COMMISSION STAFF WORKING DOCUMENT Feedback Statement for the Public Consultation on the Capital Markets Union Mid-Term Review 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 on the Mid-Term Review of the Capital Markets Union Action Plan
Date: 2017-06-08
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: EU financial instrument, EU investment, action programme, aid to undertakings, capital goods, capital market, economic growth, investment aid, single market, small and medium-sized enterprises

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 8.6.2017  SWD(2017) 225 final   COMMISSION STAFF WORKING DOCUMENT Feedback Statement for the Public Consultation on the Capital Markets Union Mid-Term Review 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 on the Mid-Term Review of the Capital Markets Union Action Plan {COM(2017) 292 final} {SWD(2017) 224 final}  
 
 
1. 

Introduction 

On  20  January  2017  the  Directorate-General  for  Financial  Stability,  Financial  Services  and  Capital 
Markets  Union  (DG  FISMA)  of  the  European  Commission  launched  a  public  consultation  on  the 
Capital Markets Union (CMU) Mid-term Review 2017. 

The  CMU  Mid-term  Review  aims  to  (i)  take  stock  of  progress  on  the  implementation  of  the  CMU 
Action  Plan  of  30  September  20151;  (ii)  reframe  actions  in  the  light  of  work  undertaken  so  far  and 
evolving market circumstances; and (iii) complement the CMU Action Plan with new measures which 
constitute an effective and proportionate response to key challenges. 

The purpose of the consultation was to seek feedback on how the CMU Action Plan can be updated 
and completed so that it represents a strong policy framework for the development of capital markets, 
building on the initiatives presented so far by the European Commission. Respondents were invited to 
provide concise and operational suggestions on measures that can be enhanced and on complementary 
actions to deliver the policy goals. 

DG FISMA received 178 responses to the consultation that ended on 17 March 2017. Contributions 
were  made  by  a  broad  variety  of  stakeholder  groups,  including  industry  associations,  investors, 
companies,  small  and  medium-sized  enterprises  (SMEs),  non-governmental  organisations  (NGOs), 
consumers and think tanks, as well as national, European Union (EU) and international regulatory and 
supervisory authorities (see Chart A). Replies originated in more than 20 countries (see Chart B). 

This  feedback  statement  summarises  the  answers  received  for  each  of  the  six  questions.  It  does  not 
aim  to  be  exhaustive  or  provide  detailed  statistical  data,  but  rather  seeks  to  give  a  qualitative 
representation of the contributions received and identify some specific messages related to actions that 
can foster the building of a CMU. The summary of the responses provides particular insight into new 
perspectives on existing measures and new focus areas proposed by respondents. 

This feedback statement does not give any indication of potential initiatives, which the European 
Commission may or may not undertake in the future in this area. 

1 Action Plan on Building a Capital Markets Union, COM(2015)468 final, 30.9.2015 

2 

 
 
 
                                                            
Chart A – Replies by type of stakeholder 

Chart B – Replies by country  

3 

 
 
 
 
  
 
2.  

Summary of individual responses 

Question  1  –  Are  there  additional  actions  that  can  contribute  to  fostering  the  financing  for 
innovation, start-ups and non-listed companies? 

Most respondents supported a number of actions in the CMU Action Plan that contribute to  fostering 
the  financing  for  innovation,  start-ups  and  non-listed  companies.  In  particular,  the  ongoing  study 
analysing  the  impact  of  tax  incentives  for  venture  capital  (VC)  and  business  angels  was  welcomed, 
with  several  respondents  calling  for  enlarging  its  scope  to  consider  strategies  aimed  at  encouraging 
investors to buy and hold shares on a mid- to long-term basis. The revision of the European Venture 
Capital Funds (EuVECA) and European Social Entrepreneurship Funds (EuSEF) Regulations and the 
extension  of  the  EuVECA  definition  of  qualified  portfolio  undertakings  were  largely  welcomed  by 
industry respondents. 

New perspectives on existing actions 

Several  respondents  stressed  the  need  for  a  stronger  focus  on  business  angels,  both  in  terms  of 
specific  tax  incentives  and  non-tax  measures,  such  as  stronger  support  for  exit  opportunities  or  the 
creation of a passport for business angels. 

A majority of respondents referred to the need to enhance financial literacy of SMEs and argued that 
SMEs  still  have  trouble  finding  advisors  and  partners  to  support  them  on  their  way  up  the  funding 
escalator.  Many  respondents  proposed  to  strengthen  various  capacity-building  programmes  by 
supporting bodies that give guidance to local SMEs on how to access market-based finance. National 
promotional  institutions  could  be  further  integrated  into  an  EU  network  to  enable  sharing  of 
experience, best practices and harmonisation of financing programmes. Setting up a capacity-building 
fund was also presented as a possibility. 

As regards feedback to SMEs faced with declined credit applications, some respondents proposed 
that the Commission consider an EU-level scheme to complement national regimes for credit referral 
and mediation. 

The creation of a single, user-friendly website at EU level to connect SMEs in need of financing with 
investors was repeatedly put forward as a way to increase investment in start-ups, scale-ups and non-
listed SMEs. It was suggested that the Commission could set up a website in the form of a "one-stop-
shop"  listing  all  funding  opportunities  in  order  to  connect  EU  and  non-EU  investors  (corporate  or 
individuals)  with  EU  activities  where  financing  is  needed.  Such  a  website  could  also  regroup  all 
programmes of advisory services administered with the support of EU institutions, irrespective of the 
sponsors.  

