
trading, as this would potentially increase the participation of a wider range of investors, 
including smaller investment funds, and have positive benefits in terms of liquidity. For 
instance, some respondents were in favour of the development of all-to-all platforms (i.e., 
platforms allowing buy-side firms to trade with both other buy-side and sell-side firms) 
or  new  trading  protocols  to  complement  RFQ  (request  for  quote)  or  CLOB  (Central 
Limit Order Book) protocols. Nevertheless, some respondents underlined that the use of 
electronic trading platforms would not generate more liquidity, but instead would foster 
easier access to already existing latent liquidity in the market.  

The Prospectus Directive Review 

Many  respondents  considered  that  the  review  of  some  provisions  of  the  Prospectus 
Directive is likely to enhance liquidity in the secondary market for corporate bonds. For 
instance,  some  respondents  argued  that  the  prospectus  review  could  facilitate  the  re-
opening of old issuances by reducing the disclosure burden for such secondary issuances. 

Other respondents were in favour of removing the dual-standard for disclosure contained 
in  the  Prospectus  Directive  which  requires  more  disclosure  for  issuers  of  bonds  with  a 
denomination per unit below €100.000 than  for bonds above €100.000, arguing that this 
creates  an  incentive  for  issuers  to  issue  bonds  in  denomination  above  €100.000  which 

24 

 
 
could  be  a  significant  impediment  to  liquidity  and  should  be  eliminated.  Some 
respondents  underlined  that  the  subscription  of  bonds  by  retail  investors  should  be 
facilitated.    

Other  respondents  were  in  favour  of  the  creation  of  an  automated  and  searchable 
prospectus database at EU level. The advantage of such a database would be a significant 
improvement  in  the  readability  of  bond  prospectuses  and  enhancement  of  the 
comparability of instruments, which would in turn increase these instruments' visibility.  

Two  respondents  pointed  out  that  the  Prospectus  Directive  is  interpreted  in  different 
ways  by  the  National  Competent  Authorities  and  greater  convergence  should  be 
promoted. 

Enhancing credit analysis 

Some respondents suggested that the Commission should favour a robust European credit 
analysis framework. A respondent underlined that the creation of a pan-European credit 
rating  agency  offering  cheaper  ratings  should  be  encouraged  by  the  Commission. 
Another  respondent  supported  the  creation  of  a  single  credit  database,  which  would 
improve availability of information.  

A consolidated tape of transactions in the secondary market for corporate bonds 

Two respondents saw a mandatory reporting of secondary market transactions – similar 
to the TRACE system in the US – as a further element to enhance the functioning of the 
secondary  market  since  this  would  lead  ultimately  to  an  increased  transparency  on 
pricing  and  turnover  for  all  market  participants.  A  respondent  argued  that  the 
introduction  of  a  consolidated  tape  considered  as  a  public  good  and  run  on  a  not-for-
profit model is far more important than standardisation to enhance bond market liquidity. 
One central bank underlined that, when reviewing MiFID II, the European Commission 
should consider whether a pan-European consolidated tape should be mandated.  

Question  7  -  Is  any  action  by  the  EU  needed  to  facilitate  the  development  of 
standardised,  transparent  and  accountable  ESG  (Environment,  Social  and 
Governance)  investment,  including  green  bonds,  other  than  supporting  the 
development of guidelines by the market? 

The majority of  respondents considered that the market-driven  initiatives  in  the area of 
ESG investments are enough at this stage of market development. According to a great 
majority of views, the EU should adhere to global guidelines which already exist in the 
market (i.e., the Green Bond Principles developed by ICMA) and not develop alternative 
standards or regulation around these guidelines.  

A few respondents considered that any regulatory action in the area of ESG investments 
should  attempt  to  be  facilitative  in  nature,  focus  on  optimising  incentives  for  both 
investors  and  issuers,  and  avoid  or  mitigate  any  barriers  to  the  development  of  these 
markets.  

Many  respondents  believed  that  the  Commission  can  play  an  important  role  in  several 
ways:  

1.  The  Commission  can  contribute  towards  the  development  of  clearer  standards  and 
procedures  for  ESG  investments,  building  on  existing  industry  work.  Many 
respondents  pointed  out  that  the  Commission  should  work  in  concert  with  global 
initiatives  to  develop  standardised  definitions  for  the  investment  classes  comprised 
under the ESG umbrella. Many respondents believed that the ESG market could be 
prevented  from  further  growing  by  the  lack  of  a  consistent  definition  of  what 

25 

 
 
 
constitutes an ESG investment.   

2.  Some respondents would also welcome the Commission's reflection on the launching 
of  a  common  European  label  for  investment  funds  and  other  investment  products 
which  meet  the  criteria  for  qualifying  as  socially  responsible  investments.  In  this 
context, a few respondents also stressed the importance of ensuring that such a label 
is not perceived as greenwashing. 

3.  Other  respondents  considered  that  the  Commission  should  set  up  monitoring  and 
enforcing  mechanisms  to  ensure  that  ESG  investment  vehicles  continuously  deliver 
on  their  promises  after  an  investment  has  been  made,  as  a  means  to  enhance  the 
transparency of the ESG asset class. 

4.  A  few  respondents  asked  for  EU-wide  tax  breaks  for  both  issuers  and  investors 

participating in such products.  

5.  Very  few  respondents  considered  that  financial  institutions  could  be  encouraged  to 
hold more ESG-type products by permitting a less onerous capital treatment for this 
type of instrument.  

6.  Very few respondents considered that both the Commission and the EIB could play 
an important role in encouraging more ESG bond issues. This could be achieved by 
supporting a 'green premium' to encourage more ESG bond issues with higher levels 
of integrity and detailed reporting, or by encouraging the EIB to credit enhance ESG 
bonds with high level of transparency/reporting. 

7.  Very  few  respondents  also  suggested  promoting  ESG  investments  in  the  European 

Fund for Strategic Investments which is part of the Investment Plan for Europe. 

8.  Many  respondents  considered  that  it  would  be  crucial  to  standardise  and  define  a 
socially responsible investment when an instrument is issued and also post-issuance 
in  order  to  develop  the  potential  of  the  ESG  market  worldwide.  This  would  ensure 
that  funds  are  allocated  in  accordance  with  the  scope  of  the  instrument.  In  this 
respect,  many  respondents  welcomed  the  Commission's  proposal  for  a  Directive  on 
Non-financial Reporting by large corporations. 

Question 8 - Is there value in developing a common EU level accounting standard 
for small and medium-sized companies listed on MTFs? Should such a standard 
become a feature of SME Growth Markets? If so, under which conditions? 

1)  

Common EU level accounting standard for SMEs listed on MTFs? 

Respondents distinguished between privately-held and listed companies. A large majority 
of respondents considered that it is preferable to maintain the current financial reporting 
rules  for  privately-held  SMEs  and  for  SMEs  listed  on  regulated  markets.  At  present, 
privately-held  SMEs  report  according  to  national  accounting  standards,  which  are 
considered less burdensome and appropriate to the information needs of SMEs' owners, 
banks,  tax  authorities  and  other  respondents.  SMEs  listed  on  regulated  markets  report 
their consolidated accounts according to the International Financial Reporting Standards 
(IFRS), as any company listed on those markets. 

As regards SMEs listed on MTFs, some respondents considered that the current state-of-
play  is  appropriate  and  should  not  be  changed.  Currently,  SMEs  listed  on  most  MTFs 
prepare  their  financial  reports  according  to  national  accounting  standards.  This  limits 
complexity  and  costs,  ensures  compliance  with  national  tax  rules  and  regulatory 
requirements  (for  instance,  dividend  distribution),  and  allows  investors  to  analyse  and 
compare these reports easily on a national basis. In addition, some MTFs allow SMEs to 

26 

 
 
 
present consolidated accounts according to the IFRS. This provides flexibility for listed 
SMEs  aiming  at  European  and  international  investors  while  keeping  the  administrative 
burden  limited.  However,  this  option  is  not  available  to  listed  SMEs  that  are  a  single 
legal  entity  and  do  not  prepare  consolidated  accounts  (a  rather  important  minority  on 
some MTFs). Finally, there are already MTFs that require SMEs to apply the IFRS. 

Most  respondents  considered,  however,  that  some  kind  of  initiative  or  incentive, 
legislative or not, is needed to render SMEs listed on MTFs more attractive to European 
and international investors, through enhanced transparency and comparability of relevant 
financial information. These respondents argued that more work should be done on this 
at EU level, although many of them have not identified their preferred solution yet. 

Some respondents thought that there would be merit in developing a common accounting 
standard  at  EU  level  to  be  used  by  SMEs  listed  on  MTFs.  The  arguments  put  forward 
included:  

•  European and international investors need more transparency and more useful and 
comparable  financial  information  to  support  their  SME  investment  decisions. 
This  would  reduce  perceived  risk  in  investing  into  SMEs,  lower  funding  costs, 
optimise  capital  allocation  across  the  EU,  enhance  investment  into  SMEs,  and, 
ultimately,  contribute  effectively  to  the  creation  of  jobs  and  a  robust,  long-term 
economic growth in the EU. 

•  An  EU  solution  should  be  customised  to  the  needs  of  EU  SMEs  and  be  more 

flexible and responsive to their evolution over time.  

2)   What solution? 

Many respondents were in favour of a solution for EU SMEs listed on MTFs based on 
the International Financial Reporting Standards. These respondents argued that attracting 
European and international investors is critical for the long-term success of an EU capital 
market for SMEs. Respondents explained that international investors tend to prefer, and 
are  already  familiar  with  the  IFRS.  These  standards  allow  investors  to  assess  and 
compare consistent and uniform financial information provided by large companies and 
SMEs across the EU and internationally. To be competitive, receive funds and obtain the 
best funding conditions, EU SMEs should be able to provide international investors with 
high-quality financial information that is based on international standards. 

However,  a  majority  of  these  respondents  also  recognised  that  full  application  of  the 
IFRS could in principle be costly and burdensome for EU SMEs listed on MTFs. 

A  very  few  respondents  argued  in  favour  of  the  SME-specific  financial  reporting 
standard  already  developed  by  the  IASB,  IFRS  for  SMEs,  which  includes  lighter  rules 
customised to the needs of SMEs. However, this  option  was  broadly argued against by 
many respondents who pointed out that IFRS for SMEs is not intended to meet the public 
accountability  requirements  of  listed  SMEs.  Currently,  the  IASB  does  not  allow  listed 
SMEs to use the IFRS for SMEs standard. 

A few respondents argued in favour of the application of the full IFRS by SMEs listed on 
MTFs.  These  respondents  reminded  that  SMEs  listed  on  regulated  markets  already 
comply with the IFRS for their consolidated accounts, and that a number of SMEs listed 
on MTFs already report under the IFRS, some  of  them  on a voluntary  basis. However, 
many  other  respondents  argued  against  this  option,  on  the  basis  that  it  could  be 
burdensome and costly. 

Other respondents suggested that a pragmatic IFRS-based solution be found in order to 
deliver  for  SMEs  listed  on  MTFs  the  advantages  of  a  high  quality,  comparable, 
international set of accounting rules, while avoiding excessive administrative burden and 

27 

 
 
costs. These respondents considered that meeting these two objectives is desirable,  and 
should be achievable, to the benefit of SMEs and investors. One possible solution could 
be  keeping  the  main  requirements  of  the  IFRS,  in  particular  their  recognition  and 
measurement  framework,  while  reducing  significantly  the  disclosure  requirements  for 
SMEs  listed  on  MTFs,  in  accordance  with  the  principle  of  proportionality.  Some 
respondents  suggested  that  the  Commission  could  work  with  the  IASB  towards  this 
objective.  In  its  contribution  to  the  consultation,  the  IFRS  Foundation  stated  that  "the 
Foundation  and  the  IASB  stand  ready  to  work  with  the  European  Commission  […]  in 
considering the financial reporting implications of the CMU". 

Question 9 - Are there barriers to the development of appropriately regulated 
crowdfunding or peer to peer platforms, including on a cross border basis? If so, 
how should they be addressed? 

1)  

Barriers 

Some  respondents  saw  no  barriers  to  the  development  of  crowdfunding  in  the  EU  and 
argued  that  it  would  be  too  early  for  regulation  or  other  intervention.  They  called  for 
following  a  market-driven  approach  and  underlined  that  markets  and  projects  were 
mainly  local.  Some  mentioned  that  there  are  no  apparent  cross-border  elements  in  the 
markets  for  the  EU  to  intervene.  A  respondent  stressed  that  it  was  rather  for  national 
competent authorities to remain vigilant for risks to unsophisticated investors. 

Most respondents however identified barriers and mentioned the following: 

1.  Regulatory barriers 

•  different  national  regulations  (e.g.,  limits  on  investments,  some  rules 
barring institutional investors from lending, some disclosure requirements 
seen as too onerous for SMEs, peer-to-peer lending might not be available 
to borrowers that are physical persons)  
the range of applicable regulations 

• 
•  compliance costs  
•  due diligence 
• 
•  cross-border jurisdictional inconsistencies 
• 
•  divergent national private placement rules 
•  different  actions  taken  by  Member  States  when  an  investment  fails, 

lack of investor and consumer trust 

regulatory gaps 

resulting in a strong home bias with investors 

2.  Asymmetry of information 

•  poor availability and quality of information 
•  difficult to assess risks across borders due to different market conditions 

and legal status 

3.  Other barriers  
• 
• 

lack of secondary markets 
taxation (e.g., offsetting bad debt, paperwork to fill in tax return forms in 
each MS where one invests); 
language  
foreign exchange risks of cross-border investments  

• 
• 

2)  

Addressing the barriers 

About half of the respondents called for some form of legal intervention at EU level, with 
the ideas ranging from a light touch intervention to calibrate existing requirements to a 
28 

 
 
 
creation  of  a  fully  harmonised  regime.  Legal  intervention  was  proposed  either  as  a 
solution  in  itself  or  coupled  with  non-legislative  actions.  There  were  also  some 
respondents  who  thought  that  soft  measures,  such  as  coordination  or  sharing  of  best 
practice, is the best way forward. 

Those  calling  for  EU  legislative  intervention  most  often  referred  to  the  need  to  ensure 
investor  protection  as  a  reason  for  such  intervention.  A  second,  somewhat  less  often 
cited, reason was to facilitate crowdfunding and enable cross-border transactions at costs 
that would be lower than under the existing rules. Some respondents added that any EU 
legal intervention should take account of existing national regulatory frameworks.  

Opinions varied by a respondent group:  

•  Companies  were  in  their  vast  majority  in  favour  of  the  EU  promoting 
crowdfunding, with many respondents supporting EU action, although some also 
cautioned against such action.  

•  Consumer  representatives  warned  of  the  risks  and  reminded  that  any  market 
opening should be accompanied by measures to ensure consumer protection. 

•  Banks  reminded  of  the  importance  of  keeping  a  level  playing  field  among 
crowdfunding providers and banks, arguing that consumer protection is important 
in this new market.  

•  Public  authorities'  views  were  somewhat  more  divided  as  to  whether  the  EU 
should  regulate.  Opinions  ranged  from  advocating  a  market-driven  approach, 
through  monitoring  the  markets  and  intervening  when  the  time  is  right,  to 
underlining that regulatory action at EU level would add value.  

Several respondents highlighted the challenge of finding the right balance for an optimal 
legislative  framework;  others  mentioned  barriers  that  cannot  be  addressed  by  the 
Commission, such as language barriers, home bias of investors, and complexity of cross-
border  investments  for  retail  investors  (e.g.,  due  to  currency  risks).  Respondents  also 
acknowledged challenges in harmonising contract law and mentioned the impact of tax 
incentives on the development of local crowdfunding markets. 

Question 10 - What policy measures could incentivise institutional investors to raise 
and invest larger amounts and in a broader range of assets, in particular long-term 
projects, SMEs and innovative and high growth start-ups? 

Four main areas for action were identified by the respondents: the regulatory framework, 
transparency, taxation and public support. 

1)  

Regulatory framework 

The  prudential  regulation  under  which  institutional  investors  operate  influences  their 
appetite  to  invest  into  specific  asset  classes,  notably  through  the  calibration  of  capital 
charges and qualitative and quantitative investment limits. 

