COMMISSION STAFF WORKING DOCUMENT Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Capital Markets Union: progress on building a single market for capital for a strong Economic and Monetary Union
Date: 2019-03-15
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: Economic and Monetary Union, bond, capital markets union, investment policy, shareholding, single market, stock exchange, structural adjustment, tax incentive, workers' stock ownership

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 15.3.2019  SWD(2019) 99 final  COMMISSION STAFF WORKING DOCUMENT Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE  EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Capital Markets Union: progress on building a single market for capital for a strong Economic and Monetary Union {COM(2019) 136 final}  
 
 
CONTENTS 

1. 

Introduction ..................................................................................................................................... 2 

1.1. 

Improving access to financing for EU Business ...................................................................... 3 

1.2.  Review of EU corporate bond markets ................................................................................... 3 

1.2.1.

Expert group’s recommendations .................................................................................... 5 

1.3.  Recommendation on private placements ................................................................................. 7 

1.4.  European secured notes for loans to small and medium-sized companies and infrastructure 
loans  8 

1.4.1.

1.4.2.

1.4.3.

1.4.4.

Call for advice to the European Banking Authority ........................................................ 9 

Feasibility study .............................................................................................................. 9 

European secured notes task force................................................................................. 12 

Conclusion ..................................................................................................................... 13 

1.5. 

Support for local capital markets ........................................................................................... 13 

1.5.1.

1.5.2.

1.5.3.

1.5.4.

1.5.5.

Economic rationale ........................................................................................................ 14 

Vienna Initiative working group on the Capital Markets Union ................................... 14 

Structural Reform Support Programme ......................................................................... 15 

Policy directions taken .................................................................................................. 15 

Conclusion ..................................................................................................................... 20 

2.  Retail investment ........................................................................................................................... 20 

2.1.  Reports  by  the  European  supervisory  authorities  on  costs  and  performance  of  retail 
investment products .......................................................................................................................... 21 

2.2.  Mapping investment saving accounts in the EU ................................................................... 22 

2.2.1.

Investment saving accounts schemes in Member States ............................................... 23 

2.2.2.

  Main characteristics of investment saving accounts ...................................................... 24 

2.2.3.

Conclusion ..................................................................................................................... 27 

2.3.  Mapping of employee share-ownership schemes in the EU .................................................. 27 

2.3.1.

Economic landscape in the EU ...................................................................................... 29 

2.3.2.

  Main characteristics ....................................................................................................... 30 

2.3.3.

Conclusion ..................................................................................................................... 33 

3.  Conclusion ..................................................................................................................................... 33 

1 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1.  INTRODUCTION 

This staff working document accompanies the Commission communication entitled ‘Capital Markets 
Union: progress on building a single market for capital for a strong Economic and Monetary Union’, 
which takes stock of the progress made in delivering the Capital Markets Union1. 

The Capital Markets Union is necessary to strengthen and support the Economic and Monetary Union 
and the international role of the euro. Deep and well-integrated capital markets contribute to private 
risk-sharing,  improve  financial  stability,  increase  economic  convergence  and  help  cushion  potential 
future shocks in the economy. Moreover, the Capital Markets Union can improve companies’ access 
to  financing  by  providing  alternative  sources  of  finance  to  complement  bank  financing,  benefiting 
small  and  medium-sized  companies  in  particular.  It  also  increases  options  for  savers  and  fosters 
investment by retail and institutional investors. The Capital Markets Union also plays an essential role 
in reorienting private capital flows towards long-term and sustainable investments. 

The  Capital  Markets  Union  action  plan  and  mid-term  review  contains  71  legislative  and  non-
legislative measures2, all of which provide key contributions to the Capital Markets Union. Broadly, 
the measures aim at: 

 

financing innovation, start-ups and non-listed companies; 

  making it easier for companies to enter and raise capital on public markets; 

 

 

 

 

investing for the long term, investing in infrastructure and sustainable investment; 

fostering retail and institutional investment; 

leveraging banking capacity to support the wider economy; and 

facilitating cross-border investing. 

The  Commission  has  tabled  all  the  legislative  proposals  envisioned  in  the  Capital  Markets  Union 
action plan and mid-term review. It has also delivered several other proposals relevant to the Capital 
Markets Union, notably three proposals related to sustainable finance and two aimed at reducing the 
high  ratios  of  non-performing  loans.  The  Commission  reports  on  these  legislative  measures  in  the 
communication adopted today. 