Many  respondents  argued  in  favour  of  the  development  of  a  proper  legal  framework  for 
crowdfunding across the EU, so as to create a market of sufficient size. Several of those respondents 
called  for  an  EU  framework  guaranteeing  minimal  consumer  protection  standards  and  focusing  on 
clearly  visible  risk  notices,  disclosure  and  organisational  requirements,  right  of  cancellation  and 
investment amount caps. Developing a pan-European harmonised disclosure regime for crowdfunding 
amounts  that  are  below  the  exemption  thresholds  of  the  recently  agreed  Prospectus  Regulation  was 
also  described  as  essential  by  some  national  regulators.  The  latter  also  underlined  the  need  for 
supervisory  convergence,  for  instance  through  the  promotion  of  initiatives  like  the  Crowdfunding 
Supervisory Forum set up by the European Securities and Markets Authority (ESMA). 

Some  respondents,  such  as  SME  associations,  expressed  their  support  for  an  EU-wide  private 
placement  market  and  standardised  documentation  for  private  placements.  A  few  respondents  went 
4 

 
 
further  and  called  for  a  single  pan-European  private  placement  regime  for  professional  investors. 
However,  other  respondents  considered  promoting  good  practices  across  the  EU  to  be  the  best 
approach in this area. Several respondents called on the Commission to further investigate the German 
"Schuldscheindarlehen" regime as a best practice. 

Many respondents put forward suggestions for actions in the area of loan origination by funds, but 
there was no clear consensus in favour or against the need for an EU framework. Several respondents 
argued that the Commission should adopt a cautious approach regarding a specific EU regulation for 
loan-originating  funds.  Other  respondents  pointed  to  the  need  to  create  a  common  understanding, 
enhance  transparency  of  current  requirements  for  loan  origination  by  funds,  and  promote  closer 
cooperation  of  national  competent  authorities.  In  addition,  some  respondents  called  for  the 
introduction  of  rules  on  loans  as  an  asset  class  both  in  and  outside  of  the  Undertakings  for  the 
Collective  Investment  of  Transferable  Securities'  (UCITS)  framework  in  order  to  provide  sufficient 
flexibility  and  ensure  their  effective  implementation.  Respondents  from  the  banking  sector  had 
reservations on opening loan origination to all market operators in view of the necessity to maintain a 
level-playing field and adequate risk management. 

New focus areas 

Some  industry  representatives  asked  the  Commission  to  conduct  a  study  on  the  different  legal 
frameworks for venture debt that exist in Member States in order to assess the need for any action at 
EU level. 

Many  respondents  considered  the  lack  of  standardised  and  transparent  information  on  start-ups 
and  SMEs  to  be  an  important  barrier  to  alternative  investments.  Proposals  made  to  enhance 
information transparency followed three main courses of action: 

1.  Standardisation  of  information  provided  by  SMEs  -  potential  new  measures  put  forward 
included promoting a centralised data repository on SME accounting and tax information, and 
building a single framework (or a common minimum set of comparable information) for credit 
reporting and assessment; 

2.  Development of a rating system for SMEs and mid-caps to increase transparency on SME risk 
-  this  could  be  achieved  by  involving  both  public  and  private  stakeholders  in  developing 
common  minimum  indicators  for  assessing  corporate  risks;  it  was  also  suggested  to  open 
central banks' rating systems, where they exist, to private investors; 

3.  Preparation of general guidelines on improving the availability of SME information. 

Some representatives of the banking sector encouraged the Commission to take on a greater leadership 
role  in  furthering  financial  education  in  Europe  as  a  way  to  empower  consumers,  investors  and 
entrepreneurs.  The  Commission  could  undertake  a  number  of  actions  in  this  area  such  as  organise 
reflection  groups  and  conferences,  foster  exchange  of  best  practices,  create  partnerships  or  use 
European funds to support specific actions. A network of incubators and accelerators throughout the 
EU could also help share information, technologies and skills. 

5 

 
 
 
 
 
Question 2 – Are there additional actions that can contribute to making it easier for companies 
to enter and raise capital on public markets? 

New perspectives on existing actions 

Several  respondents  welcomed  the  launch  of  a  study  and  the  creation  of  an  expert  group  aimed  at 
improving the functioning of the corporate bond markets. A number of respondents underlined that 
some  EU  regulation  may  have  a  negative  impact  on  corporate  bond  market  liquidity.  For  instance, 
respondents  highlighted  that  following  the  introduction  of  new  capital  rules  under  Basel  III  (in 
particular  the  leverage  ratio),  the  repurchase  transactions  (repo)  market  has  become  less  liquid  and 
more  expensive  for  banks.  Some  respondents  also  pointed  out  that  the  Net  Stable  Funding  Ratio 
(NSFR) will increase capital and funding requirements for banks and, as a consequence, liquidity will 
decrease  due  to  trading  and  repo  activity  contracting  further.  The  Central  Securities  Depositories 
Regulation's (CSDR) mandatory buy-in regime may also affect market liquidity by reshaping the repo 
market. CSDR would widen the spreads for liquid securities and decrease liquidity for less liquid ones. 
Some respondents recommended a deferral of the implementation of mandatory buy-in measures until 
an impact assessment has been undertaken. Several respondents also considered that the transparency 
thresholds  of  the  Markets  in  Financial  Instruments  Directive  (MiFID)  II  /  Markets  in  Financial 
Instruments Regulation (MiFIR) for non-equity instruments should be properly calibrated to avoid that 
the pre- and post-trade transparency requirements impair the provision of liquidity. 

As regards the outcome of the corporate bond expert group's work, some respondents considered that, 
while  standardisation  of  documentation  is  suitable,  standardisation  of  issuance  conditions  (such  as 
maturity  dates  and  sizes)  would  reduce  corporates'  flexibility  to  seek  funding  in  line  with  their 
business needs and cash flow cycles. 