•  Capital charges: 

(i)  The  vast  majority  of  the  respondents  were  in  favour  of  a  more  supportive 
capital requirement treatment for qualifying securitisation products and a sub-
class  of  infrastructure  assets.  The  need  to  develop  the  securitisation  of 
corporate  loans,  in  particular  loans  to  SMEs  and  mid-sized  companies,  was 
highlighted by these respondents. To this end, they considered that criteria for 
identifying  simple,  transparent  and  standardised  short-term  securitisation 
instruments and adequate regulatory capital treatment under Solvency II and 

29 

 
 
 
CRD IV/CRR should be developed. Respondents also supported a preferential 
calibration  in  Solvency  II  for  investments  in  infrastructure  meeting  certain 
eligibility criteria. 

(ii) The  views  of  the  respondents  on  whether  the  prudential  regulation,  in 
particular Solvency II, should be more supportive of investments into private 
equity  and  privately  placed  debt  were  more  divided.  The  industry  strongly 
supported a revision of Solvency II, arguing that the actual risks that insurers 
are exposed to when investing in such assets are currently not well reflected.  
Some  however,  were  more  cautious,  highlighting  the  need  to  preserve 
financial stability and appropriate investor protection. 

(iii)Some respondents also highlighted the need to review the exemption of banks' 
and insurers' exposures to EU sovereign bonds from capital requirements. In 
their  opinion,  this  inappropriately  incentivises  investors  to  buy  public  debt 
rather than other investment assets. 

•  Several  respondents  underlined  the  need  to  remove  national  investment  restrictions 
imposed  on  occupational  pension  funds  that  unduly  restrict  their  investment 
decisions, in particular as regards investing into illiquid and long-term assets. 

•  Some respondents, mostly from the banking industry, also emphasised the impact of 
the mark-to-market (accounting) rules on asset allocation decisions (more short-term 
than long-term assets, more bonds than equities).  

•  The majority of the respondents underscored the need to support the development of 
the investment funds invested in long-term projects and SMEs, such as private equity 
and venture capital funds, ELTIFs, loan originating funds or securitisation vehicles, 
as well as alternative sources of funding such as crowdfunding.  

•  Some  respondents  highlighted  the  need  for  improving  the  availability  of  exit 
opportunities  from  investments  which  are  illiquid  or  with  limited  liquidity,  for 
example equity investments into high growth start-ups. 

•  A  certain  number  of  respondents  questioned  the  compatibility  of  recent  legislations 
or legislative proposals, such as FTT, MiFID II and EMIR, with the objectives of the 
CMU. 

2)  

Transparency 

Access to information was mentioned as being crucial to support larger investments in a 
broader range of assets. Some respondents pointed out the need to establish a consistent 
and sizeable pipeline of European infrastructure projects in order to help investors find 
and choose suitable projects. These respondents welcomed the creation of the Investment 
Project  Portal  under  the  Investment  Plan  for  Europe,  but  underlined  that  increased 
transparency  should  not  be  limited  to  projects  eligible  for  financing  by  the  European 
Fund for Strategic Investments. There was also support for the creation of the European 
Investment Advisory Hub as a vehicle to strengthen the support and technical advice for 
project structuring and funding across the EU. Furthermore, respondents underlined the 
need for investors to get standardised and comparable information on SMEs in order to 
adequately perform their creditworthiness analysis.  

3)  

Taxation 

Many  respondents  identified  taxation  as  a  crucial  factor  for  incentivising  larger 
investments  into  long-term  projects,  SMEs,  and  innovative  and  high  growth  start-ups. 
The following two aspects were mentioned in particular:   

30 

 
 
•  Respondents  stressed  the  necessity  to  identify  and  remove  unfair  tax  treatment  of 
cross-border  investments.  The  most  frequently  quoted  problem  related  to  the 
application of withholding taxes on a cross-border basis. 

•  As  regards  incentives  for  long-term  investment,  respondents  underlined  the 
importance  of  favourable  tax  policies  such  as  tax  credits  for  individual  investors 
investing  into  retirement  savings  products,  or  tax  reductions  on  capital  gains  and 
dividends generated from private equity or venture capital investments. 

4)  

Public support 

A  majority  of  respondents  also  favoured  targeted  public  support  for  investments  in 
certain asset classes such as for example SMEs' debt and equity financing. This support 
could be structured under the form of a co-financing or be provided through a guarantee. 
In  this  respect,  they  welcomed  the  creation  of  the  European  Fund  for  Strategic 
Investments.  They  however  insisted  on  ensuring  that  public  support  is  only  directed 
towards  projects  where  burden  sharing  between  the  public  and  private  sectors  is 
necessary  in  order  to  avoid  crowding  out  investment  for  projects  that  could  be  fully 
financed by private sources. Most of the respondents also underlined the importance of a 
stable regulatory and political framework if institutional investors are to invest more in 
long-term projects. 

Question  11  -  What  steps  could  be  taken  to  reduce  the  costs  to  fund  managers  of 
setting  up  and  marketing  funds  across  the  EU?  What  barriers  are  there  to  funds 
benefiting from economies of scale? 

The  following  barriers  were 
in  market 
fragmentation and thereby preventing European fund managers from realising economies 
of scale: 

identified  as  crucial  factors  resulting 

1.  The  majority  of  respondents  pointed  to  taxation  and  highlighted:  (i)  the  disparity 
among  domestic  withholding  tax  regimes  across  Member  States  and  corresponding  tax 
recovery  procedures;  (ii)  preferential  tax  treatment  for  domestic  funds;  (iii)  the 
application  of  double-tax  treaty  benefits,  which  turn  out  to  be  problematic  for  funds  in 
certain  jurisdictions;  (iv)  national  tax  reporting  formats,  which  have  to  be  provided  by 
asset managers to investors, i.e. asset managers have to produce a tax reporting form for 
each Member State in which they are selling their funds. Respondents also called on the 
Commission to at least ensure that tax laws do not discriminate between fund domiciles. 
Some respondents proposed that the EU develop a harmonised tax treaty network for the 
benefit of all European funds.  

2. Respondents viewed the varying national requirements applicable to the marketing of 
UCITS  as  a  crucial  barrier  to  marketing  more  funds  cross-border.  Management 
companies  find  it  extremely  costly  to  research  each  EU  Member  State's  financial 
promotion and consumer protection regime in order to provide and produce appropriate 
materials  on  an  on-going  basis.  For  example,  one  Member  State  requests  statistics  on 
subscriptions  and  redemptions,  while  another  one  requests  a  local  addendum  to  the 
prospectus  and  the  disclosure  of  indemnity  clauses  between  a  custodian  and  a  sub-
custodian. A sweeping harmonisation of the UCITS product-related marketing rules was 
seen as a way forward; alternatively, supervisory competences could be further bundled 
at the fund manager's home Member State (they reside currently with the host Member 
State). 

31 

 
 
 
 
3.  The  requirement  for  UCITS  to  appoint  a  paying  agent  in  each  jurisdiction  where  a 
fund  is  marketed  was  highlighted  as  an  additional  cost  and  burden  that  is  not  always 
justified by the added value for local investors. The requirement dates back to 1985 and 
was  seen  by  many  respondents  as  being  out-of-date,  given  the  widespread  use  of  the 
internet  and  the  ease  with  which  cross-border  payments  can  be  made  nowadays. 
Respondents proposed to update the investor protection mechanisms as set out in Article 
92 of the UCITS Directive and Article 23 of the ELTIF Regulation, accordingly.  

4. In the context of AIFMD, the administrative fees levied by host authorities for cross-
border  marketing  notifications  were  often  seen  as  excessive  and  opaque.  National 
standards as to when, to whom and in which way a fee shall be paid display considerable 
differences.  The  issue  was  put  forward  by  a  range  of  different  respondents,  including 
management companies, trade associations, public authorities and law firms.  

5.  Some  respondents  also  believed  that  further  improvements  could  be  achieved  by 
reducing the room for national interpretations and domestic gold plating of AIFMD. In 
general,  a  targeted  review  of  the  impact  of  gold  plating  on  cross-border  marketing 
arrangements was seen as appropriate.   

6. The current notification process under the passport regime requires the home authority 
to submit a notification file to all host competent authorities in the Member States where 
the manager intends to market. This process was seen as a costly administrative burden, 
which could be further streamlined via a single notification coordinated by ESMA. 

7. A few respondents proposed to lighten the regulation in areas like double authorisation 
as a UCITS management company and an AIFM, or double registration as an AIF and a 
EuVECA  or  a  EuSEF.  Likewise,  the  different  reporting  requirements  applicable  under 
UCITS / AIFMD and the future MMF Regulation were highlighted as huge unnecessary 
costs for fund managers offering products under all three sets of EU rules.  

8.  As  highlighted  by  many  respondents,  current  take-up  of  the  possibility  to  merge 
UCITS funds on a cross-border basis is very low. On the one hand, the process has been 
singled  out  as  being  too  cumbersome  (e.g.,  quoting  the  investor  protection  measure 
requiring that investors of the receiving UCITS have to be notified); on the other hand, 
the complexity of different local tax treatments and tax reporting for investors render this 
vehicle as commercially unattractive. 

9.  Master-feeder  structures  have  been  designed  as  a  tool  to  boost  economies  of  scale. 
Many  respondents  highlighted  that  these  structures  have  not  yet  experienced  any 
significant  take-up.  It  was  pointed  out  that  the  prohibition  in  the  UCITS  Directive  for 
Fund-of-Funds structures or "normal" UCITS to invest into a feeder UCITS prevented a 
material take-up of master-feeder structures.    

10. Some respondents pointed out that the ability to offer different share classes plays an 
important role in allowing fund managers to manage larger funds more effectively as it 
caters  for  the  needs  of  different  investor  types.  It  was  outlined  that  e.g.  share  classes 
denominated  in  different  currencies  enable  investors  to  access  a  single  fund  while 
subscribing in their home currency (i.e., GBP/EUR/SEK). 

11.  A  few  respondents  called  for  the  introduction  of  a  European  depositary  passport. 
They considered it to be the next logical step in completing the single market for UCITS, 
following  the  recent  introduction  of  the  UCITS  management  company  passport. 
Respondents  expected  the  creation  of  a  more  competitive  market  place  in  depositary 
services to lead to economies of scale with potential cost reduction for the funds.  

32 

 
 
Question 12 - Should work on the tailored treatment of infrastructure investments 
target certain clearly identifiable sub-classes of assets? If so, which of these should 
the Commission prioritise in future reviews of the prudential rules such as CRD IV/ 
CRR and Solvency II? 

A  large  majority  of  respondents,  including  banks,  investment  firms,  insurance 
associations  and  asset  management  associations,  favoured  a  tailor-made  treatment  of 
infrastructure  investments  and  asked  for  a  definition  of  a(n)  (sub-)asset  class  which 
reflects the long-term, lower risk nature of such investments. 

However,  some  respondents,  among  them  investment  firms,  banks,  Finance  Ministries 
and  central  banks,  did  not  see  the  necessity  for  (any)  preferential  treatment  of 
infrastructure investments. CRD IV/CRR and Solvency II rules that have created uniform 
and risk-based prudential rules for insurance companies and credit institutions in order to 
protect  policy holders  and  depositors should not be amended. If incentives to stimulate 
more  investment  in  infrastructure  are  necessary,  means  other  than  recalibrating  capital 
requirements (for instance, public guarantees) should be used. 

For  the  majority  of  respondents  who  advocated  favourable  treatment  of  infrastructure 
investments,  such  treatment  should  be  made  through  preferential  regulatory  capital 
requirements  under  Solvency  II  for  insurers  and  CRD  IV/  CRR  for  banks.  Preferential 
treatment could be justified by the characteristics of long-term infrastructure investments 
which have a relatively low risk of default, high recovery rates and stable cash flows. 

Many respondents, notably from the insurance sector, stated that the current standardised 
approach  under  Solvency  II  determines  inappropriately  high  capital  requirements  for 
infrastructure  investments.  A  review  and  a  risk-sensitive  recalibration  would  remove 
currently  existing  disincentives  for  insurance  companies  to  invest  into  long-term 
infrastructure.  

Many  respondents  stated  that  a  clear  definition  of  infrastructure  assets,  a  proper 
management of those assets and appropriate monitoring procedures must be in place to 
justify preferential capital treatment (through lower risk-weight).  

However,  some  respondents  acknowledged  that  a  clear  definition  of  a  lower-risk 
infrastructure  (sub-)  asset  class  might  be  difficult  to  achieve,  even  in  well-established 
sectors like energy or transport, due to divergent political, legal and economic conditions 
in Member States. A considerable number of respondents made reference to the current 
public consultation conducted by EIOPA with respect to proposing a suitable definition 
of  infrastructure,  criteria  for  an  infrastructure  asset  class  and  adequate  treatment  under 
Solvency II. 

Some respondents proposed to make also a distinction between infrastructure equity and 
infrastructure debt finance in order to reflect the different nature of the investments and 
the diverging risk profiles from an investor's point of view. 

As  regards  a  clear  definition  of  an  identifiable  asset  class  'infrastructure  investments', 
some  respondents  asked  to  include  also  infrastructure  investments  that  could  drive 
industrial change and lead to introduction of new technologies in any preferential capital 
treatment. Public guarantees (EFSI, EIB, at national level) should be provided for higher-
risk  infrastructure  investments  and  focus  on  the  risky  early  phase  of  infrastructure 
investments (construction risks) to attract private capital. 

Some  respondents  suggested  that  a  possible  approach  to  determine  criteria  for  an 
infrastructure  asset  class  could  be  to  apply  horizontal  criteria  across  sectors.  Potential 
criteria  include  predictable  cash  flows,  a  low  correlation  with  other  asset  classes,  a 
regulated  legal  and  investment  environment,  availability  of  (public)  guarantees,  low  or 

33 

 
 
no construction risks, location of projects in OECD countries and mitigation of political 
risks  (for  instance,  through  the  involvement  of  multi-lateral  banks  –  the  EIB  and  other 
international financial institutions). 

Question  13  -  Would  the  introduction  of  a  standardised  product,  or  removing  the 
existing  obstacles  to  cross-border  access,  strengthen  the  single  market  in  pension 
provision? 

Most personal pension providers recognised the importance of looking at possible ways 
of  encouraging  and  supporting  citizens  to  save  for  their  retirement  at  EU  level.  Some 
respondents stressed that pension funds support the development of capital markets: the 
US hold 135% of its GDP in private pension assets, while such assets represent less than 
15% of GDP in some EU Member States (e.g., Italy, France and Spain).  

The insurance industry was generally open to considering a European personal pension 
product  (EPPP),  but  insisted  that  its  features  be  carefully  assessed.  Notably,  personal 
pension  products  should  have  an  explicit  retirement  purpose  (to  distinguish  them  from 
other investment products), restrict early withdrawal (to create long-term liabilities), and 
provide savers with the possibility to purchase cover against longevity risk (guarantees). 
Some  respondents,  however,  raised  specific  concerns  and  doubted  that  a  European 
approach  would  be  successful.  Many  respondents  warned  that  to  have  a  true  single 
market  in  EPPPs  and  make  these  products  competitive  with  existing  products,  they 
would  need  to  be  subjected  to  tax  treatments  that  are  compatible  with  Member  States’ 
own  systems.  Some  respondents  would  be  interested  in  cross-border  pension  products 
provided  that  there  was  market  demand  and  that  these  products  offered  up  sufficient 
levels  of  consumer  protection.  The  same  prudential  standards  as  under  Solvency  II 
should  apply  to  other  providers  to  ensure  a  level  playing  field.  Some  respondents  took 
the view that it is very difficult for a provider to take fully into account the requirements 
of  the  social,  labour  and  civil  laws  of  several  Member  States  (at  occasions  such  as 
dismissal,  divorce,  death  and  so  on).  A  few  respondents  also  underlined  that  clients 
seeking contact with a service provider expect to be helped by a native speaker and took 
the view that the public often favours “its own” providers above foreign providers. 