In  addition  to  this  legislative  programme,  the  Capital  Markets  Union  action  plan  and  the  mid-term 
review set out numerous non-legislative measures to boost investor confidence, strengthen key market 
infrastructure and open new funding channels. The Commission has carried out almost all of the non-
legislative  measures  set  out  in  the  action  plan  and  mid-term  review  such  as  workshops,  studies  and 
other publications. In addition to the activities detailed in this document, several studies set out in the 
Capital  Markets  Union  action  plan  and  mid-term  review  are  still  under  way.  The  results  of  these 
studies will only be available at a later stage, and may feed into the work of the future Commission. 

The Commission also committed to assessing the case for establishing an adequate framework for the 
amicable  resolution  of  investment  disputes.  From  the  preliminary  results  of  this  assessment,  no 
definitive conclusion can be made at this stage. More analysis is needed to complete the assessment. 

[reference to accompanying communication]. 
Communication ‘Action Plan on Building a Capital Markets Union’, COM(2015) 468, 30.9.2015; 

1 
2 
Communication ‘On the Mid-Term Review of the Capital Markets Union Action Plan’, COM(2017) 292, 
8.6.2017. 

2 

 
 
                                                      
1.1. IMPROVING ACCESS TO FINANCING FOR EU BUSINESS 

Under  the  Capital  Markets  Union  action  plan  and  mid-term  review,  the  Commission  committed  to 
several measures to improve access to financing for EU companies. It has already carried out most of 
these measures. In the following sections, the Commission explains how the Commission carried out 
three further measures set out in the action plan and mid-term review: 

  Review of the EU corporate bond markets (Section 1.2) 
  Recommendations on private placement (Section 1.3) 
  Assessment of the case for European secured notes (Section 1.4) 

1.2. REVIEW OF EU CORPORATE BOND MARKETS 

For larger companies, the issuance of corporate bonds is a key funding mechanism and as such, well-
functioning corporate bond markets are essential to a successful Capital Markets Union. 

Over the last 10 years, issuance by non-financial companies of euro denominated corporate bonds has 
significantly increased. 

This  development  has  been  driven  by  factors  such  as  low  interest  rates  and  bond  purchases  by  the 
European Central Bank. However, questions remain on how sustainable this trend will be when this 
economic environment changes. 

3 

 
 
 
 
Moreover, corporate bond markets still have the potential to become a larger funding source for non-
financial  companies.  In  2016,  they  represented  on average  only  4.9 % of the  total  liabilities  of  non-
financial companies in the Euro-area, which is significantly lower than the average of 11 % registered 
in the United States. 

Figure 2. Sources of funding of NFCs in the Euro-area (% of total liabilities) 

Source: ECB 

In addition, despite the surge in primary issuance in recent years, some market participants have raised 
concerns about limited liquidity in secondary markets, notably in the context of the Capital Markets 
Union and the call for evidence3. Limited liquidity makes it difficult to trade in and out of corporate 
bonds. It can also result in higher costs and a higher risk for both issuers and investors. Ultimately, 
limited liquidity makes it less attractive for corporate borrowers to tap into this market. 

The  Commission  launched  two  parallel  activities.  It  commissioned  a  study  on  drivers  of  corporate 
bond market liquidity in the EU and it set up an expert group comprising 17 corporate bond market 
practitioners  with  a  mandate  to  provide  a  cross-market  analysis  of  corporate  bond  markets  and 
recommendations on how to improve their functioning. Both the study and the expert group’s report 
were published in November 20174. They provide a detailed analysis of the market situation, which 
underpins the recommendations. 

The  expert  group  on  European  corporate  bonds  analysed  the  functioning  of  corporate  bond  markets 
from the perspectives of issuers, investors and intermediaries. They formulated 22 recommendations 
with six objectives:  

i.  making issuance easier for companies; 

ii. 

iii. 

increasing access and options for investors; 

ensuring the efficiency of intermediation and trading activities; 

3 
4 
http://ec.europa.eu/transparency/regexpert/index.cfm?do=groupDetail.groupDetailDoc&id=35759&no=1 

Commission’s 2015 consultation on the EU regulatory framework for financial services. 
https://ec.europa.eu/info/sites/info/files/171120-corporate-bonds-study_en.pdf; 

4 

 
 
 
 
                                                      
iv. 

v. 

vi. 

fostering the development of new forms of trading and improving the post-trade environment;  

ensuring an appropriate level of information and transparency; and  

improving the supervisory and policy framework. 