One  stakeholder  mentioned  that  corporate  bond  markets  are  illiquid  and  opaque  for  retail  investors. 
Corporate  bond  exchange  traded  funds  should  be  developed  to  improve  liquidity  because  they  can 
create  an  easier  access  to  these  markets  for  retail  investors.  Other  respondents  considered  that  retail 
investors  should  be  able  to  access  corporate  bond  markets  directly  and  not  only  through  packaged 
financial products. 

New focus areas 

Many  respondents  called  for  a  proportionate  review  of  the  different  obligations  placed  on  non-
financial  issuers,  especially  SMEs.  Those  obligations  may  be  too  burdensome  and  can  deter  these 
issuers  from  seeking  a  listing.  The  objectives  of  such  a  review  should  be  to  assess  whether  the 
disclosure  requirements  bring  useful  information  to investors,  as  well  as  consider  the  opportunity  to 
repeal unnecessary disproportionate provisions and create a more balanced regulatory environment for 
small  and  mid-cap  quoted  companies.  One  stakeholder  also  underlined  that  delisting  from  a  public 
market  should  be  made  easier  in  order  to  avoid  dissuading  new  issuers  that  often  consider  public 
markets as a 'one-way-ticket'. 

As regards the legal framework applying to quoted companies, respondents criticised different aspects 
of  the  Market  Abuse  Regulation  (MAR).  For  instance,  rules  concerning  managers'  transactions  as 
well  as  insider  lists  were  criticised  for  being  too  burdensome  for  companies  listed  on  MTFs.  The 
definition  of  inside  information  was  considered  too  complex  and  would  lead  to  the  risk  of  an 
anticipated  and  premature  disclosure  of  information  by  listed  issuers.  One  respondent  indicated  that 
with  respect  to  the  disclosure  of  price-sensitive  information  under  MAR,  equity  markets  should  be 
distinguished from bond markets: in equity markets prices of financial instruments are more exposed 

6 

 
 
 
to  the  influence  of  company-specific  information,  while  in  bond  markets  prices  are  less  subject  to 
volatility  and  a  function  of  the  financial  variables  existing  within  the  instruments  themselves.  Some 
respondents considered that the scope of 'market soundings' rules under MAR is too wide and many 
market participants would be reluctant to be tested in the context of a market sounding because of the 
legal  risk  they  could  bear.  Other  respondents  considered  that  the  extension  of  MAR  to  companies 
listed on multilateral trading facilities (MTFs) makes access to public markets more expensive because 
of the direct costs of monitoring and disseminating inside information.  

Taking the view that brokers cannot make enough money to maintain equity research coverage, some 
respondents  recommended  that  the  'after-market  incentives'  for  brokers  be  improved,  such  as  a  pilot 
programme  for  tick  sizes  designed  to  take  into  account  the  needs  of  smaller  companies.  Some 
respondents therefore raised concerns about the impact of MiFID II level II rules on the provision of 
SME  research  because  they  make  it  very  difficult  to  spread  the  cost  of  research  across  large 
companies and mid-caps/small companies. Those respondents called for an assessment and a potential 
review of those rules. Other respondents considered that the Commission should create incentives for 
financial  analysts  to  cover  smaller  initial  public  offerings  (IPOs).  Other  respondents  mentioned  that 
including  equity  research  within  the  scope  of  fiscal  incentives  applying  to  industrial  research  would 
encourage SME admission on public markets. Finally, some respondents considered that research on 
fixed-income products should not be in the scope of MiFID II. 

Some  respondents  recommended  the  introduction  of  a  "growth  company"  concept  that  would  be 
linked  both  to  the  size  and  period  of  listing.  Those  "growth  companies"  would  benefit  from  a 
simplified and transitional regime applicable for a definite period of time. 

Some  respondents  emphasised  the  importance  of  decreasing  the  regulatory  burden  for  local 
investment  firms  offering  their  services  to  SMEs  (referring  to  MiFID  II,  MAR,  the  fourth  Anti-
Money Laundering Directive, the Capital Requirements Directive IV, etc.). 

As  regards  market  infrastructure,  one  respondent  underlined  that  fragmentation  across  national 
public markets is an issue that still persists, even if competition has delivered many benefits in terms 
of  reduced  costs.  Smaller  market  operators  that  have  been  already  struggling  to  serve  their  local 
economies  could  be  stretched  to  the  breaking  point  by  the  costs  of  implementing  MiFID  II.  As  a 
consequence, the focus should be on consolidation to create market infrastructure that can support the 
development  of  equity  markets  in  those  areas  of  Europe  which  are  currently  underserved  by  them. 
Several  respondents  indicated  that  the  definition  of  systematic  internalisers  under  MiFID  II  could 
have a negative impact on market integrity and transparency of price discovery, and asked for targeted 
amendments  to  MiFID  II  level  2.  One  stakeholder  suggested  that  ESMA  should  use  the  MiFID  II 
clause on the consolidated tape provider (CTP) review to mandate a single-equity CTP in order to 
provide as soon as possible a single image of price data and volume across equity markets in the EU. 

Two  respondents  mentioned  that  the  market  for  small-cap  stocks  is  not  very  active  (notably 
technology  stocks).  Direct  involvement  by  the  European  Investment  Bank  group  and  national 
promotional  banks  in  this  area  would  provide  a  springboard  for  the  development  of  small  listed 
companies.  Another  respondent  favoured  the  establishment  of  several  dedicated  funds-of-funds  at 
domestic  level  to  specifically  invest  in  small  caps  listed  on  regulated  markets  or  SME  Growth 
Markets. 