The  investment  fund  industry  was  strongly  in  favour  of  an  EPPP  and  considered  that 
this would boost competition. In fact, the industry recently proposed the creation of such 
a product. The vast majority of respondents supported an EPPP that offers a cross-border 
product alongside existing national schemes as a way around existing obstacles, many of 
which are due to national social and tax legislation. Some respondents suggested that the 
need for an EPPP is likely to be bigger in smaller Member States where there is currently 
no or limited access to retirement savings vehicles.  

Occupational pension providers (IORPs) underlined that occupational pensions are the 
most  efficient  form  of  funded  retirement  provision  for  employees.  Some  respondents 
encouraged  the  European  Commission  to  test  the  demand  for  an  EPP  and  also  to 
elaborate  further  on  the  reasons  why  such  a  system  is  needed.  Respondents  from  this 
respondent  group  are  not  against  a  European  approach  to  personal  pensions  per  se,  as 
long  as  this  does  not  undermine  the  importance  of  state  and  work-based  pensions.  For 
some respondents, the European Commission should focus on increasing the volume of 
occupational rather than personal pensions by encouraging best national practices such as 
IORP  auto-enrolment  in  the  UK.  Respondents  seemed  to  generally  perceive  personal 
pensions  as  a  re-distribution  of  savings  across  pension  pillars  rather  than  an  attempt  to 
increase  the  overall  level  of  retirement  savings.  Some  IORPs  might  be  interested  in 
offering personal pensions, but given their not-for-profit nature their interest is expected 

34 

 
 
 
to  be  negligible.  A  few  respondents,  particularly  from  Central  and  Eastern  Europe, 
suggested  focusing  on  freeing  up  investment.  They  believe  that  pension  funds  and 
insurance companies that provide private pensions should be able to invest contributions 
more  freely  cross-border  and,  for  example,  provide  long-term  financing  to  an 
infrastructure project in another Member State. 

The feedback from the banking sector respondents was mixed. One group was critical 
about an EPPP. They believed that it is impossible to standardise products for all investor 
types.  This  would  also  stifle  competition  and  undermine  the  provision  of  tailored 
investment  solutions  to  clients.  According  to  some  respondents,  it  would  be  far  more 
sensible to look at harmonising marketing regimes for different types of investors, such 
as  retail  clients,  professional  clients  and  eligible  counterparts.  Moreover,  a  few 
respondents considered that national solutions for pensions should be given priority over 
European solutions. Conversely, another group of respondents supported the creation of 
an EPPP, believing that a standardised product would reduce the current barriers for the 
cross-border activity of pension providers. They pointed to the limited number of cross-
border pension plans today and suggested that this is due to domestic legislation and the 
need to receive approval from the home and host supervisors, among other factors. 

Consumer  organisations  were  strongly  in  favour  of  a  European  approach  to  personal 
pensions. They called for a product that offers value for money, certainty and mobility. 
There  was  a  preference  for  an  EPP.  As  regards  the  features  of  a  product,  respondents 
insisted on transparency and the need to keep costs low. They stressed that multiple fees 
and charges have a significant impact on capital accumulation over the life of a pension. 
This  has  a  very  detrimental  effect  on  the  (real)  return  of  pension  products.  Moreover, 
weak  disclosure  practices  add  to  the  opacity  of  often  very  complex  personal  pension 
products.  Accordingly,  an  EPP  should  be  very  simple,  with  a  default  option  to  protect 
savings when in retirement. There should be also simple contract clauses, for instance on 
early withdrawal, and several pay-out options.    

Member States and other public-sector respondents 

Member States (Finance Ministries) had different opinions ranging from:  

•  Some supported the creation of an EPP, as it would offer more choice to savers and 
allow  providers  to  reach  economies  of  scale  on  the  investment  and  administrative 
functions. 

•  Others  took  the  view  that  capital-based  pension  products  would  become  more 
important and encouraged the European Commission to build on EIOPA's advice due 
in 2015.  

•  Some  suggested  that  existing  EU  legislation  should  be  reviewed  before  taking  a 

decision.  

•  Others considered that cross-border activity for pension provision is limited and were 
of  the  opinion  that  consumers  already  have  many  products  to  choose  from, 
irrespective of a European product.  

•  Still  others  were  not  in  favour  of  a  European  approach  to  personal  pensions, 

expecting it to be ineffective due mainly to tax reasons.  

The  European  Investment  Bank  Group  (EIB/EIF)  considered  that  initiatives  on 
standardised products complementing national pension schemes and offering national tax 
incentives  to  equity  type  investments  like  the  401k  in  the  US  can  help  in  deepening 
capital  markets  and  increasing  the  funding  sources  available.  A  similar  response  was 
provided  by  the  European  Stability  Mechanism.  Moreover,  the  ESM  considered  that 
the  design  of  existing  pension  plans  in  the  EU  tends  to  discourage  workers'  mobility 
35 

 
 
across  national  borders.  These  plans  are  incompatible  with  today’s  mobile  workforce, 
which  requires  schemes  that  are  easily  portable  when  changing  employers,  and  an 
integrated  European  economy.  The  introduction  of  a  standardised  funded  retirement 
savings scheme that is portable across borders can act as a catalyst for fostering greater 
integration of both capital and labour markets. 

National  public  bodies  with  a  responsibility  for  central  banking  or  supervision 
generally favoured a European approach to personal pensions, particularly in the context 
of  the  CMU.  A  respondent  also  encouraged  consolidation  of  pension  funds  as  a  way 
forward  to  developing  personal  pensions.  To  achieve  this,  increased  transparency  on 
costs is needed.  

Question  14  -  Would  changes  to  the  EuVECA  and  EuSEF  Regulations  make  it 
easier  for  larger  EU  fund  managers  to  run  these  types  of  funds?  What  other 
changes if any should be made to increase the number of these types of funds? 

1) 

Changes to EuVECA and EuSEF Regulations 

Amongst  those  who  responded  to  this  question,  the  majority  believed  that  changes 
should be made to EuVECA or EuSEF Regulations.  

In  particular,  most  of  these  respondents  advocated  revising  the  calibration  of  the 
threshold  before  the  AIFMD  authorisation  requirement  applies.  They  also  called  for 
clarifying that fully authorised and above-threshold AIFMs are equally entitled to set up 
and market EuVECA and EuSEF funds. Some respondents also indicated that additional 
requirements in different jurisdictions, in particular as regards setting-up fees and costs 
for host registration, constitute an impediment to setting up EuVECA or EuSEF funds. 
Others indicated that the minimum investment commitment of €100.000 could dissuade 
potential investors. Some also expressed an interest in opening the Regulations to non-
EU  managers  who  would  have  the  expertise  to  establish  and  operate  EuVECA  and 
EuSEF funds. 

The issues identified by respondents in relation to EuSEF rarely referred to the detailed, 
delegated rules on how to define social enterprises or to the method of measuring social 
impact.  Instead  they  focused  on  who  can  manage  these  funds  and  the  minimum 
investment  required  from  potential  investors.  The  respondents  were  mostly  industry 
associations and foundations. 

Some respondents, mainly industry associations, proposed more fundamental changes to 
both Regulations. They  called  for (i) extending the eligible  investor base to  encompass 
non-professionals  and  retail  investors  with  no  minimum  investment  commitment;  (ii) 
removing  the  pure  “venture”  label  to  create  a  wider  private  equity  passport;  (iii) 
broadening  the  range  of  eligible  assets,  to  include  also  larger  companies  as  investee 
companies  in  the  portfolio  of  an  EuVECA  (possibly  with  a  review  of  the  SME 
definition); and (iv) extending the eligibility for EuSEF to “all organisations which have 
a positive impact on the largest possible number of people”.  

2) 

Other changes 

A few respondents, mainly industry associations, proposed taking further actions on tax 
incentives and lowering capital requirements for EuVECA and EuSEF managers, as well 
as  considering  EuVECA  or  EuSEF  as  collective  investment  undertakings  within  the 
meaning of Article 1(2)(a) and (b) of the UCITS Directive.   

3) 

No changes 

36 

 
 
 
Some respondents, mostly public authorities, believed that no changes are needed, or that 
it  is  too  early  to  conclude  that  there  is  a  need  for  changes  as  further  assessment  is 
necessary.  

Question 15 - How can the EU further develop private equity and venture capital as 
an  alternative  source  of  finance  for  the  economy?  In  particular,  what  measures 
could boost the scale of venture capital funds and enhance the exit opportunities for 
venture capital investors? 

1)  

EU  measures  to  support  the  development  of  private  equity  and  venture 
capital 

A majority of respondents focused on issues related to the regulation of investment funds 
(notably AIFMD, EuVECA, ELTIF and UCITS), including barriers to passporting within 
the single market. 

A  general  recommendation  from  several  respondents  was  to  first  ensure  effective 
implementation  and  review  of  current  rules  that  have  an  impact  on  private  equity  and 
venture capital, both at EU and Member States level, before creating new rules.  

in  relation 

In  particular 
to  AIFMD,  some  respondents  advocated  consistently 
implementing  the  marketing  passport  across  the  EU,  while  avoiding  gold  plating  by 
Member  States  as  much  as  possible.    Some  respondents  also  argued  in  favour  of 
extending the AIFMD marketing passport to fund managers from third countries in order 
to promote more competition and investors' choice. At the same time, a few respondents 
argued that national private placement regimes (NPPRs) should continue to be available 
for fund managers who are not able to use the passport or for whom the passport is not 
suitable. 

Other feedback on funds legislation concerned EuVECA (e.g., suggestions to lower the 
entry ticket for investors and increase the threshold for using the label by fund managers) 
and  ELTIF  funds  (avoid  imposing  conflicting  or  additional  requirements  for  managers 
already authorised under the AIFMD). 

A  large  number  of  respondents  identified  taxation  issues  as  important  to  foster  private 
equity and venture capital in Europe. Several respondents underlined that an increasing 
number  of  Member  States  is  already  encouraging  business  angel  and  venture  capital 
investment through tax incentives in order to increase the supply of early stage funding 
for start-ups. They recommended sharing the experience of successful schemes such as 
the UK Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme 
(SEIS). At the same time, some respondents highlighted that differences in tax incentives 
among Member States should be reduced as much as possible. 

Several respondents (mainly from the industry) stressed that capital requirements under 
CRD  IV/CRR  and  Solvency  II  discourage  institutional  investors  such  as  banks  and 
insurance companies from investing into private equity and venture capital. They argued 
for a recalibration that would result in risk weights more suitable for investment in these 
asset classes. 

Other  measures  proposed  by  some  respondents  to  support  the  development  of  private 
equity and venture capital included:  

•  Fostering  of  an  equity  culture  and  a  more  positive  attitude  towards  risk  capital, 

through financial literacy and better communication; 

•  Role of fully public, fully private or public-private national development banks or 

growth funds; 

37 

 
 
 
•  Role of competition policy, especially as regards the Risk Finance Guidelines for 

state aid to start-ups and other innovative SMEs; 

•  Need for more and better information on investment opportunities; 

•  Role of institutional investors, notably pension funds; 

•  Added value of public-private funds of funds; 

•  Need for more effective and creditor-friendly insolvency regimes; 

•  Opening of the private equity and venture capital asset classes for investment by 

retail investors;  

•  Better transparency of investments in private equity and venture capital, including 

as regards returns; 

•  Role  of  crowdfunding  platforms  in  channelling  investments  into  private  equity 
and  venture  capital,  notably  from  business  angels  and  other  high  net  worth 
individuals; 

• 

Importance  of  pre-IPO  networks  and  matchmaking  activities  between  market 
operators, intermediaries, investors and start-ups; 

•  Presence  of  a  regulatory  framework  that  is  conducive  to  a  thriving  risk-capital 

eco-system; 

•  Need to foster cross-border investment by business angels; 

•  Need  to  revise  the  MiFID  definition  of  a  "professional  investor"  for  potential 

investors in private equity and venture capital.   

2)  Measures  to  boost  the  scale  of  venture  capital  funds  and  enhance  the  exit 

opportunities 

Several  respondents  gave  suggestions  on  how  to  foster  different  types  of  exit 
opportunities:  (i)  IPOs  (a  large  number  of  respondents  mentioned  the  revision  of  the 
Prospectus  Directive  and  the  potential  of  SME  growth  markets);  (ii)  trade  sales  (e.g., 
improve  the  conditions  for  acquisition  of  start-ups  by  corporates);  and  (iii)  secondary 
sales to third parties. 

Some respondents (both from the industry and governments) stressed that some form of 
risk  sharing  with  the  public  sector  is  essential  to  increase  the  scale  of  venture  capital 
funds  in  Europe.  In  particular,  some  respondents  suggested  creating  new  types  of  risk 
capital funds such as  (i) co-investment  programmes  for  cross-border private equity  and 
venture  capital  funds,  possibly  with  the  participation  of  the  EIF;  (ii)  a  pan-European 
angel  investment  fund  underpinned  by  a  single  market  for  business  angels;  and  (iii)  a 
private sector-managed pan-European fund-of-funds partially funded from the EU budget 
and with a high commitment to venture capital. 

Question 16 - Are there impediments to increasing both bank and non-bank direct 
lending safely to companies that need finance? 

1) 

Impediments 

Impediments to bank lending to companies 

(i)  Although  necessary  to  restore  financial  stability,  respondents  from  the  industry 
considered  that  bank  prudential  regulation  has  limited  banks'  lending  capacity,  in 
particular due to the following elements:  

38 

 
 
 
 
•  Treatment  of  sovereign  exposures  (both  in  terms  of  capital  and  liquidity 

requirements) crowds out private sector lending;  

•  Regulatory requirements favour most liquid assets to the detriment of loans; 
•  Scaling  factor  for  SMEs  in  CRD  IV/CRR  is  to  be  maintained  in  the  long  run 

(contrary to proposals at Basel level);  

•  Unfavourable treatment for long-term loans (as opposed to long-term securities) 

is envisaged in NSFR (the same would apply under the IFRS 9); 

•  BCBS  proposals  on  standardised  capital  floor  could  lead  to  misallocation  of 

capital and misaligned incentives in origination;  

•  BCBS proposals on risk weights penalise companies with low revenues and high 

leverage such as SMEs; 

•  Disproportionate  effects  of  leverage  requirements  on  promotional  banks.  If  the 

leverage ratio is set too high, it could further restrain bank lending;  

•  Regulatory  uncertainty  prior  to  entry  into  force  of  regulations  and  inconsistent 

application of bank regulation across the EU. 

(ii) High level of non-performing loans (NPLs) due to inefficient and lengthy insolvency 
proceedings  and  limited  incentives  to  write  off  loans.  The  whole-loan  trade  market  is 
insufficiently developed due to a lack of market depth and non-standard settlement times.  

(iii) Weak demand for credit from SMEs amid low confidence about investment returns 
and high indebtedness in some countries. 

Impediments to non-bank direct lending to companies  

(i) Elements of prudential regulation of insurance companies (Solvency II), in particular 
capital  requirements  for  loans  granted  by  insurance  companies  and  the  treatment  of 
ELTIFs.   

(ii)  Uneven  playing  field  for  non-bank  lenders  and  restrictions  on  loan  origination  by 
funds: loan origination in some Member States requires a banking license while in others 
it  is  not  possible  to  enforce  a  collateral  without  it;  banks  enjoy  preferential  status  in 
insolvency  proceedings;  SME  loans  by  non-banks  are  not  attractive  in  price  terms 
compared to loans by banks cross-selling other products.   

(iii) Regulatory and supervisory requirements in terms of asset allocation and monitoring. 

(iv)  Lack  of  harmonisation  in  insolvency,  taxation,  property  and  company  law 
frameworks across the EU. 

Impediments applicable to both bank and non-bank direct lending  

(i)  Information  asymmetry  and  lack  of  reliable,  comprehensive  and  comparable 
information on the creditworthiness of SMEs, due to national regulatory restrictions that 
impede access on equal terms for all prospective finance providers and cross-border data 
sharing.  

(ii)  Unbundling  of  research  under  MiFID  II  could  have  a  disproportionate  impact  on 
growth markets or lead to a lack of equity finance for growth companies. 