The  following  sections  provide  an  overview  of  the  measures  taken  by  the  Commission  on  EU 
corporate  bond  markets.  The  measures  partly  build  on  the  expert  group’s  recommendations,  but 
several  of  these  recommendations  require  further  assessment  before  determining  whether  follow-up 
measures are relevant.  

1.2.1.

  Expert group’s recommendations 

1.2.1.1

  Alleviating requirements on market sounding in the Market Abuse Regulation 

On  24 May  2018,  the  Commission  tabled  a  legislative  proposal  to  promote  the  use  of  SME  growth 
markets  and  build  a  proportionate  regulatory  environment  to  support  SME  listing5.  Specifically,  the 
Commission  proposed to  exempt  negotiated  private placements of  bonds  with  institutional investors 
from market sounding rules under the Market Abuse Regulation6. This exemption would be available 
when (i) the issuer seeking a private placement of bonds already has its equity or non-equity financial 
instruments  admitted  to  trading  on  an  SME  growth  market;  and  (ii)  if  an  alternative  wall-crossing7 
procedure  is  in  place,  in  which  case  any  potential  qualified  investor  acknowledges  the  regulatory 
duties stemming from the access to inside information. This alternative wall-crossing procedure could 
take the form of a non-disclosure agreement. The proposal aims to alleviate the administrative burden 
on  issuers  of  corporate  bonds  (and  those  acting  on  their  behalf)  as  well  as  on  investors.  It  should 
increase the attractiveness of private placements of bonds and help develop SME growth markets. 

The proposal on the promotion of the use of SME growth markets is currently being negotiated by the 
co-legislators. 

1.2.1.2

  Adoption of the PEPP proposal 

The corporate bond markets in the EU are mostly dominated by institutional investors  and monetary 
financial institutions with retail investors only playing a minor role. Broadening the investor base to 
include  more  retail  investors  could  deepen  and  diversify  the  demand  for  corporate  bonds,  which 
should ultimately improve the liquidity of corporate bond markets. 

In  this  regard,  the  Commission’s  proposal  for  a  Regulation  on  a  pan-European  Personal  Pension 
Product  (PEPP),  tabled  on  29 June  2018,  could  increase  retail  participation  in  corporate  bonds  by 
making  available  financial  instruments  that  provide  easy  access  for  retail  investors.  The  European 
Parliament and the Council reached a political agreement on the proposal in December 2018. 

1.2.1.3

  Cross-border marketing of funds 

On 12 March 2018, the Commission tabled two proposals, in the form of a regulation and a directive, 
on  the  cross-border  distribution  of  funds.  With  a  total  of  EUR 14 310  billion  in  assets  under 
management,  the  EU  investment  funds  market  is  sizeable.  However,  in  terms  of  cross-border 
distribution, it has yet to achieve its full potential. Currently, the distribution is predominantly divided 

5 
Proposal for a Regulation of the European Parliament and of the Council amending Regulations (EU) 
No 596/2014 and (EU) 2017/1129 as regards the promotion of the use of small and medium-sized companies 
growth markets — COM(2018) 331. 
6 
(market abuse regulation). 
7 

Wall crossing is the act of making a person an ‘insider’ by providing them with inside information. 

Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse 

5 

 
 
                                                      
by national market, with 70 % of the total assets under investment funds’ management registered for 
sale  only  on  the  domestic  market8.  Only  37 %  of  undertakings  for  the  collective  investment  in 
transferable  securities  and  about  3 %  of  alternative  investment  funds  are  registered  for  sale  to  more 
than three Member States. 

Regulatory  barriers  between  Member  States  are  a  disincentive  to  cross-border  fund  distribution. 
Notable  examples  of  such  barriers  include  Member  States’  marketing  requirements,  regulatory  fees 
and administrative and notification requirements. The proposed package of measures therefore aims to 
reduce  these  regulatory  barriers  by  removing  unnecessary  complexity  and  burdensome  requirements 
and improving the transparency of national requirements. In parallel, the package ensures that the rules 
adequately protect investors. 