7 

 
 
 
 
Question  3  –  Are  there  additional  actions  that  can  contribute  to  fostering  long-term, 
infrastrucure and sustainable investment? 

New perspectives on existing actions 

Some  respondents  suggested  that  Solvency  II  risk  capital  treatment  for  qualifying  infrastructure 
projects should be extended to qualifying infrastructure corporates with similar risk profiles. Equal 
treatment of infrastructure corporates under Solvency II would help increase infrastructure investments 
in Europe. 

As  regards  sustainable  finance,  many  respondents  pointed  to  the  need  to  consider  climate-related 
risks as material ones and integrate them into financial services policy. Several examples were given 
about how this should be done: (i) ESAs should include climate risks in financial regulation and stress 
tests; (ii) rules governing rating agencies should include sustainability and climate-related criteria; (iii) 
climate-related  risks  should  be  included  as  a  material  risk  factor  to  be  disclosed  in  the  Prospectus 
Regulation; and (iv) the concept of fiduciary duty should be clarified, incorporating long-term value 
drivers.  

Respondents also called on the Commission to build an investor-friendly green bond framework by 
leveraging  existing  market-led  initiatives  and  best  practices.  Some  respondents  stressed  that  clarity 
and convergence at EU level is needed as is external verification/assurance of compliance with green 
standards to avoid misuse and green-washing. Standardisation (similar to the UCITS Key Information 
Document) would materially reduce the resources required to understand and compare green finance 
projects, encouraging more investment. Ultimately, this should lead to the development of a standard 
(similar to the Eco-Management and Audit Scheme) for accreditation of green bonds. The EIB should 
help develop a template and build consensus around it, working with the Climate Bonds Initiative and 
other  relevant  bodies.  The  EU  should  also  bring  together  stakeholders  to  explore  how  the  current 
short-term durations of green bonds could be improved in order to satisfy long-term investors’ appetite 
for longer durations. 

Some respondents saw the need for establishing an explicit link between the EU sustainable finance 
agenda  and  the  Energy  Union.  This  could  be  done  by  asking  Member  States  to  develop  national 
finance plans as part of their National Energy and Climate Plans which are included in the proposal for 
a regulation on the governance of the Energy Union. This would improve consistency between the EU 
sustainable  finance  agenda  and  the  EU  climate  and  energy  policies.  It  would  also  lead  to  more 
confidence among investors calling for stable, reliable and economically meaningful carbon pricing to 
help redirect investment in a way commensurate with the scale of the climate change challenge. 

To support green and  energy-efficient mortgage portfolios, one respondent referred to the ongoing 
work on the development of a standardised, pan-European mortgage financing mechanism. It aims at 
incentivising  EU  households  to  improve  the  energy  efficiency  of the  EU’s  housing  stock  by  way  of 
preferential  financial  conditions  linked  to  a  mortgage.  In  order  to  help  unlock  the  potential  of  the 
mortgage  industry  to  support  the  EU  in  delivering  on  its  energy  savings  targets,  this  stakeholder 
believed  that  the  lower  risk  of  energy  efficient  mortgages  should  be  recognised  in  the  regulatory 
framework in the form of lower capital requirements for these exposures. 

Some respondents advocated for using disclosure requirements to raise transparency and awareness on 
environmental  and  sustainability  risks.  In  this  respect,  the  Commission's  voluntary  Guidelines  on 
Non-Financial  Reporting  (NFR)  should  be  improved  (i.e.,  different  environmental,  social  and 

8 

 
 
 
governance  criteria  should  be  elaborated  in  more  detail).  These  Guidelines  are  an  opportunity  to 
increase  comparability,  consistency  and  usability  of  the  reported  information  across  the  EU.  Hence, 
respondents suggested that the Commission take into account the guidelines issued by the Task Force 
on Climate-related Financial Disclosures of the Financial Stability Board in the area of climate change 
when formulating its non-financial reporting guidelines. 

Almost all representatives of the investment fund industry referred to national differences in marketing 
requirements  and local paying  agents as  major  hurdles for  cross-border distribution of funds. The 
duplication  of  registration  fees  and  processes  for  the  marketing  of  a  fund  as  imposed  by  different 
Member States was considered an important remaining barrier. It was suggested that this barrier could 
be  tackled  through  further  supervisory  convergence.  Furthermore,  respondents  welcomed  the 
Commission's approach of working with the Member States on a common definition of pre-marketing 
and  urged  for  ESMA  guidelines  to  follow.  They  also  advocated  for  standardised  information  on 
notification  fees,  with  a  preference  for  a  centralised  portal  for  all  administrative  requirements 
(including fees) in all Member States. 

New focus areas 

Some  respondents  considered  that  the  European  Long-Term  Investment  Funds  (ELTIFs) 
Regulation does not provide an adequate framework in order to shift long-term savings towards long-
term  investments.  ELTIFs  tend  to  be  considered  as  specialised  funds  such  as  infrastructure  funds, 
private equity funds or real estate funds. Besides not having flexibility in terms of investment horizon, 
these funds are riskier as they are not sufficiently diversified. Some respondents were of the opinion 
that ELTIFs may largely remain an empty shell if the capital requirement associated with them is not 
directly  linked  with  their  underlying  exposures.  Restructuring  of  such  funds  could  be  envisaged  to 
facilitate  investment  by  institutional  investors  like  insurance  companies  and  pension  funds.  Public 
listing of such funds could enhance participation of retail and institutional investors, further increasing 
capital flows and cross-border investment. To facilitate a much higher funding of ELTIFs by private 
investors,  some  respondents  proposed  limited  capital  contributions  (i.e.,  junior  or  subordinated 
tranches) or guarantees (with first loss-absorbing capacity) by public bodies. Given the specific nature 
of  ELTIFs,  an  appropriate  tax  regime  should  also  be  developed  in  order  to  differentiate  them  from 
other investment structures and make the ELTIF regime more attractive. 