(iii)  High  security  registration  costs,  especially  for  real  estate  exposures;  lack  of 
standardised procedures for taking and enforcing security impairs cross-border lending.  

2)  

Suggestions to overcome impediments 

Respondents made the following main suggestions: 

39 

 
 
 
1.  Ensure  appropriate  regulation  of  capital  markets  activities  and  entities  engaged 
therein  (shadow-banks)  and  appropriate  macro-prudential  supervision  in  order  to 
manage  possible  risks  from  more  market-based  finance  and  have  a  level  playing 
field. 

2.  Follow new developments in financial instruments for insurers and pension schemes 

by corresponding developments in regulation. 

3.  Regulate  appropriately  non-bank  credit  platforms  and  crowdfunding  activities  to 

ensure consistent/harmonised treatment and investor protection across the EU. 

4.  Explore  opportunities  for  co-investing  platforms/mechanisms  for  SMEs  involving 

both banks and non-banks. 

5.  Review  the  prudential  calibration  of  high-quality  securitisation  and  have  a  well-
calibrated  "originate-to-distribute"  model  (e.g.,  have  strict  underwriting  standards, 
review  risk  retention  rules).  Introduce  greater  standardisation  and  simplification  of: 
securitisation  issuance  structures,  credit  enhancements  and  applicable  contracts, 
including pooling and servicing. 

6.  Enhance  SMEs'  financial  capabilities  and  information  on  alternative  finance 
opportunities,  and  provide  the  possibility  for  credit  review  and/or  reference  to 
alternative finance providers (e.g., via an online portal), when bank credit is declined. 

7.  Improve  the  availability  of  credit  data  to  enhance  competition  between  banks  and 
alternative  finance  providers  (e.g.,  legislate  to  require  lenders  to  share  SME  credit 
information to credit reference agencies that should in turn provide this information 
to  challenger  banks/alternative  lenders  on  an  equal  basis).  Introduce  standardised 
loan  terms  and  accounting  information/corporate  balance  sheet  for  SME  credit 
information.  Some  respondents  considered 
to  reduce  an  SME's 
creditworthiness assessment to a mere score. 

limiting 

it 

8.  Establish  a  consistent  and  robust  legal  framework  for  loan-originating  funds  across 
the  EU:  this  pan-European  regulatory  framework  should  harmonise  rules  governing 
loan origination by investment funds (e.g., by creating a new AIF sub-type other than 
ELTIFs).  Consider  supporting  such 
loan  funds  with  public  resources  and 
standardisation of lending documentation. Some respondents preferred to confine this 
framework  to  loan  participation  funds  only  (in  any  case,  these  funds  should  have 
clear limits on leverage, authorised AIFM, etc.). Some respondents insisted that full 
flexibility  remains  with  national  authorities  on 
loan-originating  funds  (no 
harmonisation necessary). 

9.  Develop a EU "asset passport": funds with sufficient track record and expertise that 
apply  only  limited  leverage  and  are  close-ended  should  be  able  to  "passport"  their 
capital across the EU on the same footing as a bank (would address uneven playing 
field). 

10. Clarify further the tools available to supervisors for the suspension of redemptions in 

investment funds already included in the UCITS and AIFMD Directives. 

11. Remove the €100.000 minimum denomination in the Prospectus Directive to enable 

greater retail investment. 

40 

 
 
 
 
 
Question 17 - How can cross-border retail participation in UCITS be increased? 

Respondents  mentioned  that  UCITS  do  not  constitute  the  primary  savings  vehicle  for 
retail investors, but that these investors are still exposed to UCITS to a varying degree, 
mostly  depending  on  national  investment  cultures  and  corresponding  capital  markets 
participation.  Therefore,  retail  take-up  differs  significantly  within  the  EU.  A  great 
proportion  of  UCITS  ends  up  having  retail  investors  indirectly  through  pension  or 
insurance products.   

Respondents  addressed  three  aspects  needed  to  raise  cross-border  retail  participation  in 
UCITS: restore trust in capital markets, reduce burdens to cross-border sales of UCITS 
and attract retail investment from outside the EU.  

1) 

UCITS and deposits as savings vehicles 

Respondents  highlighted  that  the  issue  does  not  so  much  relate  to  retail  investors  not 
purchasing  UCITS  cross-border,  but  rather  to  these  investors  rarely  buying  UCITS  and 
mostly  saving  via  bank  accounts  instead.  Some  respondents  stressed  that  the  public's 
confidence  in  financial  markets  remains  low,  and  that  there  is  still  mistrust  in  the 
financial sector due to the 2008 financial crisis and scandals. It was highlighted that the 
decision  to  transform  savings  into  investments  is  affected  by  risk  attitudes  and 
demographics.  Respondents  pointed  to  empirical  studies  which  indicate  a  fall  in 
investment as the population ages. Thus, in an ageing society, risk aversion will remain 
entrenched.  

Respondents  proposed  to  address  this  issue  in  a  number  of  ways:  first,  transparency  of 
the  market  and  unbiased  advice  need  to  be  promoted;  second,  the  public  needs  to  be 
provided with better financial education. A higher level of financial literacy would enable 
retail  investors  to  assess  the  higher  risk  profile  of  UCITS  vis-à-vis  deposits,  as  well  as 
counter  their  mistrust  in  capital  markets.  Within  the  context  of  the  CMU,  initiatives 
should  be  promoted  that  provide  the  wider  public  with  a  deeper  understanding  of  the 
functioning of capital markets within the financial system. 

Finally, to restore the public's confidence in financial markets a stable legal framework is 
required. Respondents claimed that constant modifications to financial sector legislation 
introduced  at  national  and  European  level  in  the  past  years  have  limited  the  ability  of 
retail  investors  to  understand  the  rules.  Moreover,  they  emphasised  that  the  consistent 
and correct implementation of existing rules was important. 

2)  

Reduce burdens to cross-border sales of UCITS 

The  majority  of  respondents  mentioned  burdens  incurred  by  asset  managers  seeking  to 
sell their UCITS on a cross-border basis, notably in relation to taxation, marketing and 
distribution (see also question 11).  

With respect to the availability and presence of distribution channels, some respondents 
invited  the  European  Commission  to  encourage  the  further  development  of  open-
architecture fund platforms that enable investors to purchase from a wide range of fund 
providers.  In  any  case,  respondents  thought  that  a  greater  digitalisation  of  fund 
distribution  via  online  platforms  should  facilitate  such  purchases.  Appropriate 
amendments to the E-Commerce Directive should ease cross-border online sales of fund 
products. 

3) 

Cross-border retail markets outside Europe 

From a global perspective, currently cross-border retail markets can be found in the US 
and  Asia.  With  respect  to  Asia,  European  asset  managers  claimed  that  this  market  has 
41 

 
 
 
 
 
become critical to them not only as a market for distribution, but also as a major hub for 
production.  While  UCITS  constitute  the  strongest  brand  in  Asia,  the  European 
Commission  must  preserve  a  strong  footprint  by  exploring  opportunities  to  engage  in 
strategic partnerships in the region.  

On  the  other  hand,  in  the  US,  European  asset  managers  face  major  difficulties  to 
distribute  their  products  due  to  different  barriers  of  entry  for  foreign  providers.  It  was 
proposed  to  include  asset  management  services  in  the  TTIP  discussions  in  order  to 
establish a minimum level playing field.   

Question 18 - How can the ESAs further contribute to ensuring consumer and 
investor protection? 

The  majority  of  respondents  from  all  respondent  categories  considered  that  the  ESAs 
would contribute to ensuring consumer and investor protection through focusing more on 
achieving  supervisory  convergence  and  consistent  and  effective  implementation  of  the 
EU rules.  

Many respondents, among which several governments, public authorities, central banks 
and asset manager associations, called for more cooperation among national supervisors 
and  with  ESMA.  Some  of  these  respondents,  as  well  as  some  issuers  associations  and 
several  banks,  also  called  for  enhanced  cooperation  between  the  ESAs  in  the  joint 
committee, for example by undertaking cross-border product initiatives.  

Many  respondents,  among  which  bank  associations,  investor  associations,  securities 
associations,  ESMA  and  ESMA  Stakeholder  Group,  considered  that  ESMA  should  be 
given  more  resources.  Two  asset  manager  associations  and  one  government  suggested 
that ESAs' funding be a separate line in the EU budget. 

Some consumer associations and a few national authorities saw a need for improving the 
governance of the ESAs – ESMA in particular - in order to give a stronger weight to the 
EU-wide  interests.  Those  respondents,  as  well  as  some  pension  funds,  asset  manager 
associations  and  ESMA  Stakeholder  Group,  believed  that  investors  should  be  better 
represented in the stakeholders' working groups. 

Several  banks  and  asset  managers  called  for  improving  the  reporting  channels  and  for 
developing  centralised  IT  systems  as  they  considered  that  some  reporting  requirements 
overlap or have to be done under different formats. 

Several respondents from all categories of respondents would see benefits in a review of 
recent  legislation  to  assess  whether  it  enhanced  consumer  protection  and  streamline 
requirements.  One  respondent,  a  bank,  would  welcome  a  codification  of  consumer  and 
investor protection rules. 

Several banks and consumer associations, as well as ESMA and the ESMA Stakeholder 
Group, saw a need for the ESAs, ESMA in particular, to make a better/full use of their 
powers  in  terms  of  data  collection,  analysis  and  publication  of  trends,  for  example  by 
focusing on the analysis and reporting of long-term and pension trends, or on the actual 
net performance and fees of all long-term retail and pension products.  

Some  investor  associations,  banks  and  trade  unions  saw  a  need  to  strengthen  the 
monitoring of market developments in order to avoid risks to financial stability. In this 
context,  several  of  those  respondents  called  for  the  ESRB's  mandate  to  be  reviewed  in 
order to allow it to better monitor, analyse and mitigate potential risks arising from the 
CMU, as well as to ensure its independence from other authorities. 

42 

 
 
 
 
One  government  and  some  investor  associations  and  trade  unions  considered  that 
ESMA's  mandate  to  protect  investors  should  be  strengthened,  while  several  banks  and 
asset managers were against any additional measures to enhance investor protection. 

Some  respondents,  including  a  bank  association,  a  government  and  a  stock  exchange, 
called  for  assessing  the  impact  of  digital  players  on  consumer  protection  and  for 
enhancing  consumer  protection,  mainly  as  regards  the  use  of  online  platforms  such  as 
Forex. 

Several  governments,  stock  exchanges,  investor  associations  and  banks  called  for 
measures to enhance financial literacy among investors. 

A  few  investor  associations  and  public  authorities  saw  a  need  for  a  better  use  by  the 
ESAs of their sanctioning powers. 

Some  banks  and  asset  managers  called  for  ESMA  and  the  Commission  to  strictly 
implement the reciprocity principle in the context of the AIFM third country passport. 

Question  19  -  What  policy  measures  could  increase  retail  investment?  What  else 
could be done to empower and protect EU citizens accessing capital markets? 

1) 

Measures to increase retail investment 

A  majority  of  respondents  acknowledged  that  the  CMU  needs  to  be  complemented  by 
policy measures that enable retail investors to invest more directly into capital markets. 
This requires investors to have the confidence, trust, knowledge and support necessary to 
understand  risks  and  benefits  of  different  products  and  services  in  order  to  make 
informed  investment  decisions.  There  was  a  broad  agreement  among  respondents, 
including public authorities, that a transparent and well-regulated capital market will help 
restore investors’ confidence. In particular, a harmonised investor protection framework 
would  reduce  exposure  to  risks  unsuitable  for  retail  investors.  Respondents  would 
welcome a level playing field in investor protection requirements.  

Some  respondents  however  expressed  the  view  that  there  are  crucial  differences  in 
preferences,  traditions  and  state  saving  incentives  across  Europe  (e.g.,  taxation  and 
pension  rules)  that  require  tailoring  of  policy  and  result  in  nationally  fragmented  retail 
markets today.  

Most  respondents  pointed  out  that  high-quality  distribution  channels  and  an  effective 
investor protection framework are necessary pre-conditions to restore confidence in the 
market.  Only  when  investors  feel  adequately  protected  will  they  be  willing  to  channel 
their money into capital markets. Well-qualified professionals advising investors should 
understand the products marketed and their suitability for each category of clients. The 
comment  was  made  that  the  current  framework  was  designed  for  face-to-face 
distribution,  whereas  an  increasing  number  of  retail  clients  are  investing  online.  This 
should  be  a  key  consideration  in  future  reviews  of  legislation,  including  the  Distance 
Marketing  Directive,  MiFID,  IMD,  PRIIPS  and  UCITS.  Some  respondents  highlighted 
that  potential  policy  initiatives  should  take  into  account  significant  differences  across 
Europe  in  the  level  of  financial  education  and  culture.  National  specificities  should  be 
reflected in potential policy measures.  

Most  respondents  urged  the  EU  to  promote  regulatory  consistency  across  sectors.  For 
instance, certain MiFID II or PRIIPS requirements should be applied more broadly and 
be extended to insurance and banking activities (product governance, costs and charges 
disclosure).  In  addition,  information  requirements  (MiFID  suitability  assessment, 
information on costs, KID) would allow consumers to understand the risks involved and 

43 

 
 
 
compare  products,  enabling  them  to  make  well-informed  investment  decisions. 
Information  about  products  and  services  should  be  clear,  easy  to  understand  and 
comparable across investment products. A consumer organisation pointed out that access 
to unbiased advice and effective supervision (e.g., risk warnings and product intervention 
powers) are key drivers of a safe retail market.  

Some respondents considered financial education and initiatives aimed at increasing the 
financial  market  knowledge  of  retail  investors  as  key  for  supporting  private  asset 
building  and  adequate  pension  benefits.  Predominantly  industry  respondents,  but  also 
other respondents, suggested that the EU take a greater role in promoting financial and 
investor education, and in supporting Member States' projects in this area. On the other 
hand,  the  point  was  made  that  information  asymmetry  is  an  intrinsic  feature  of  the 
investor-supplier  relationship  and  should  be  addressed  by  stringent  business  conduct 
requirements rather than financial education of the demand side.  

Many  respondents  shared  the  view  that  consumers  should  have  access  to  high-quality 
information  about  companies  and  their  prospectuses  and  securities.  To  this  end,  the 
prospectus  should  be  simplified  and  information  should  be  presented  in  a  clear, 
understandable and comparable manner, helping retail investors make decisions.  

Several respondents suggested that it is necessary to implement solid and secure investor 
compensation  schemes  to  ensure  their  effective  operation  in  cross-border  scenarios  and 
bring  the  same  level  of  protection  as  DGSD.  This  would  further  help  level  the  playing 
field between capital market products and bank deposits. A few respondents also urged 
the  European  Commission  to  present  a  proposal  for  the  establishment  of  a  European 
collective redress mechanism.  

Most  respondents  were  of  the  view  that  creation  of  a  favourable  tax  environment  for 
retail  investing  would  encourage  long-term  investments  and  avoid  intra-European 
distortions. Potential measures could include tax breaks, tax incentives to investors who 
directly invest in financial instruments, tax relief, harmonisation of withholding tax relief 
procedures or tax incentives for participation in IPOs of SMEs or primary bond markets. 
It was also pointed out that the removal of double taxation of dividends and interest in 
case of cross-border investments would be an important step to encourage cross-border 
holdings. To this end, cross-border withholding tax relief procedures should be reviewed. 
The point was also made that FTT could act as a disincentive for investors to invest into 
securities markets.  

A  number  of  respondents  were  concerned  about  existing  barriers  to  cross-border 
investments.  For  instance,  the  exercise  of  shareholders’  voting  rights  on  a  cross-border 
basis  is  still  cumbersome  and  costly.  Minimum  standards  relating  to  insolvency  should 
be  introduced.  Furthermore,  a  streamlined  and  simplified  process  for  corporate 
governance,  in  which  intermediaries  inform  investors  adequately  and  enable  them  to 
participate  in  the  decision-making  process  in  companies,  would  increase  active 
investment (e.g., common EU voting form, a uniform record date for the entitlement to 
attend/vote at general meetings). Other respondents pointed out that lack of cross-border 
legal certainty seem the main obstacle for retail investors to invest abroad. It is therefore 
necessary to harmonise rules on the enforcement of cross-border claims in a simple way. 
In this context, harmonisation of securities law would enhance legal certainty in the retail 
segment.  