Some  respondents  underlined  that  the  European  Investment  Bank  (EIB)  and  national  development 
banks  have  been  very  present  in  infrastructure  investment.  Most  of  the  infrastructure  lending 
originated by these institutions has been retained which results in a lack of public market development. 
The ideal policy option would be to create a common initiative coordinated by the EIB and supported 
by national development banks to establish a European Infrastructure Fund where a share of the new 
infrastructure lending is allocated and then distributed to institutional investors. The investment in the 
Fund would be equated to investment  in  0% weighted sovereign debt and the dividend  distributions 
from the fund could also carry certain fiscal advantages. 

Respondents  from  the  insurance  industry  expressed  concern  that  the  Solvency  II  framework  creates 
disincentives  for  insurers  to  invest  in  riskier  asset  classes,  including  equity.  It  gives  preferential 
treatment to shorter maturities and does not sufficiently recognise the longer-term nature of insurers’ 
liabilities. For equity investments, some respondents considered that the current capital requirement on 
equities  is  calibrated  at  one  year  and  does  not  adequately  reflect  the  willingness  and  ability  of 
insurance companies to manage and hold their equity portfolio over the long term. In addition, some 
respondents  considered  that  the  capital  charges  for  private  equity should  be  significantly  lower  than 
9 

 
 
the current ones of 39% (or 49% in some cases). Evidence provided by those respondents suggested 
that, in their view, the capital charge for private equity in the standard formula should be in the range 
of 20% - 35%. 

Question 4 – Are there additional actions that can contribute to fostering retail investment? 

Almost  all  respondents  to  this  question  agreed  that  the  current  situation  is  not  satisfactory  and  that 
there is a need for action at EU level in order to bring back or attract more retail investors to capital 
markets.  Many  respondents  underlined  that  retail  investors  need  to  prepare  for  the  long-term  (e.g., 
retirement or a major project) or simply be protected against unexpected life events. 

According  to  some  respondents,  investor  confidence  in  the  markets  remains  low  and  there  is  still 
public  mistrust  in  the  financial  sector.  This  leads  to  a  preference  for  putting  savings  in  deposit 
accounts  though  many  EU  citizens  are  on  average  losing  money  after  fees  and  inflation.  Poor 
consumer offerings and disappointments have discouraged (potential) investors. Moreover, third-party 
commissions  or  in-house  sales  incentives  tend  to  steer  consumers  towards  overly  complex  and 
expensive retail investment products, often not suitable to their risk profile. 

Respondents also argued that retail investors are suffering from excessively high financial fees which 
often  destroy the real value of their savings. There were several  references to the excessive costs of 
non-value  adding  products  offered  to  investors.  Instead  investors  should  be  encouraged  to  pursue 
simpler and cheaper buy-and-hold diversified portfolio strategies. 

For  some  respondents,  the  problem  with  excessive  fees  charged  is  a  sign  of  a  general  failure  of  the 
financial advisory model present in  most Member States. As  a reason for overcharging, respondents 
identified  the  remuneration  of  financial  advisors  which  increases  when  selling  more  expensive 
products. 

Almost  all  agreed  that  promotion  of  savings  in  the  long  term  requires  a  proactive  approach  by  the 
Commission to make European citizens aware of their need to save for retirement. In this respect, the 
majority of respondents supported the launch of a pan-European personal pension framework. There 
were a few dissenting voices, with some of them arguing that the focus should be put on occupational 
pensions. 

New perspectives on existing actions 

The majority of respondents considered  the current legislative framework as suitable.  They believed 
that the implementation of the new product disclosure rules under MiFID II, the Packaged Retail and 
Insurance-Based  Investment  Products  (PRIIPs)  Regulation  and  the  Insurance  Distribution  Directive 
(IDD)  should  foster  retail  investors'  confidence  in  capital  markets.  But  some  respondents  stated  that 
the costs and burdens for providing investment services have dramatically increased as a result of new 
regulations  and  that  they  may  constitute  a  barrier  to  selling  products  to  retail  investors.  This  is 
primarily affecting the sale of simple products, as shares and bonds are more and more submitted to 
stricter rules. PRIIPs and MiFID II product governance regimes will reduce the availability of shares 
and simple bonds to retail investors. 

A  number  of  respondents  called  for  equal  standards  of  investor  protection  at  the  point  of  sale  for 
substitutable products. They argued that now that there are coherent disclosure requirements (PRIIPS), 
there  is  a  need  for  a  level-playing  field  for  investor  protection,  distribution  and  advice,  as  well  as  a 
code of conduct rules. In the short term, they proposed that equal or at least equivalent standards be 

10 

 
 
 
introduced  in  the  pending  Level  2  work  on  the  IDD  implementation.  There  was  also  a  call  for  the 
Commission to investigate the obstacles to a level-playing field as part of its retail distribution review 
and align the requirements of MiFID and IDD in the long run in order to create a level-playing field at 
the point of sale. 

Some  respondents  stated  that  the  concept  of  retail  investors  itself  requires  some  discrimination 
beyond the MIFID definitions. Important distinction should be made between different types of retail 
investors  and  between  retail  and  professional  investors.  Currently,  MIFID  does  not  make  any 
difference  between  average  investors  and  high  net  worth  clients.  Those  seen  by  the  industry  as 
professional investors may not always meet the MiFID conditions for this designation. 

There  were  some  arguments  that  too  much  information  is  equal  to  no  information.  At  client  level, 
there  is  so  much  information  that  it  is  no  longer  considered.  For  the  most  basic  retail  investors, 
identified  either  by  investable  assets  or  knowledge,  basic  information  is  required  and  needed  (e.g., 
one-page information with simple figures, easily updatable and in internet-based formats).  

The  need  to  properly  assess  the  impact  of  costs  on  performance  was  highlighted  by  a  number  of 
respondents.  Respondents  encouraged  the  Commission  to  set  the  right  parameters  for  the  ongoing 
work  on  the  transparency  of  fees  and  net  performance  of  long-term  retail  and  pension  products.  In 
particular,  cost  figures  comprising  implicit  costs  must  be  treated  with  due  caution.  A  number  of 
respondents  believed  that  supervisory  practices  and  convergence  should  be  upgraded  considerably. 
The European Supervisory Authorities (ESAs) should be given a clear mandate for delivering action 
on transparency and forcing the National Competent Authorities (NCAs) to implement best practices. 
Some  advocated  that  ESMA,  with  the  help  of  the  NCAs,  should  be  encouraged  to  produce  and 
standardise the templates for simplified Investment Policy Statement (IPS) costs and charges, notably 
across MiFID and PRIIPS. 

Many respondents commented on the lack of good advice for retail investors in the EU, stressing that 
the low quality of advice has been documented widely. One major reason for this is that regulation of 
investment  advice  in  banks  has  become  tighter  over  the  last  decade.  As  a  consequence,  banks 
frequently retreat from providing investment advice, especially on shares. Banks are also increasingly 
confronted  with  uncertainty  regarding  the  definition  of  advisory  and  non-advisory  services  when 
selling financial instruments. It is unclear which services of financial institutions are considered to be 
an  active  distribution  to  clients  and  which  services  merely  comply  (in  a  passive  way)  with  clients' 
wishes without influencing  their opinion prior to making a decision. Moreover, there is a regulatory 
uncertainty  around  the  scope  of  (i)  what  may  (or  may  not)  constitute  a  ‘personal  recommendation’, 
and (ii) the related suitability requirements where investment firms seek to offer a service which falls 
between execution-only and fully regulated investment advice. 

New focus areas 

For majority of respondents, the CMU should advocate initiatives aimed at giving the wider public a 
greater understanding of the function of capital markets within the financial system, as well as of the 
benefits  and  attractive  economics  which  can  be  achieved  through  non-bank  financing.  Financial 
education with regard to the different market actors and their roles, as well as to the different financial 
products with their risk profiles, is essential in order to bring retail investors into these markets. For 
example, if future pensioners would get at an early stage an estimation of the actual state pension they 
would  receive  at  their  retirement  date,  they  would  be  more  inclined  to  save  through  workplace  or 
complementary individual pension products, investing a larger portion of their savings in the financing 

11 

 
 
of the real economy. Nevertheless, some consumer organisations argued that financial education has 
an extremely limited impact. 

Some respondents referred to the need to promote employee share ownership schemes. 

Several  respondents  called  for  promoting  an  active  role  for  the  state  in  individual  savings  by  fiscal 
incentives. They argued that in many countries fiscal incentives through the taxation system underpin 
the basis for mass savings through investment products. Some respondents were of the opinion that tax 
incentives  represent  the  most  effective  driver  for  fostering  retail  investment.  Even  if  tax  remains  a 
national competence, this shows the need for coordination at the EU level.  

Some respondents referred to the need for implementation of solid and secure investor compensation 
schemes. 

In the area of FinTech, respondents underlined that technology and digitalisation have already shown 
they  have  a  role  to  play  and  can  overcome  some  of  the  barriers  and  current  gaps  in  retail  financial 
services.  FinTech  primarily  benefits  retail  investors  by  offering  a  wider  choice  of  services  at 
potentially lower costs. The majority of respondents called for a level-playing field between traditional 
actors and FinTech companies. Regulatory requirements should be based on the type of activity and 
not  the  status  of  a  company:  the  same  business-same  risk-same  rules  principle  should  apply.  Some 
respondents  mentioned  that  a  level-playing  field  should  be  ensured  between  the  insurance  and  the 
banking sector to avoid regulatory arbitrage. Many of them believed that the application of FinTech 
innovations must ensure appropriate investor and consumer confidence and protection.  

There  was  an  overwhelming  support  for  the  creation  of  regulatory  sandboxes,  ideally  with 
harmonised rules at EU level. Such sandboxes would allow providers, customers and regulators to test 
innovations in a safe space. Financial stability risks should be an integral part of the testing. 

Several  respondents  supported  the  development  of  electronic  /  online  forms  of  advice,  arguing  that 
such  robo  advice  has  the  potential  to  widen  the  offering  of  high-quality  advice  to  less  wealthy  and 
experienced consumers. The main request from the robo advisers that replied to the consultation was 
to clarify the regulatory boundaries as there is a substantial level of uncertainty as to what constitutes 
an investment advice. 

Many respondents saw the need for the creation of a pan-European system for electronic identity of 
retail  investors  ("digital  passport")  in  order  to  allow  consumers  to  open  accounts  or  purchase 
investment  services  with  more  providers,  as  well  as  individually  manage  their  digital  accounts  in  a 
consolidated manner. This would also incentivise a real cross-border supply of financial products.  

In  addition,  some  respondents  proposed  that  the  Commission  develop  a  central  data  platform  to 
provide information to retail investors on investment products available to them in the EU. The data 
platform  would  help  retail  investors  to  grasp  quickly  the  main  features  of  retail  funds  and  ways  to 
access them. This data platform could be operated or supervised by the ESAs. 