Several public authorities were of the view that restrictions on aggressive advertising of 
products and services focusing on forex markets and OTC could also be considered as a 
policy  measure.  MiFID  II  investor  protection  requirements  should  be  referred  to  as  a 
benchmark for other sectors.  

44 

 
 
However, the view was also expressed that shifting savings to capital markets would lead 
to  more  bank  reliance  on  wholesale  funding,  more  fragile  bank  structures  and  a  higher 
cost of funding for banks.  

Most respondents believed that personal pension savings have an important role to play 
by  channelling  retail  savings  into  capital  markets.  A  new  cost-effective  and  simple 
European Personal Pension product with high consumer protection standards could help 
shift  savings  to  long-term  and  less  liquid  assets.  The  creation  of  a  single  market  for 
personal pensions should be seen as a building block of a CMU.  

It  was  also  pointed  out  that  the  EU  should  play  a  leading  role  in  the  development  of 
digital finance as digitalisation offers promising opportunity to increase investor access 
and  should  be  encouraged.  Several  respondents  called  for  the  Commission  to  examine 
whether  the  current  legislative  framework  adequately  accommodates  the  use  of  digital 
channels  by  providers  and  consumers.  In  this  context,  it  was  suggested  that  the  EU 
should  promote  digital  finance  by  developing  a  ‘digital  investment  passport’  as  a 
mechanism  to  engage  individuals  and  help  them  manage  their  financial  future  whilst 
minimising the potential for fraud. To this end, the EU could engage with regulators and 
industry to encourage the development of websites which enable consumers to compare 
different investment products. These websites have not only helped consumers in making 
choices, but have also led to pressure on provides to reduce costs.  

2) 

Further measures to empower and protect 

The  representatives  of  retail  investors  were  of  the  opinion  that  better  access  to 
independent  and  affordable  financial  advice  or  guidance  for  consumers  would  improve 
their access to capital markets. They explained that, even though relevant disclosure rules 
were  useful,  these  rules  were  not  sufficient  for  many  consumers  to  understand  the 
features of investment products (e.g., cost and risk). Therefore, what would help restore 
consumers' confidence and trust in financial markets is easier access to unbiased financial 
advice. These respondents were also favourable to the idea of simple financial products, 
which however would have to be better defined.  

In view of improving general consumer protection, a national public authority proposed 
to improve cross-border redress for retail investment products, while a European public 
body  was  in  favour  of  enhancing  disclosure  by  facilitating  the  creation  of  comparison 
websites for investment products. 

Question  20  -  Are  there  national  best  practices  in  the  development  of  simple  and 
transparent investment products for consumers which can be shared? 

Industry respondents pointed to the fact that simple investment products would have to 
be  precisely  defined.  In  their  opinion,  simple  products  were  not  necessarily  safe  (e.g., 
shares) or very attractive for consumers. It is likely that other investment products would 
be  able  to  offer  higher  returns  and  thus  attract  more  retail  investors.  Besides,  complex 
investment products are not always risky or difficult to understand. The industry was of 
the opinion that the existing legal framework (e.g., MiFID, IDD, PRIIPs) should be better 
aligned  before  product  standardisation  or  regulation  is  discussed.  They  also  expressed 
their  strong  support  for  the  market  to  design  products  which  allow  for  innovation  and 
increased competition, as well as insisted that banks' staff should be adequately trained 
and qualified to sell investment products. 

Several  respondents,  including  consumers  and  public  authorities,  underlined  that 
consumers should be better empowered to help them understand the features of products 
they  buy.  To  this  end,  regulators  should  improve  disclosure  rules  and  develop  an 

45 

 
 
 
affordable and simple advice model. In addition, a better product design and governance 
by  both  manufacturers  and  distributors,  as  well  as  oversight  by  regulators  are  needed. 
Supervisors should also more actively monitor mis-selling practices of firms and improve 
enforcement  of  existing  rules.  Another  public  body  argued  that  simple  investment 
products would be commercially unattractive for firms because margins would be small, 
and therefore they would not be marketed actively. On the other hand, some consumers' 
representatives  underlined  that  consumers  do  not  need  a  greater  choice  (it  is  already 
there), but better quality of offered products. 

A number of examples of what respondents understand as simple products were provided 
in response to the question: 

'Plan d'Epargne en Action (PEA)' in France 

• 
•  Stocks and Shares Individual Savings Account (ISA) in the UK 
•  Swiss "Saule 3a" pension product 
•  Private pension system in Sweden 
• 
• 
• 
•  Label warning about risky investment products in France 
•  Voluntary  moratorium  on  the  distribution  of  complex  investment  products 

Individual pension product in Portugal 
'Eurocroissance' life insurance product in France  
'Livret A' saving account in France 

introduced by the  Financial Services and Market Authority in Belgium 

•  Simple  Product  Initiative  and  voluntary  certification  scheme  (the  so-called 

Sergeant Review) in the UK 

ISK investment account in Sweden 

•  Direct offers of government bonds and plain vanilla corporate bonds in Italy 
• 
•  UCITS funds / KID in PRIIPS  
•  Ecology badge for investment products in Austria  

Question 21 - Are there additional actions in the field of financial services 
regulation that could be taken to ensure that the EU is internationally competitive 
and an attractive place in which to invest? 

A  majority  of  respondents  indicated  that  the  setting  up  of  the  CMU  in  itself  was  a 
pertinent  way  of  making  the  EU  attractive.  These  respondents  also  expressed  some 
concerns  with  a  number  of  pieces  of  legislation  (e.g.,  MiFID  II,  Solvency  II,  CRD 
IV/CRR  and  AIFMD)  and  supported  the  facilitation  of  cross-border  investments  inside 
the  EU  (including  criticism  of  intra-EU  bilateral  investment  treaties)  and  cross-border 
provision / performance of certain financial services. Some respondents proposed a wide 
intra-EU  passport  regime  that  would  extend  to  fiscal  regimes  and  tax  benefits.  More 
specifically,  financial  operators  called  for  the  creation  of  an  EU-wide  business  angels' 
regime/passport.  There  were  also  calls  for  a  better  integration  of  the  CMU  with  other 
ongoing  internal  market  projects  in  the  fields  of  energy,  digital  economy  and  fiscal 
issues. 

A significant share of respondents stressed the need to better assess the overall effect of 
financial  regulation.  Initiatives  in  favour  of  better  regulation  (including  review  of 
existing  legislation  and  efforts  on  better  coherence  and  harmonisation  of  national 
regimes)  were  supported  by  many  respondents.  Giving  better  consideration  to  the 
interests  of  third-country  operators  in  impact  assessments  was  also  put  forward  by 
several respondents. 

46 

 
 
 
A  noticeable  number  of  respondents  underlined  the  need  to  better  align  the  EU’s 
regulatory standards with international standards. The work of the IOSCO working group 
on cross-border regulatory issues was flagged as important by many respondents. Some 
of  them  mentioned  the  financial  transactions  tax  as  an  example  of  EU  overregulating 
compared to other financial centres in the world.  

An important share of respondents asked for modernisation of third-country equivalence 
regimes  that  are  currently  embedded  in  EU  financial  legislation,  requesting  that  such 
procedures be more streamlined, more transparent, take better account of industry views 
and proactively engage third-country authorities. Alternatively, some respondents called 
for  an  increased  use  of  alternatives  to  equivalence  such  as  the  direct  application  of 
Member States' or EU law to foreign operators. 

Respondents  systematically  advocated  the  extension  of  passporting  rights  to  foreign 
operators (in particular AIFM/AIF and business angels), even if these operators are not 
established as subsidiaries in the EU. 

A  majority  of  respondents  supported  the  current  EU  trade  policy.  Some  financial 
operators  pointed  to  a  list  of  existing  trade  barriers  as  follows:  (i)  local  distribution 
requirements  in  Brazil,  Australia  and  South  Korea;  (ii)  quotas  in  China;  (iii)  tax 
discrimination  in  India  and  South  Korea;  (iv)  prohibition  of  distribution  of  EU 
investment  funds  in  Brazil,  China,  the  US  and  India;  (v)  local  license  requirements  in 
Australia and the US; (vi) joint venture requirements in Brazil, Taiwan and South Korea; 
(vii)  prohibition  of  certain  services  in  China;  and  (viii)  difficulties  for  EU  citizens  to 
manage funds in the US, Brazil, Japan and India. 

The issue of the integration of UCITS funds in the Hong-Kong–China mutual recognition 
of funds agreement was mentioned several times. 

Several  respondents  asked  for  a  wider,  more  centralized  source  of  information  on  EU 
companies seeking finance, in particular SMEs. Some proposed that an EU-wide digital 
platform be set up that would bear all relevant information for investors aiming to make 
business in the EU. 

Some more specific proposals were made by one or two respondents: (i) creating a single 
jurisdiction, including competition law for financial services; (ii) creating USD tranches 
in debt facilities; (iii) supporting the implementation of a swap brokerage clause; and (iv) 
creating a maximum level of fees for financial intermediaries in the whole EU. 

Question  22  –  What  measures  can  be  taken  to  facilitate  the  access  of  EU  firms  to 
investors and capital markets in third countries?  

Respondents  welcomed  the  fact  that  the  Commission  had  identified  this  issue  in  the 
Green  Paper.  Developing  the  framework  for  global  coordination  towards  regulatory 
convergence would facilitate and improve the access of EU firms to investors and capital 
markets in third countries. However, respondents considered that harmonisation at global 
level would take time and therefore called for a shorter-term approach based on mutual 
recognition to facilitate the development of cross-border business. While it is important 
to attract foreign investment into Europe, there is also a need to ensure that the European 
players have a similar treatment in third countries. In this respect, Free Trade Agreements 
(FTAs) are instrumental.  

The most recurrent and relevant aspects mentioned by the respondents were:  

•  The EU´s trade policy should support the cross-border sale of financial products and 
ensure  an  equal  market  access  among  the  participants,  in  particular  for  the 

47 

 
 
 
Transatlantic  Trade  and  Investment  Partnership  (TTIP)  and  the  Trade  in  Services 
Agreement (TiSA); 

•  The EU should strongly advocate for the consistent international implementation of 

the G20 agenda through the FSB, BIS and IOSCO;  

•  The  EU  should  be  more  proactive  and  present  in  strengthening  the  framework  for 

global regulatory coordination;  

•  The Financial Markets Regulatory Dialogues with key countries should be enhanced;  

• 

It  is  important  to  prioritise  equivalence  processes  and  make  them  more  pragmatic 
and predictable; 

•  The  Commission  should  take  into  account  the  impact  of  EU  legislation  on  third 
counties  in  order  to  avoid  regulatory  uncertainty,  keeping  in  mind  that  European 
entities have a presence outside the EU;  

•  A  clear  and  comprehensive  analysis  of  the  main  differences  between  the  EU  and 

third countries active in capital markets or hosting the most active investors is vital; 

•  The EU should address effectively the current market access issues, both within the 

EU and with third countries;  

•  The "direct marketing" of EU investment funds and other investment instruments in 
third  countries  should  be  facilitated,  and  the  creation  of  networks  of  national  and 
international investors for investment projects should be enhanced; 

•  The EU should evaluate reforms to the UCITS framework and changes to 

regulations affecting UCITS (i.e., Money Market Funds Regulation) in a global 
context; 

• 

Investor protection should be comprehensive and effective; 

•  The EU needs to strengthen its influence in international accounting standard-setting, 
notably through an overhaul of the organisation and tasks of the European Financial 
Reporting Advisory Group;  

•  The  proper  calibration  of  Level  2  measures  should  be  treated  as  part  of  the  CMU 

agenda; 

•  The EU should support the setting-up of a legal entity identifier; 

•  The EU should allow the sharing of credit reporting information on SMEs with third-

country investors and banks;  

•  The  settlement  of  securities  could  be  further  standardised  by  enhancing  the 

cooperation between national and international custodians.  

Question  23  –  Are  there  mechanisms  to  improve  the  functioning  and  efficiency  of 
markets  not  covered  in  this  paper,  particularly  in  the  areas  of  equity  and  bond 
market functioning and liquidity?  

A  majority  of  respondents  recommended  policy  actions  aimed  at  improving  market 
liquidity  on  the  secondary  markets  for  equity  and  bonds.  Some  respondents  also 
suggested actions to improve the functioning of capital markets.  

1) 

 The liquidity issue in the secondary markets 

 Preservation of market-making activities 

48 

 
 
 
Some  respondents  underlined  that  the  role  of  market-makers  is  to  contribute  to  the 
robustness  of  market  liquidity  by  absorbing  temporary  supply  /  demand  imbalances, 
softening  the  impact  of  shocks  on  market  volatility  and  quoting  prices  to  support 
investors  in  asset  valuations.  Through  their  activity  of  market-making,  banks  indeed 
provide  a  key  service  to  less  liquid  markets  such  as  bond  markets.  However,  many 
respondents  highlighted  that  banks  had  been  forced  to  curtail  balance-sheet  capacities 
due to recently implemented and currently planned regulations (e.g., CRD III, CRD IV, 
CRR,  Fundamental  Review  of  the  Trading  Book,  Financial  Transaction  Tax,  Prudent 
Valuation,  Bank  Structural  Reform  and  MiFID  II).  The  CMU  project  should  aim  at 
preserving market-making activities.  

Impact of EU legislation on market-making activities  

For many respondents, one area of regulatory reform that was likely to affect secondary 
market  trading  conditions  is  the  MiFID  II  pre-  and  post-transparency  proposals, 
particularly  those  relating  to  transparency  of  corporate  bonds.  Those  respondents  were 
concerned that ESMA's current draft calibration proposals may lead to a large number of 
fixed  income  instruments  being  incorrectly  classified  as  liquid  and  therefore  subject  to 
inappropriate  transparency  requirements.  As  a  consequence,  market  makers  could  be 
unable to hedge and unwind their risks due to others being able to infer their positions, 
leading  to  banks  reducing  their  market-making  activities.  Some  respondents  also 
underscored that ESMA's MiFID II technical advice on the treatment of research under 
the  inducements  regime  of  MiFID  II  could  reduce  the  amount  of  available  equity  and 
non-equity research, whereas one association of pension funds underscored that it is fully 
supportive of these measures.  

Many respondents also underlined that the bank structural reform proposal, which would 
require  separation  of  trading  activities  from  the  core  credit  institution,  would  restrict 
banks’ market making and notably their ability to hold inventories.  

Other respondents considered that the low liquidity in securities markets is partly linked 
to  the  present  prudential  requirements  in  CRD  IV/CRR.  The  higher  cost  of  holding 
inventory for market-making purposes on the balance sheet had led banks to reduce the 
size  of  their  inventories.    Some  respondents  pointed  out  that  the  Net  Stable  Funding 
Ratio which requires the funding of short-term liquid positions with long-term funding is 
likely  to  raise  the  cost  of  trading  in  securities  and  derivatives.  For  some  respondents, 
another  regulatory  driver  impacting  market  liquidity  was  the  ongoing  Fundamental 
Review  of  the  Trading  Book  that  could  add  a  further  layer  of  capital  requirements  for 
market-making activities of less liquid products.  

Many respondents also highlighted that the Financial Transaction Tax could discourage 
financial  transactions  and  reduce  market  liquidity  while  creating  a  room  for  regulatory 
arbitrage from a geographical perspective.   

Some  respondents  stressed  that  the  buy-in  regime  in  CSDR  could  also  have  significant 
effects on market liquidity.  

The way forward  

Some respondents supported an assessment of the cumulative impact of these regulations 
followed possibly by targeted legislative measures to address any issues arising from this 
assessment.  They  supported  an  appropriate  regulatory  framework  for  market-making 
activities. 

A respondent underlined that consideration should be given to ensuring that open-ended 
funds – such as UCITS – are resilient to stressed redemptions from investors.  

49 

 
 
Some  respondents  were  in  favour  of  a  greater  use  of  electronic  platforms  for  corporate 
bond trading.  