There was also some support to digitalise record-keeping. Some respondents stated that all regulatory 
provisions pertaining to record-keeping (e.g., MiFID) should provide for the use of new technologies 
as tools to create, acquire and store documents (i.e., digital signature). The less paper-based exchanges 
of information are, the more integrated and efficient capital markets may become. 

12 

 
 
 
 
Question 5 – Are there additional actions that can contribute to strengthening banking capacity 
to support the wider economy? 

Most respondents to this question welcomed the statement on the complementarity between bank and 
market-based finance as the financial system should be well-diversified. 

New perspectives on existing actions 

Many respondents commented on the securitisation package proposals. There was a general agreement 
on  the  importance  of  developing  the  market  for  simple,  transparent  and  standardised  (STS) 
securitisation  and  its  potential  to  generate  additional  funding.  However,  there  was  an  equally  large 
agreement that the proposed regulation as it stands is not satisfactory and too complex. The following 
main  concerns  were  expressed  with  respect  to  the  proposed  securitisation  package  as  it  stands:  (i) 
limitations  on  authorised  investors  that  are  too  tight;  (ii)  ambitious  criteria  that  need  to  be  fulfilled; 
(iii)  uncertainty  on  when  the  label  applies  as  no  authority  can  confirm  eligibility  in  advance;  (iv) 
public  disclosure  of  data  about  investors;  (v)  non-inclusion  of  promotional  entities  in  the  list  of 
eligible  guarantors  and  counter-guarantors  for  SME  securitisation;  and  (vi)  proposed  capital 
calibration in the Capital Requirements Regulation (CRR) that increases the capital needed by banks 
to hold these positions. 

Respondents expressed a general support for a pan-European scheme for covered bonds, but stressed 
the  need  to  respect  regional  differences.  A  one-size-fits-all  approach  could  undermine  well-
functioning national business models. Therefore, the recommendation was to keep the measures high 
level and to focus on best practices. The need to clarify operational procedures after default/resolution 
was also highlighted. 

New focus areas  

Many  respondents  considered  the  fostering  of  an  EU-wide  secondary  market  for  non-performing 
loans (NPLs) to be adequate and sensible. They pointed out that this market is currently hindered by 
high transaction costs. The launch of a public consultation seeking to identify best ways to develop it 
was  suggested  as  respondents  continue  to  propose  a  wide  range  of  alternatives  for  development. 
Crucial for the success of this secondary market would be the harmonisation of related regulation. This 
should  be  done  keeping  in  mind  that  NPLs’  treatment  and  disposal,  especially  from  a  supervisory 
point  of  view,  must  respect  the  proportionality  principle:  i.e.,  institutions  with  low  stocks  of  NPLs 
should not be unnecessarily burdened by additional administrative requirements. 

It  was  further  noted  that  NPL  transactions  are  often  structured  in  such  a  technical  manner  that  they 
could fall within the definition of a “securitisation” under the CRR. The result of such a classification 
is  that  the  securitisation  risk  retention  framework  would  need  to  be  applied  to  the  transaction.  This 
proves  to  be  a  complicating  factor  when  structuring  NPL  portfolio  transfers.  Such  an  outcome  may 
dissuade  professional  investors,  including  asset  managers,  from  involvement  in  this  type  of 
transactions (which would otherwise allow banks to de-leverage and divest risk, freeing up capital for 
other  lending  activities).  The  Commission  was  encouraged  to  look  at  NPL  disposals  in  a  holistic 
manner, including providing relief in the manner in which transactions may be classified, in order to 
enable NPLs to be disposed of more efficiently. 

A  few  respondents  asked  to  improve  the  legal  and  institutional  environment  for  microcredit  and 
micro-entreprises  in  the  EU,  including  through  the  spread  of  best  practices  for  very  small  loans,  as 
microcredit could be a stepping stone for entrepreneurship. 

13 

 
 
Question  6  –  Are  there  additional  actions  that  can  contribute  to  facilitating  cross-border 
investment? 

Some  respondents  recognised  the  difficulty  of  any  legislative  harmonisation  in  the  cross-border 
investment  dimension,  but  considered  the  post-Brexit  political  context  as  a  constructive  challenge. 
They welcomed the Commission's work with the Member States on identifying and tackling national 
barriers,  and  the  Report  published  as  a  result  of  it  in  March  20172.  Stakeholders  also  recalled 
important barriers stemming from divergences in national legislations with respect to insolvency law, 
corporate governance, fiduciary duties, national reporting standards and securities laws. With respect 
to  differences  in  securities  laws,  a  more  limited  number  of  respondents  considered  that  the 
Commission should not pursue its current efforts for a European legislation on the applicable law in 
respect  of  securities  ownership,  but  rather  favour  in  all  cases  the  law  of  the  country  where  the 
securities are issued as the applicable law. 

Respondents commented particularly on existing actions, with limited suggestions for new focus areas. 

Most respondents referred to taxation as a major barrier to capital flows. They saw taxation as a key 
area where substantial developments at EU level could be achieved. Three main issues were identified: 
(i) burdensome procedures in recovering withholding tax on dividends; (ii) discriminatory treatments 
due to difficulty in accessing tax treaty benefits, especially for the asset management industry; and (iii) 
the potential negative impact of a financial transaction tax.  