2)  

The functioning and efficiency of capital markets in general 

•  Consolidated  tape:  Several  respondents  underlined  the  importance  of  a  European 
consolidated  tape  reflecting  all  executed  transactions  in  both  equity  and  non-equity 
markets. If the industry is not able to provide comprehensive consolidated trade data, 
the respondents would encourage the Commission to mandate a single authoritative 
consolidated tape provider.  

•  MTFs  and  SME  Growth  Markets:  Some  respondents  underscored  that  MTFs 
should  remain  outside  the  scope  of  EU  regulations  imposing  requirements  on 
companies  listed  on  regulated  markets  (such  as  the  Transparency  and  Prospectus 
Directives).  A  respondent  supported  a  harmonisation  of  the  minimum  free  float  for 
shares admitted to trading on a SME Growth Market, in order to improve liquidity of 
equity instruments issued on those markets.  

•  Central Securities Depositary (CSD) and CSD Regulation (CSDR): A respondent 
underlined  that  a  higher  connectedness  of  national  CSDs  would  improve  the 
functioning of equity and bond markets. Some respondents considered that it might 
be beneficial to have one single CSD (such as the DTCC) for all bond issuances in 
the  EU.  This  move  would  notably  increase  issuers'  ability  to  identify  their 
bondholders. Two respondents underlined that a CMU should lead to the widespread 
use  of  market  standards  by  market  infrastructures  and  intermediaries  such  as  the 
Market  Standards  for  Corporate  Actions  Processing  and  the  Market  Standards  for 
General  Meetings.  They  also  considered  that  more  work  is  needed  to  further 
standardise  issuances  practices  at  CSD  level.    Regarding  CSDR,  one  respondent 
encouraged ESMA to design the implementing rules to allow for very limited scope 
for  Member  States  to  deviate  from  the  EU  standards,  in  order  to  avoid  regulatory 
arbitrage  and  post-trade  technical  challenges.  Another  respondent  considered  that 
flexible  buying  terms  under  CSDR  for  securities  that  reside  on  a  SME  Growth 
Market should also be extended to less liquid securities traded on a regulated market.   

reduce 

interconnectedness  between  market  participants  and 

•  Central  Clearing  Counterparty  (CCP)  and  cross-border  use  of  collateral:  A 
respondent suggested the creation of a "CCP of CCP" structure to replace the current 
interoperability  arrangements  between  CCPs.  This  would  reduce  collateral 
requirements  considerably.  Another  respondent  recommended  the  use  of  CCPs  for 
bond  trading  in  OTC  markets,  in  order  to  increase  the  liquidity  of  less often  traded 
bonds, 
trigger 
transparency  in  those  markets.  One  respondent  pointed  out  that  the  supervision  of 
CCPs  is  an  important  issue  (due  to  their  contribution  to  systemic  risks)  and  thus 
consideration should be given to the appointment of a European authority to play that 
role.    For  another  respondent,  one  of  the  first  steps  towards  CMU  should  be  to 
strengthen  the  connectivity  of  all  existing  clearing  systems  within  the  EU.  In 
addition,  a  respondent  considered  that  collateral  has  become  increasingly  important 
in  recent  years,  especially  since  the  introduction  of  EMIR  which  imposes  central 
clearing  of  derivative  transactions.  Therefore,  this  respondent  encouraged  the 
Commission  to  take  measures  facilitating  the  cross-border  use  of  collateral  and 
making it easier to post collateral at CCP level.  

•  Systematic internalisers: Several respondents highlighted that the proposed ESMA 
threshold for the definition of a "systematic internaliser" in bonds within Level 2 of 
MiFID  II  could  lead  to  covering  many  credit  institutions.  The  existing  practice  of 
fixed price transactions leads to a rapid fulfilment of these criteria in many Member 

50 

 
 
States.  Due  to  a  lack  of  experience  regarding  the  delimitation  of  the  systematic 
internaliser  regime  for  non-equities,  there  should  be  higher  thresholds  in  the 
definition.  A  respondent  also  underlined  that  the  technical  advice  on  systematic 
internalisers  provided  by  ESMA  could  create  a  loophole  allowing  for  a  material 
portion of trading in bond markets to take place in the dark.  

•  ETF Markets: For one respondent, the functioning of ETF markets could be further 
improved  by  avoiding  the  proliferation  of  different  tickers  for  the  same  fungible 
security. This phenomenon complicates aggregation of data for analysis purposes and 
distorts the true representation of liquidity. 

•  Access to  order book data: One National Competent  Authority  (NCA) considered 
that  orders  constitute  a  very  valuable  source  of  data  for  regulators  to  fight  against 
market abuses and analyse market incidents (such as "flash crash").  Hence, it would 
be  important  to  give  NCAs  a  direct  access  to  order-book  data  related  to  financial 
instruments  falling  within  their  supervision,  irrespective  of  the  exchange  where  the 
instrument is traded.  

•  Data providers: For a respondent, the systemic character of some data providers 

upon which all participants tend to rely was an important issue in terms of financial 
stability and systemic risks. The EU should consider the necessity to rapidly regulate, 
notably with respect to data providers' responsibilities, their notion of proprietary 
information and their commercial practices. 

Question  24  –  In  your  view,  are  there  areas  where  the  single  rulebook  remains 
insufficiently developed? 

The majority of respondents from all categories called for taking stock of the impact of 
legislation passed in recent years, especially in view of identifying  possible unintended 
negative effects on market participants. Among the examples of current failures signalled 
by  the  respondents  were:  (i)  gold  plating  in  relation  to  AIFMD,  AIFs  and  UCITS;  (ii) 
overlapping requirements on disclosure to investors under MiFID II, UCITS and PRIIPS, 
or MiFID  II  and IMD II; (iii) overlaps under the Prospectus,  Transparency  and Market 
Abuse  Directives  and  PRIIPs  for  issuers  that  want  to  tap  capital  markets;  and  (iv) 
overlaps in the area of remuneration of personnel under UCITS, AIFMD, MiFID, CRD 
IV/CRR and Solvency II. Some respondents, including a government, a central bank, and 
an  asset  management  association,  believed  that  regulations  should  be  used  by  the  EU 
instead of directives in order to better harmonise the single rulebook. 

The  vast  majority  of  respondents  called  for  eliminating  overlaps  and  inconsistencies  in 
reporting,  and  for  streamlining  disclosure  requirements  through  the  development  of  a 
consolidated tape. 

There was a strong call from a majority of respondents - including a few governments, 
the banking, asset management and pension fund industries - for a better supervision of 
the  implementation  of  the  single  rulebook  in  order  to  ensure  its  correct  and  consistent 
implementation  and  to  avoid  gold  plating.    ESMA's  role  was  seen  as  essential.  ESMA 
also considered that  it  should focus more on  the implementation of the single rulebook 
and  on  fostering  convergence  of  supervisory  outcomes.  In  this  context,  ESMA  pointed 
out the need to have sufficient access to information held by competent authorities and 
sufficient  resources.  A  few  asset  manager  associations  and  banks  called  for  a  joint 
supervisory  approach  towards  investor  protection  and  market  oversight  and  an 
association suggested that ESMA indicate in its annual report which national authorities 
have not complied with its formal decisions or opinions. 

51 

 
 
 
Respondents called for extending the single rulebook to the following areas: 

Tax: harmonisation in this area was mainly supported by banks and a stock exchange. A 
government and a few banks called for addressing in particular the withholding tax issue.   

Insolvency:  targeted  measures  were  requested  by  banks,  pension  funds  and  asset 
management associations, while some governments were in favour of further discussions 
regarding  possible  targeted  harmonisation.  Two  MEPs,  a  think  tank  and  a  credit  rating 
agency  considered  minimum  standards  on  business  rescue  and  giving  entrepreneurs  a 
second chance as a key priority. A few respondents, including ESMA, called for a pan-
European out-of-court dispute resolution framework. A respondent suggested developing 
a 29th regime for insolvency law, enabling mid-sized companies looking for cross-border 
investment to opt-in it.  

Company law: only two respondents (a government and a stock exchange) saw a need 
for harmonisation in this field.  

Crowdfunding:  one  government  saw  a  need  for  legislation  to  set  out  a  sanctioning 
regime while another government considered that developments in the market should be 
further monitored in view of assessing the need for legislation. 

CCP recovery and resolution: while many respondents (banks, investors' associations, 
stock exchanges) saw a need for a legislative proposal on recovery and resolution plans 
for  CCPs,  for  CSDs  they  either  saw  a  need  only  for  legislation  on  resolution  plans,  or 
they  called  for  a  differentiated  approach  due  to  the  CSDs'  lower  level  of  risk.  EIOPA 
considered it necessary to provide for a framework on recovery and resolution plans for 
insurers. 

Guarantee Schemes: a single Deposit Guarantee Schemes was supported by one bank, 
while  one  government  and  EIOPA  called  for  common  rules  on  Insurance  Guarantee 
Schemes. 

Securities  law:  only  a  few  respondents  saw  a  need  for  harmonisation  in  this  area, 
amongst whom an investors association, a consultancy firm and a bank. 

Collateral:  harmonisation  in  this  area  would  be  welcomed  by  one  government,  a  bank 
and two associations.   

Licensing  requirements:  some  respondents  supported  them  for  brokerage  firms, 
advisers, and other financial institutions. 

Sanctions:  Some  respondents,  such  as  stock  exchanges  and  asset  managers,  called  for 
ESMA to be empowered to impose sanctions. ESMA called for more  harmonisation  in 
the area of sanctions. 

Shareholders' rights: one industry association saw benefits in further harmonisation in 
this field.  

the 
Macro-prudential  supervision: 
consistency check of the current legislative framework should include a review of macro-
prudential  supervision  as  there  will  be  a  need  to  mitigate  risks  resulting  from  shadow 
banking. 

industry  associations  considered 

three 

that 

52 

 
 
 
 
Question  25  -  Do  you  think  that  the  powers  of  the  ESAs  to  ensure  consistent 
supervision  are  sufficient?  What  additional  measures  relating  to  EU  level 
supervision would materially contribute to developing a capital markets union? 

1) 

Powers  

Numerous  respondents  confirmed  ESMA's  crucial  role  in  ensuring  supervisory 
convergence  and  consistent  implementation  and  application  of  EU  acquis  on  financial 
services. Most governments and industry associations considered ESMA's current powers 
as sufficient; however, some public authorities and market participants called for more or 
stronger  (ESMA)  powers  that  evolve  over  time,  e.g.  with  regard  to  enforcement, 
consumer protection, IFRS endorsement, supervision of critical market operators such as 
CSDs and CCPs, benchmarks, classification of complex instruments and issuance of no-
action letters. 

Some respondents called for more and better monitoring and analysing of trends as a tool 
to foster investor protection.  

ESMA mentioned that it intends to focus more on risk and data analysis to better identify 
and assess risks. For these activities ESMA called for: 

•  Adequate staffing and funding; 

•  More powers to ask NCAs for information; 

•  Clarification  of  NCAs'  obligations 

to  respond 

to  ESMA's  requests  for 

information; 

•  Having the ability to recoup the costs of specific activities; 

•  Having the ability to suspend certain obligations, suspend their enforceability or 

provide further guidance in specific situations. 

A few respondents called for clarification of EIOPA's supervisory authority over IORPs, 
given  the  explicit  reference  to  national  social  and  labour  laws  in  the  ESAs'  founding 
Regulations. 

2) 

Additional measures for EU level supervision 

Two  public  authorities  called  for  ESMA  to  assume  the  role  of  a  fully-fledged  EU 
supervisor.  However,  other  respondents  raised  concerns  about  a  single  EU  supervisor 
because of a weak link between supervisory responsibility and fiscal accountability.  

Some  respondents  claimed  that  the  ESAs  might  function  better  if  they  were  more 
independent. Several respondents called for more and/or better funding arrangements for 
the ESAs in order to enable them to adequately deliver on their mandates.  

As regards supervisory convergence, the use of peer reviews was perceived as one of the 
most effective tools. Some respondents proposed to promote the creation of a supervisory 
handbook  for  the  CMU  in  analogy  with  the  EBA's  supervisory  handbook  for  banks. 
ESMA mentioned that it is committed to expanding its focus on supervisory convergence 
in  the  coming  years  by  using  a  wider  range  of  tools  within  the  powers  set  out  in  the 
ESMA Regulation. For this purpose, ESMA would have to identify effective supervisory 
techniques.  ESMA  acknowledged,  however,  that  there  is  a  need  to  focus  on  specific 
topics as it is not realistic to aim for full convergence. ESMA also intends to enhance ex-
ante  support  to  NCAs  with  various  tools  such  as  workshops  (on  supervision  of  new 
requirements), tailored training or technical assistance. 

To  ensure  effective  supervision  on  a  pan-European  basis,  some  respondents  mentioned 
that better use could be made of the concept of supervisory colleges. ESMA highlighted 
in its response that it would seek to enhance the effectiveness of its supervisory tasks by 
53 

 
 
following  a  coordinated  approach  to  market  monitoring  and  risk  identification,  or  joint 
action by some or all national authorities. 

Several  respondents  pointed  to  the  important  role  of  ESMA  in  collecting  information 
(e.g.,  a  consolidated  tape)  and  called  for  a  thorough  stock-taking  of  the  available  data 
reported with a view to (i) empowering ESMA to promote enhanced cooperation on data 
and IT issues; (ii) moving reporting regimes to ESMA level in some areas; or (iii) putting 
in place more harmonised tools such as the creation of a Common European Reporting 
Platform. 

Industry  members,  public  authorities  and  governments  agreed  with  consumer 
organisations  that  investors,  consumers  in  particular,  are  underrepresented  in  the 
preparation of draft level 2 measures. 

Some industry members called for better alignment of positions between the ESAs and 
the  EU  Institutions  in  international  organizations,  such  as  IOSCO,  to  enhance  their 
credibility and impact. 

A clear focus on enhancing competition in EU capital markets and their competitiveness 
vis-à-vis other major financial markets was called for by several respondents.  

Question  26  -  Taking  into  account  past  experience,  are  there  targeted  changes  to 
securities ownership rules that could contribute to more integrated capital markets 
within the EU? 

An  overwhelming  majority  of  respondents  favoured  targeted  changes  to  securities 
ownership rules. Some respondents, however, considered  it  best for the Commission to 
abstain  from  any  legislative  action.  A  very  few  respondents  explicitly  recommended  a 
solution on the basis of the Unidroit Geneva Securities Convention of 2009. The majority 
was in favour of harmonising certain aspects of substantive securities laws at EU level. 
In  addition,  many  respondents  advocated  a  uniform  rule  that  determines  which  of  the 
different national securities laws shall apply to cross-border holdings (uniform conflicts-
of-law rule).  

1) 

Changes to substantive securities laws 

Regarding  substantive  securities  laws  two  philosophies  emerged:  (i)  some  respondents 
argued for harmonisation using the continental notion of securities ownership based on a 
relationship  between  the  investor  and  the  issuer  as  being  the  safest  model  for  the 
investor;  (ii)  others  favoured  more  operationally-oriented  harmonisation  based  on  the 
relationship between the investor and the intermediary, as well as between intermediaries 
themselves, and through rendering any book entry in the securities holding chain legally 
constitutive for a valid acquisition and disposition of intermediated securities. A very few 
respondents  of  the  latter  group  expressly  advocated  an  approach  compatible  with  the 
Unidroit Geneva Securities Convention of 2009. 

Respondents suggested addressing the currently fragmented approach on segregation of 
securities, with a slight majority in favour of reducing existing segregation requirements 
as  inefficient  and  introducing  a  system  in  which  securities  are  held  cross-border  in  a 
transparent and direct way (e.g., by creating a single EU bonds and shareholders register 
that  establishes  the  legal  right  of  every  final  investor  and  connecting  it  to  the  ECB's 
Target2-Securities settlement service). 