Many  respondents  identified  inefficient,  complex  and  non-harmonised  withholding  tax  (WHT) 
recovery proceedings (including burdensome refund procedures and the lack of  relief at source) as a 
major deterrent to cross-border investment. Withholding tax is still considered a highly relevant barrier 
also  in  the  post-trading  environment.  Many  respondents  were  in  favour  of  achieving  a  quick  and 
standardised  refund  procedure  (and  relief  at  source,  if  possible)  through  the  implementation  of  best 
practices  in  Member  States  and  endorsed  the  Code  of  Conduct  solution.  Many  asset  management 
associations and banks would like a Directive to harmonise WHT recovery proceedings. A number of 
fund  associations,  banks  and  insurers  would  prefer  removing  withholding  tax  on  cross-border 
dividends and interest payments on infrastructure debt, or on all income flows from intra-EU trade. If 
this  were  not  possible,  then  an  EU-wide  limit  on  the  WHT  rate  would  be  imposed  equal  to  the  rate 
envisaged in double taxation treaties which is 15%. A few funds associations and accountants asked to 
implement the Treaty Relief and Compliance Enhancement (TRACE) system as a way to introduce a 
common EU-wide WHT relief-at-source system.  

Arguing  that  a  non-homogenous  access  to  double  tax  treaty  benefits  creates  discrimination  in  tax 
treatments, the majority of the fund industry believed that the Commission should encourage Member 
States  to  take  a  more  harmonised  position  in  negotiating  the  revision  of  double  tax  treaties.  In 
particular,  all  the  widely  held  open-ended  funds  (UCITS  in  particular)  should  not  be  subject  to  the 
constraints  of  the  Organisation  for  Economic  Co-operation  and  Development  (OECD)  Base  Erosion 
and  Profit  Shifting  (BEPS)  Action  6  (i.e.,  “Prevent  treaty  abuse”).  Alternatively,  the  Commission 
should set up an EU fund, authorised and controlled by a European regulator, and marketed only in the 

2 Accelerating the capital markets union: addressing national barriers to capital flows - COM(2017) 147 final , 
24.03.2017 - https://ec.europa.eu/info/files/170227-report-capital-barriers_en  

14 

 
 
 
                                                            
EU. Such a fund should be considered as a European resident for tax treaty purposes and benefit from 
the various tax treaties signed between European countries. 

The  vast  majority  of  respondents  argued  that  a  Financial  Transaction  Tax  should  not  be  imposed, 
mainly because it is operationally complex and too costly to users. Moreover, it would produce elusive 
pay-outs  for  the  authorities  and  have  severe  negative  consequences  for  the  functioning  and 
competitiveness of European stock markets. 

Many  respondents  commented  on  the  need  for  more  regulatory  harmonisation  and  convergence  to 
overcome real and perceived cross-border barriers, but only a few of them provided specific input on 
supervisory practices and convergence. Those that provided such input emphasised the importance of 
strengthening and improving supervisory convergence for the development of the CMU, in particular 
for stimulating the provision of cross-border services, increasing cross-border investment, securing a 
level-playing field and ensuring investor protection and confidence.  

Respondents  from  a  wide  range  of  stakeholder  groups  favoured  strengthening  the  mandates  of  the 
ESAs to increase supervisory convergence. In this context, particular focus was put on ESMA, with 
industry  in  particular  supporting  more  centralisation  of  supervisory  powers  within  ESMA  to 
eventually create a single supervisor for capital markets. 

A few respondents highlighted specific areas where a strengthening of the ESAs' mandates would be 
desired. These include strengthened powers to: (i) monitor supervisory regimes and make public any 
gaps encountered; (ii) enforce non-binding regulation; (iii) adjust the implementation of a rule through 
mechanisms  such  as  no-action  letters;  and  (iv)  evaluate  the  interplay  of  the  ESAs  with  national 
supervisors to eliminate redundancies in reporting and help align national standards. 

The  majority  of  respondents  showed  awareness  that  currently  inefficiencies  in 
insolvency 
frameworks  have  a  negative  impact  on  cross-border  investments.  Several  respondents  expressed 
support for the Commission proposal on preventive restructuring and second chance3. One respondent 
representing  local  banks  expressed  concerns  about  the  overall  low  level  of  secured  creditors' 
protection  and  highlighted  specific  measures  that  would  strengthen  that  protection.  A  few  public 
authorities  and  financial  stakeholders  mentioned  the  need  for  more  harmonisation  in  the  area  of 
insolvency. 

In the area of post-trade market infrastructure and ownership of securities and claims, respondents 
raised  mainly  two  topics:  (i)  the  EU  conflict  of  laws  legislative  initiative  relating  to  transactions  in 
securities and claims; and  (ii)  the removal of the Giovannini barriers in post-trading. As regards the 
first  topic,  some  respondents  suggested  the  choice  of  the  issuer's  law  as  the  optimal  solution.  Some 
respondents  listed  the  closely  related  issue  of  substantive  securities  law  as  a  problem  requiring 
harmonisation,  while  others  did  not  consider  this  to  be  an  issue  and  stated  that  no  action  should  be 
taken. 

With respect to the second topic, the large majority of respondents supported the on-going work of the 
European  Post-Trade  Forum  (EPTF)  to  dismantle  existing  barriers  in  the  post-trade  environment.  A 
few respondents mentioned specific problems such as the following: (i) asset segregation (pointing out 

3 Commission Proposal for a Directive on preventive restructuring frameworks, second chance and measures to 
increase  the  efficiency  of  restructuring,  insolvency  and  discharge  procedures  and  amending  Directive 
2012/30/EU, COM (2016) 723 final 

15 

 
 
                                                            
that  rules  are  too  strict);  (ii)  Central  Clearing  Counterparties'  (CCPs)  use  of  direct  accounts  in  the 
books  of  Securities  Settlement  Systems  under  Art  47(3)  of  the  European  Market  Infrastructure 
Regulation  (saying  this  leads  to  unfair  competition  and  suggesting  that  CCPs  should  have  other 
options);  and  (iii)  trade  repositories  and  post-trade  reporting  (arguing  that  trade  repositories  should 
have more developed rules on how information could be exchanged). 

16