Respondents considered the following main issues in need of fixing: 

•  Define what constitutes securities, considering their various occurrences; 

54 

 
 
 
•  Harmonise  the  rules  on  how  to  effect  the  acquisition  of  securities,  in  particular 
specify that credit and debit to a securities account are legally constitutive for a valid 
acquisition and disposition of securities; however, very few respondents specified the 
credit  to  which  securities  account  in  the  custody  chain  should  correspond  to  the 
ownership rights; 

•  Determine the moment at which a legal title transfer occurs for securities transactions 
and clarify which entity is the legal owner on a trade date versus on a settlement date; 
harmonise  rules  on  settlement  finality  also  outside  SFD  designated  systems  while 
protecting  the  integrity  of  the  securities  holding  system  (in  particular,  require  strict 
observance of the rule 'no credit without debit' in the securities account of a purchaser 
and a seller in order to avoid securities inflation, while also recognising that there are 
certain cases where such principle is impractical); 
Increase  requirements  for  intermediaries  to  reconcile  the  securities  positions  they 
hold for clients;  

• 

•  Establish clear priority rules for cases where two creditors assert rights over the same 
securities  and  provide  for  a  harmonised  understanding  of  'good  faith  acquisition'  of 
securities; 

•  Prohibit upper-tier attachment and harmonise loss sharing and compensation; 
•  Specify the role and responsibilities of all account providers. 

Some respondents would prefer that the Commission abstain from any legislative action 
in  the  field  of  substantive  securities  laws,  citing  the  difficulties  encountered  in  past 
negotiations  both  on  EU  and  international  level  and  one  or  more  of  the  following 
reasons: 

•  Lack of  sufficient  evidence  that  differences in national  securities ownership regimes 
within  the  EU  create  legal  uncertainty  or  practical  difficulties  ("where  there  are 
several currencies, there can be more than one securities law"); 

•  Enshrinement of securities ownership rules in nationally consistent legal frameworks, 
so  that  harmonising  securities  laws  at  EU  level  would  have  an  impact  on  deeply 
embedded legal concepts and might have unintended consequences;  

•  Investor protection issues after Lehman Brothers' default showed that a property-based 

system was the only responsible choice in a post-financial crisis environment. 

A  few  respondents  expressly  underlined  that  the  ECB  Target2-Securities  project  (T2S) 
does not eliminate the divergence of the legal systems and thus cannot per se remove the 
legal  risk  in  cross-border  securities  holdings.  At  the  same  time,  there  was  a  wide 
agreement  that  T2S  would  reduce  transaction  costs  towards  the  level  of  domestic 
transactions and significantly increase the number and volume of transnational securities, 
thus  effectively  changing  the  functioning  of  securities  markets.  By  underpinning  the 
relationships  among  the  various  actors  in  the  securities  holding  chain  with  new  legal 
agreements,  T2S  would  greatly  facilitate  transnational  exchanges  of  securities.  The 
practical  impact  of  T2S  should  be  monitored,  according  to  several  respondents,  before 
drawing lessons for a future harmonisation of securities laws. 

2) 

Conflicts-of-law solutions 

Regarding  a  solution  that  would  harmonise  the  manner  in  which  the  national  law 
applicable  to  a  given  cross-border  situation  would  be  determined  (harmonisation  of 
conflicts-of-law  rules),  most  respondents  promoted 
the  Relevant 
Intermediary Approach (PRIMA), possibly through an extension of the existing conflict-
of-law  rule  of  the  Financial  Collateral  Directive  and  clarification  whether  the  'relevant 
account' is held at a CSD or an investor's intermediary. The Hague Securities Convention 

the  Place  of 

55 

 
 
as a global solution was also discussed, as was alignment by issuers with the law under 
which securities are created.  

Question  27  -  What  measures  could  be  taken  to  improve  the  cross-border  flow  of 
collateral?  Should  work  be  undertaken  to  improve  the  legal  enforceability  of 
collateral and close-out netting arrangements cross-border? 

1) 

Cross-border flow of collateral 

Respondents  primarily  suggested  to  (i)  evaluate  the  transposition  of  the  Financial 
Collateral Directive (2002/47/EC, hereafter 'FCD') and the Settlement Finality Directive 
(98/26/EC,  hereafter  'SFD')  and  place  a  greater  emphasis  on  aligned  implementation 
across  the  EU;  (ii)  introduce  targeted  amendments  to  the  FCD  to  strengthen 
enforceability  of  financial  collateral  and  close-out  netting  (e.g.,  extend  the  rules,  avoid 
opt-outs or even replace it with a Regulation); and (iii) update the SFD to adapt it to the 
new regulatory environment and further develop the rules on settlement finality. 

As  regards  financial  collateral,  the  following  measures  were  most  suggested  by 
respondents: 

•  Further  harmonise  substantive  rules  on  securities  collateral  in  terms  of  defining 
(i) what 'possession or control' and 'excess financial collateral' in the FCD mean; 
(ii)  methods  of  creating  and  acquiring  collateral;  (iii)  priority  rules  for  cases 
where two creditors assert rights over the same asset given as financial collateral; 
(iv) rights of collateral takers and collateral givers, inter alia in case of reuse and 
holding via omnibus accounts; (v) good faith acquisition; and (vi) strengthening 
of rights to timely liquidate collateral. 

•  Strengthen harmonised conflict-of-law rules, in particular regarding a clear notion 
of the  'relevant account' under the existing FCD conflict-of-law rule; extend the 
FCD  conflict-of-law  rule  to  all  aspects  of  securities  dispositions;  and  further 
develop rules on the law applicable to credit claims used as collateral. 

As  regards  settlement  finality,  the  measures  mentioned  most  in  the  responses  were  the 
following: 

•  Review the SFD, in particular evaluate the transposition of the SFD with respect 
to  pending  cross-border  settlement  instructions  upon  a  participant's  insolvency 
and their management. 

•  Clarify the effects of an insolvency event on the SFD protected transfer orders in 

terms of parties covered and the applicable insolvency law. 

•  Harmonise  communication  procedures  upon  a  participant's  insolvency  and 
measures  to  be  taken  by  the  designated  system  after  the  opening  of  insolvency 
proceedings.  

Respondents further highlighted a need to:  

•  Review  recently  adopted  EU  legislation  that  might  hinder  collateral  fluidity 
through  requirements  relating  to  client  asset  segregation,  bans  on  title  transfer 
arrangements  or  reuse  of  a  fund's  assets,  mandatory  buy-ins  of  securities, 
overlapping  requirements  on  transaction  reporting,  and  clearing  obligations  for 
transactions in the realm of post-trade risk reduction.   
Improve  policy  coherence  between  regulations  on  securities  collateral  and 
transparency requirements stemming from regulations in the areas of anti-money 
laundering, terrorist financing, tax evasion and capital flight. 

• 

56 

 
 
 
•  Encourage  less  restrictive  collateral  eligibility  requirements,  in  particular  by 
giving  broader  acceptance  to  equities  and  abstaining  from  requiring  that  bank 
guarantees must be fully backed by highly liquid assets in order to be eligible as 
collateral.  

•  Address third country issues with regard to the recognition of resolution actions 

relating to collateral and close-out netting to prevent forum shopping.  

•  Address  problems  resulting  from  cross-border  assignments  of  claims  by  (i) 
improving the legal enforceability of claims across border, (ii) unifying conflict-
of-law rules on the effectiveness of the assignment against third parties, and (iii) 
cash/financial 
harmonising 
instruments/credit claims. 

rules  on  movable 

collateral  other 

than 

Some respondents recalled that meaningful harmonisation in the area of collateral would 
effectively necessitate harmonisation of insolvency regimes. In this respect, suggestions 
included:  (i)  ensuring  recognition  of  valid  collateral  structures  used  in  some  Member 
States by other Member States, i.e. not applying national provisions that require a clear 
identification  of  every  single  asset  and  provide  for  extensive  claw-back  regimes;  (ii) 
harmonising the rules related to redelivery of collateral securities so that they do not get 
'trapped' in insolvency; and (iii) introducing common CCP recovery and resolution rules. 

Respondents also considered that the current regulatory framework should be allowed to 
settle down before being assessed possibly by an expert group following in the footsteps 
of  the  Giovannini  Group.  Market-oriented  solutions  should  be  explored  to  their  full 
potential  first.  In  a  similar  vein,  these  respondents  suggested  promoting  integrated 
infrastructure  for  the  settlement  of  trades  and  clearing  platforms,  supporting  the 
development  of  common  market  standards  on  transparency  in  the  securities  holding 
chain  and  working  on  the  ways  of  holding  different  kinds  of  collateral.  Central  banks, 
according  to  some  respondents,  might  also  be  encouraged  to  align  procedures  and 
operations relating to collateral. 

2) 

Enforceability and close-out netting 

the  requirement 

Several  respondents  asked  the  Commission  to  look  at  ways  to  improve  legal 
enforceability  of  close-out  netting  arrangements  by  removing  obstacles  existing  in 
national insolvency laws. They called for (i) legislatively defining 'close-out netting' and 
its  underlying  principles,  (ii)  removing 
that  close-out  netting 
arrangements  need  to  form  part  of  a  financial  collateral  arrangement,  (iii)  harmonising 
the eligible transactions, (iv) extending the eligibility to more market participants such as 
insurance companies, and (v) harmonising the level of knowledge required by a solvent 
party  of  a  counterparty's  approaching  insolvency.  They  also  suggested  ensuring 
appropriate calculation of the leverage exposure for securities financing transactions, in 
particular  always  recognising  close-out  netting  for  trades  cleared  with  CCPs  and  for 
bilateral  trades  with  the  same  counterparty  settling  across  the  same  system.  A  few 
respondents expressly supported the implementation of the UNIDROIT Principles on the 
Operation of Close-out Netting.  

Question  28  -  What  are  the  main  obstacles  to  integrated  capital  markets  arising 
from  company  law,  including  corporate  governance?  Are  there  targeted  measures 
which could contribute to overcoming them? 

1) 

Main obstacles  

Many  respondents  acknowledged  that  divergences  between  Member  States'  approaches 
in  the  area  of  company  law  and  corporate  governance  may,  in  certain  ways,  create 

57 

 
 
 
barriers  to  cross-border  investment  and  impede  the  smooth  functioning  of  integrated 
capital markets. Most respondents, especially institutional investors (e.g., pension funds, 
insurance companies, and asset managers), retail investors, consumer organisations  and 
non-governmental  organisations,  pointed  in  particular  to  difficulties  linked  to  cross-
border  exercise  of  shareholder  rights  and  cross-border  voting.  According  to  certain 
respondents,  lack  of  standardisation  and  inadequate  practices  in  certain  markets  hinder 
the  actual  exercise  of  voting  rights.  Some  respondents  also  considered  that  the 
operational complexity of the voting chain was an obstacle to integrated capital markets. 
Most respondents pointed to the ongoing revision of the Shareholder Rights Directive as 
an  important  step  to  improve  the  situation;  others,  however,  considered  that  further 
actions may be needed. 

Many respondents also highlighted the need for more consistent standards in the area of 
corporate  governance.  A  number  of  respondents,  especially  investors,  supported  the 
development  of  more  effective  tools  to  protect  minority  shareholders.  Some  expressed 
particular  concerns  as  regards  differentiated  voting  rights  for  long-term  shareholders, 
claiming  that  such  arrangements  lead  to  enhancing  the  influence  of  dominant  or 
controlling  shareholders  and  undermining  and  disenfranchising  engaged  minority 
investors.  A  number  of  respondents,  in  particular  companies  and  industry  associations, 
supported  the  'comply  or  explain'  approach  in  the  area  of  corporate  governance  and 
considered that it should be further promoted at EU level. They also highlighted the need 
to  avoid  administrative  burden  and  promote  adequate  rules  for  listed  SMEs.  The 
responding  trade  unions  underlined  that  the  rules  protecting  employees  and  promoting 
the  role  of  social  partners  must  not  be  undermined,  and  that  corporate  governance 
practices  to  be  promoted  could  include,  among  others,  information,  consultation  and 
representation of employees. 

Some respondents, mostly industry associations, pointed to the need to improve the legal 
framework for companies' mobility, in particular through allowing cross-border transfers 
of  registered  office  and  improving  and  simplifying  the  existing  framework  for  cross-
border mergers of European companies. A few also mentioned the lack of EU rules for 
cross-border divisions. 

Some  respondents  called  for  adapting  company  law  rules  to  the  modern  digital 
environment and considered that the use of digital tools in the area of company law and 
corporate governance could lead to simplification of procedures and should therefore be 
promoted. 

A minority of respondents did not see any obstacles to the integration of capital markets 
linked to company law or corporate governance. 

2) 

Targeted measures  

Many respondents considered that more consistent and appropriate standards in the area 
of company law and corporate governance should be promoted across the EU. 

Suggestions varied on the way forward. Some respondents, in particular investors, were 
in favour of establishing common European corporate governance rules and standards in 
order  to  eliminate  barriers  and  reduce  complexity  for  investors.  Most  respondents, 
including  companies,  industry  associations  and  public  authorities,  considered  however 
that the EU should focus on establishing minimum standards or common principles in the 
area of corporate governance upon which Member States could build. Those in favour of 
minimum  standards  highlighted  the  need  for  sufficient  flexibility  to  accommodate 
different  company  law  and  corporate  governance  systems,  as  well  as  the  variety  of 
corporate  ownerships  across  Member  States.  A  number  of  respondents  favoured  a 

58 

 
 
flexible  approach  instead  of  legislative  rules.  Some  considered  that  the  European 
Commission should promote best practices. 

A  number  of  respondents  pointed  to  specific  areas  of  company  law  and  corporate 
governance  where  targeted  EU  legislation  could  be  needed,  such  as  in  particular 
establishment  of  rules  to  make  it  easier  for  companies  to  move  cross-border  or 
facilitation  of  cross-border  voting.  Several  respondents  underlined  that  any  EU 
legislation should be based upon a thorough cost-benefit analysis, preserve flexibility and 
take  into  account  the  regulatory  diversity  and  existing  mechanisms  in  Member  States. 
Among  those  in  favour  of  EU  action,  some  advised  that  focus  should  be  put  first  on 
completing and implementing ongoing initiatives. 

Among  respondents  who  were  not  in  favour  of  any  action,  mainly  companies  and 
industry  associations,  some  pointed  to  the  fact  that  there  is  already  sufficient  level  of 
harmonisation  and  that  existing  national  rules  are  strongly  linked  to  national  legal 
environments  and  cultures.  Others  warned  against  new  regulation  that  could  increase 
regulatory burden for companies and weaken their competitiveness. Some also preferred 
to  first  evaluate  the  impact  of  the  recently  adopted  and  ongoing  initiatives,  such  as  the 
revision of the Shareholder Rights Directive, before proposing any new measures in the 
areas of company law and corporate governance. 

Question 29 - What specific aspects of insolvency laws would need to be harmonised 
in order to support the emergence of a pan-European capital market? 

1) 

Specific aspects of insolvency laws 

The  main  suggestions  aimed  at  harmonisation  of  requirements  for  opening  insolvency 
proceedings,  including  a  common  definition  of  default  and  avoidance  actions, 
restructuring  of  companies,  stay  on  individual  creditor  claims  and  definition  of  a 
common discharge period. Other frequently quoted proposals for action suggested ring-
fencing of a client's securities in the case of insolvency of the financial intermediary and 
harmonisation of ranking of creditors' claims. The issue of personal insolvency and the 
application  of  existing  insolvency  rules  also  at  individual  level  were  raised  too,  in 
particular by consumer representatives.  

Overall, respondents indicated a number of specific issues within the area of insolvency 
which in their view should be harmonised at EU level, such as preventive restructuring 
proceedings,  out-of-court  and  hybrid  restructuring  procedures,  second  chance  for 
entrepreneurs,  regulation  of  qualifications,  tasks  and  rights  of  insolvency  practitioners, 
liability  of  directors  and  shadow  directors,  introduction  of  a  time  cap  on  insolvency 
procedures,  establishment  of  an  EU  register  with  information  on  insolvencies  and  a 
harmonised form for petition claims.  

2) 

Form of possible action 

A large number of market participants and investors noted that the diversity of regimes 
across the EU negatively impacts confidence in cross-border investment. However, there 
was  less  agreement  on  how  to  solve  this  problem.  While  a  minority  of  respondents 
proposed to leave the identified problem unresolved, other respondents were in favour of 
a solution.  

Yet, there were divergent views on the form of the solution, ranging from a wide scope 
harmonisation  of  substantive  insolvency  framework  via  a  targeted  high-level  principles 
approximation to a creation of a dedicated 29th EU insolvency regime which would exist 
in  parallel  to  the  national  insolvency  regimes.  Some  respondents  also  indicated 
preference for a full harmonisation of insolvency laws. 

59 

 
 
 
Respondents  pointed  to  the  ambitious  nature  of  full  harmonisation,  indicating  rather  a 
preference  for  developing  a  common  set  of  minimum  standards  and  general  principles. 
Some respondents noted that non-binding measures have not been able to spur action on 
the  side  of  Member  States  towards  at  least  functional  convergence  of  their  insolvency 
frameworks.  

Certain respondents indicated that an EU action was not necessary or achievable. At the 
same time a number of them admitted that national insolvency frameworks as such and 
the  divergences  among  them  were  posing  a  problem.  The  reasons  given  for  abstention 
from  Commission  action  were  mainly  the  complexity  of  the  matter  and  subsidiarity 
concerns. 

3) 

Positions of main respondent groups  

Banks showed a positive attitude towards a reform of the insolvency framework in the 
EU,  recognising  the  complexity  of  such  a  reform,  but  considering  it  an  integral  part  of 
the  CMU.  From  their  point  of  view,  the  widespread  divergence  in  Member  States' 
insolvency regimes constitutes a key deterrent to cross-border investment. Banks further 
argued  that  a  targeted  harmonisation  of  certain  aspects  of  the  differing  national 
insolvency regimes would be a positive contribution to the Capital Markets Union. 

Likewise,  pension  funds  and  other  financial  intermediaries  were  of  the  view  that 
diverging national insolvency regimes create an obstacle to the investment in the EU. In 
their  opinion,  a  reform  of  national  insolvency  frameworks  would  be  a  more  long-term 
project, but it should significantly contribute to a Capital Markets Union. 

Member  State  governments  and  Finance  Ministries  adopted  a  rather  cautious 
approach  suggesting  the  performance  of  a  step-by-step  approximation  based  on  an 
impact analysis of the insolvency area, possibly accompanied by measures to strengthen 
the insolvency frameworks in Member States. 

Central  banks  acknowledged  the  clear  link  between  coherent  insolvency  rules  and  a 
CMU, and therefore supported a more comprehensive reform of insolvency frameworks 
to  remove  obstacles  to  cross-border  investment  in  the  EU  posed  by  differing  national 
insolvency regimes. One central bank, for example, saw it as an opportunity to improve 
effectiveness in liquidating unviable firms and saving viable ones, while another central 
bank  proposed  to  consider  the  merits  of  creating  a  ‘29th  EU  insolvency  regime’  and 
developing  minimum  requirements  or  common  principles  for  insolvency  in  Member 
States. The opinion of capital market regulators was similar to that of central banks as 
they considered the differences in national insolvency frameworks as a barrier to cross-
border investments. 

By contrast, business associations showed more divided positions both on the impact of 
differing national insolvency regimes and on the form of possible actions to tackle those 
differences.  Representatives  of  the  SMEs  would  appreciate  improvements  in  the 
efficiency  and  effectiveness  of  insolvency  practitioners  and  the  courts.  Labour  unions 
called most vocally for a wide ranging harmonisation of national insolvency frameworks. 

Other  respondents,  such  as  research  institutes,  considered  that  a  better  insolvency 
framework  allows  for  a  better  re-allocation  of  capital  and  more  growth,  and  that  a 
targeted harmonisation of certain aspects of national insolvency frameworks would bring 
an added value in a Capital Markets Union. 

60 

 
 
 
Question 30 - What barriers are there around taxation that should be looked at as a 
matter  of  priority  to  contribute  to  more  integrated  capital  markets  within  the  EU 
and  a  more  robust  funding  structure  at  company  level  and  through  which 
instruments?  

1) 

Main barriers 

Withholding taxes: This was the first issue raised by respondents. Many Member States 
require companies paying dividends, interest and other securities' income across borders 
to deduct a withholding tax and remit it to the local tax authorities. Rates of withholding 
taxes  vary  across  Member  States  and  are  subject  to  differing  domestic  exemptions. 
Withholding  taxes  can  be  reduced  under  double  taxation  treaties,  but  are  often  not 
completely eliminated. 

The  diversity  and  complexity  of  procedures  to  claim  tax  treaty  benefits  on  securities' 
income  is  another  major  issue.  The  procedures  to  claim  reductions  of  withholding  tax 
under bilateral tax treaties or domestic law are often demanding, resource-intensive and 
costly for investors, and are therefore a deterrent to cross-border investments.  

Another issue is that most Member States require individual investors to make claims for 
tax  relief  themselves  rather  than  allowing  them  to  do  so  via  their  financial  institutions. 
This  can  be  a  highly  challenging  task  for  many  individual  investors  who  lack  the 
expertise to make these claims. An additional hindrance is that, in some Member States, 
tax reclaims must be processed via a domestic financial institution. 

Debt-equity bias: In most Member States, corporate tax systems favour debt over equity 
by  allowing  the  deductibility  of  interest  expenses,  while  the  return  on  equity  financing 
usually  does  not  receive  any  form  of  tax  relief.  This  is  an  incentive  for  leveraging 
corporations.  Some  respondents  also  indicated  that  this  creates  opportunities  for  profit 
shifting. Many respondents believed this tax discrimination to be a barrier to a CMU. In 
their view, rebalancing it would (i) encourage companies to strengthen their equity base 
and  discourage  levels  of  leverage  that  are  too  high,  thereby  improving  companies' 
resilience  to  shocks  via  increased  loss  absorption  capacity,  and  (ii)  incentivise  the 
provision of equity capital by investors.  

Financial Transaction Tax (FTT): Many respondents saw the FTT as running against the 
CMU  objective  of  creating  integrated  EU  capital  markets.  They  cited  the  fact  that  the 
FTT,  as  currently  envisaged,  would  not  be  applied  across  Member  States  and  across 
financial products as a major hindrance.  

A few respondents referred to discriminatory taxation of pension funds and life insurance 
companies as an obstacle to cross-border investment. 

A  few  respondents  voiced  concerns  that  some  recommendations  from  the  OECD  Base 
Erosion and Profit Shifting System (BEPS) project run against the objectives of a CMU 
by undermining the functioning of the EU internal market for asset management. They 
cited  in  particular  Action  6  as  discouraging  some  collective  investment  vehicles  from 
pooling investments from a broad, cross-border investor base. 

A few respondents saw the inconsistencies in the VAT regimes as an obstacle to a CMU. 

Many  respondents  viewed  the  lack  of  harmonisation  of  tax  systems  in  the  EU  as  an 
obstacle to a CMU. However, most of them acknowledged that this issue is difficult to 
deal  with  through  EU  legislation,  as  the  adoption  of  EU  legislation  in  the  tax  field 
requires the unanimous agreement of all Member States. 

61 

 
 
 
 
2) 

Instruments 

On  the  withholding  taxes,  almost  all  respondents  who  raised  the  issue  asked  the 
Commission to support the establishment of streamlined, efficient and simple procedures 
to  reclaim  excessive  withholding  taxes  in  accordance  with  bilateral  tax  treaties.  Many 
called  on  the  EU  to  support  a  more  extensive  use  of  relief-at-source  systems.  A  few 
respondents  suggested  that  the  EU  support  the  OECD's  Treaty  Relief  and  Compliance 
Enhancement  (TRACE)  system.  A  few  also  proposed  to  use  the  increasing  automatic 
exchange  of  information  (AEOI)  to  support  the  harmonisation  of  the  EU  tax  relief 
system. 

The  vast  majority  of  respondents  who  cited  the  debt-equity  bias  as  an  issue  were  in 
favour of actions at EU level to eliminate this tax bias. The most frequent suggestion was 
to allow corporations to deduct from their tax base a notional return on equity. Another 
suggestion was to reduce the deductibility of interest expenses. 

Many respondents called on the EU to eliminate the FTT.   

While  acknowledging  that  tax  issues  are  difficult  to  address  at  EU  level  as  they  are  a 
prerogative  of  Member  States,  many  respondents  called  on  the  EU  to  encourage  tax 
incentives that support the goals of a CMU, in particular for investments into SMEs and 
long-term projects. A few respondents also called for tax incentives in favour of equity 
investments, pension instruments and employee share ownership programmes. 

Question 31 - How can the EU best support the development by the market of new 
technologies  and  business  models,  to  the  benefit  of  integrated  and  efficient  capital 
markets? 

1)  

The role of regulation 

A  majority  of  the  respondents  focused  on  the  role  of  regulation.  Amongst  those,  some 
respondents were of the opinion that the EU or national authorities should not intervene 
and leave the market to develop itself, but an equal number were in favour of some form 
of  EU  intervention  (including  public  funding).  A  few  respondents  (including  some 
governments)  thought  that  financial  legislation  should  target  the  fintech  sector 
specifically. Some respondents considered that financial legislation should be loosened to 
allow  new  business  models  to  develop.  Many  advocated  a  regulatory  framework  that 
strikes the right balance between the need to establish a clear legal framework ensuring 
legal certainty for platforms, companies and investors, and the need to allow the nascent 
fintech industry to develop. 

Even market operators and authorities largely in favour of a market-led approach to the 
development of new business models and technologies recommended that the European 
Commission  closely  monitor  new  developments  and  consider  alternative  ways  to 
safeguard innovation, stability of the financial system and protection of investments and 
investors. 

Some  respondents  indicated  that  the  European  Commission  could  best  support  market 
development  of  new  technologies  and  business  models  by  establishing  a  robust 
framework  within  which  market  participants  can  freely  operate  and  competition  can 
flourish. Such framework should not discriminate against new technologies or businesses 
and  should  maintain  high  levels  of  financial  stability  and  investor  and  consumer 
protection.  

62 

 
 
 
At the same time, all respondents from the banking sector called for a level playing field 
in  the  financial  sector  and  insisted  that  new  technologies  be  subject  to  the  same 
supervision and security standards as more traditional business models. 

Many respondents suggested that comparing what is in place in various Member States, 
encouraging best practice and enabling change is the best way forward. 

Policymakers should take account of technological changes as they occur. One way the 
governments  in  the  US  (the  so-called  ‘regulatory  sandbox’)  and  the  UK  (the  Financial 
Conduct Authority’s ‘Innovation Hub’) have sought to do this is through the facilitation 
of a dialogue between the private sector and regulators about the regulatory treatment of 
new  technology.  Many  market  players  suggested  that  new  business  models  and 
technologies in financial services could be first tested in “sandbox” environments, where 
feasible, as an alternative to restrictive regulation.  

start-ups) 

technology 

Other  suggestions  on  the  way  forward  for  public  sector  support  to  the  fintech  sector 
(notably 
and  EIB 
included: 
experience/infrastructure for the initiation of new financial infrastructure; design the right 
incentives to direct capital towards seed and growth funding; facilitate lending on peer-
to-peer platforms to SMEs by helping to integrate a guarantee mechanism (by industry or 
regional mutual guarantee institution); provide greater equity finance to start-ups through 
national  or  regional  business  growth  funds;  encourage  initiatives  from  the  financial 
industry to develop incubators / accelerator programmes or to create in-house or external 
venture capital funds dedicated to fintech. 

use  EFSI  money 

2) 

Reporting, information, disclosure and transparency 

The  second  largest  group  of  respondents  dealt  with  the  role  of  new  technologies  in 
reporting,  information,  disclosure  and  transparency  (e.g.,  standardisation  of  IT  formats 
for  reporting,  for  example  within  the  framework  of  MiFID  II/MIFIR;  increased 
transparency of company data, product data and features, providers, trading prices, etc.).  

The use of common and integrated reporting channels and standardised IT formats would 
enable regulators to better use the vast amount of information for supervisory purposes 
submitted to them. The recent experience with regulatory and transaction reporting under 
AIFMD and EMIR, and the pending discussions concerning MiFID II/MiFIR and SFTR 
demonstrate that the uncoordinated implementation of different IT solutions by national 
authorities creates huge practical problems for firms operating cross-border and hampers 
effective  collection  and  evaluation  of  data.  A  form  of  helpful  regulation  would  be  the 
standardization  of  data  formats  for  big  data  exchange  between  financial  institutions, 
companies and public institutions across borders. A European Single Electronic Format 
(ESEF) is being investigated by ESMA in the context of the Transparency Directive. But 
some companies were opposed to certain technical options being considered, in particular 
the  introduction  of  a  mandatory  reporting  format  based  on  a  "built-in  or  integrated" 
approach,  such  as  XBRL  and  Inline  XBRL.  Many  respondents  therefore  asked  that  the 
Transparency  Directive  introduce  maximum  flexibility  in  corporate  communication 
requirements.  

3) 

Trading 

A third large group of respondents dealt with the impact of new technologies on trading, 
including  the  proliferation  of  new  electronic  trading  platforms  and  high  frequency 
trading.  Responses  mentioned  that  e-platforms  are  designed  to  support  the  new  agency 
model  of  intermediation,  offering  “big  data”  solutions  to  service  clients.  However, 
market infrastructure operators declared that electronic platforms are not a substitute for 
the traditional market-making model. While electronic solutions would go some way to 
filling  the  liquidity  gap  through  sourcing  technology,  they  do  not  alter  the  fact  that 

63 

 
 
corporate bond  markets are inherently illiquid. As far as market structure is concerned, 
market  operators  envisaged  that  while  the  proliferation  of  trading  platforms  and  e-
commerce  solutions  is  likely  to  continue  in  the  European  fixed  income  space,  at  some 
point  consolidation  can  be  expected,  in  the  same  way  as  this  happened  with  equity 
trading platforms. 

4) 

Other  

Other respondents mentioned that the EU can support market-led developments of new 
technologies  and  business  models  in  the  areas  of  clearing  and  settlement,  electronic 
communication  (e.g.,  signature,  identity  and  voting),  crowdfunding,  data-related  issues, 
financial advice, cybersecurity, collaboration with third countries and better SME credit 
information,  as  well  as  explore  adaptation  of  company  law  rules  to  the  digital 
environment. 

Question  32  -  Are  there  other  issues,  not  identified  in  this  Green  Paper,  which  in 
your view require action to achieve a Capital Markets Union? If so, what are they 
and what form could such action take? 

Respondents  generally  considered  that  the  Green  Paper  had  identified  the  key  policy 
actions to achieve a CMU. Some respondents identified other main issues, including the 
following four: 

1. 

2. 

3. 

Review  of  existing  legislative  measures  and  assessment  of  the  cumulative 
impact of regulation: Some respondents called for a review of recent legislative 
measures  to  assess  any  unintended  consequences  and  remove  inconsistencies. 
They  also  called  for  a  comprehensive  assessment  of  the  cumulative  impact  of 
regulation  with  the  aim  of  reducing  any  regulatory  barriers  to  the  efficient 
functioning  of  capital  markets.  This  assessment  should  lead  to  amendment  of 
legislation where necessary.  

Importance  of  banks  for  the  CMU:  Several  respondents  underlined  the 
importance  of  a  well-functioning  banking  system  for  the  success  of  the  CMU. 
They  pointed  out  that  CMU  is  not  an  alternative  to  bank  financing,  but 
complements  it.  Some  of  the  respondents  expressed  concern  about  the 
forthcoming bank structural reform, arguing that there is no need for separation of 
trading activities. 

Derivatives: There was criticism from some respondents on the non-inclusion of 
derivatives in the CMU Green Paper. According to those respondents, derivatives 
are  crucial  for  many  stated  objectives  of  the  CMU.  The  uncertainty  associated 
with  investing  in  new  instruments  and  issuing  new  equity/debt  would  dis-
incentivise investors and borrowers from participating into the CMU. Derivatives 
would  give  these  investors/borrowers  the  option  to  manage  and  transform  risks. 
Hence, new initiatives that could improve the functioning of derivatives markets 
in Europe should be explored as a main component of the CMU. 

4. 

Some respondents underlined the importance of stability and legal certainty for 
investment.  

64