Removing inefficiencies in the functioning of the Single Market for investment funds should reduce 
the  costs  for  cross-border  distribution.  This  should  unlock  the  currently  lost  potential  of  the  Single 
Market  and  accelerate  the  growth  of  cross-border  distribution  in  the  EU,  reducing  market 
fragmentation,  increasing  competition,  and  ultimately  providing  more  investment  opportunities  for 
European investors. 

In January 2019, the Council and the Parliament reached a political agreement on these proposals. 

1.2.1.4

  Impact of MiFID II research rules 

Some  available  evidence  and  studies  suggest  that  the  shares  of  small  and  medium-sized  companies 
may suffer from a low level of equity research coverage9. This lack of research may negatively affect 
the liquidity of securities issued by small and medium-sized companies and the cost of capital for such 
companies. In addition, various stakeholders have expressed concern that the new rules contained in 
the Markets in Financial Instruments Directive II on unbundling of research from trading fees could 
hinder research for small and medium-sized companies. To assess whether such claims are valid, the 
Commission  has  launched  an  external  study  to  analyse  the  impact  of  the  new  rules  on  providing 
research for small and medium-sized companies and fixed income issuers. The study is under way and 
the final report should be delivered in the fourth quarter of 2019. 

1.2.1.5

  Simplify the prospectus for small and medium-sized companies 

First,  The  EU  Growth  Prospectus,  introduced  by  the  Prospectus  Regulation10,  includes  lighter 
disclosure requirements and aims to facilitate access to financial companies’ markets particularly for 
small and medium-sized companies. 

Second,  the  Commission  proposal  to  promote  the  use  of  SME  growth  markets  tabled  on  24 May 
201811 aims for an alleviated ‘transfer prospectus’ for companies listed for at least 3 years on an SME 

See for instance the Commission Staff Working Document — Impact Assessment accompanying the 

8 
Proposal for a Regulation of the European Parliament and of the Council on facilitating cross-border distribution 
of collective investment funds and amending Regulations (EU) No 345/2013 and (EU) No 346/2013 
{SWD(2018) 55 final}. 
9 
See for instance ECSIP Consortium, Improving the market performance of business information 
services regarding listed SMEs, September 2013; HM Treasury — Consultation on Financing Growth in 
innovative firms, August 2017. 
10 
prospectus to be published when securities are offered to the public or admitted to trading on a regulated market, 
and repealing Directive 2003/71/EC. 
11 
No 596/2014 and (EU) 2017/1129 as regards the promotion of the use of SME growth markets — 
COM(2018) 331. 

Proposal for a Regulation of the European Parliament and of the Council amending Regulations (EU) 

Regulation (EU) 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the 

6 

 
 
                                                      
growth  market  and  wishing  to  move  to  a  regulated market.  The  current  obligation to  produce  a  full 
prospectus when moving to a regulated market is a disproportionate burden and incurs high costs for 
these companies. SME growth market issuers are already subject to ongoing disclosure requirements 
under  the  Market  Abuse  Regulation  and  the  rules  of  the  SME  growth  market  operator,  as  required 
under  Directive  2014/65/EU.  Therefore,  the  Commission’s  proposal  would  allow  companies  to 
produce a lighter prospectus when transferring to a regulated market. 

1.2.1.6

  Consolidated tape on corporate bonds 

The consolidated tape is an electronic service that provides trade data for issues admitted on various 
stock  exchanges  in  one  single  place,  with  the  aim  of  overcoming  market  fragmentation.  A 
consolidated  tape  provider  should  cover  all  transactions  on  equity  and  non-equity  instruments, 
irrespective of the trading venues where the trades took place. The Markets in Financial Instruments 
Directive  has  introduced  a  regime  for  consolidated  tape  providers  (as  of  3 January  2018  for  equity 
instruments  and  3 September  2019  for  non-equity  instruments).  This  directive  also  provides  for  a 
possibility of a public procurement procedure for a public consolidated tape provider, should private 
initiatives fail to materialise. 

No private entity has so far applied or been authorised as a consolidated tape provider. The Markets in 
Financial Instruments Directive II sets out that the Commission must, after consulting the European 
Securities and Markets Authority, present reports to the European Parliament and the Council on the 
functioning  of  the  consolidated  tape  by  September  2019.  Among  other  aspects,  the  report  should 
assess  the  availability  and  timeliness  of  post-trade  information  in  a  consolidated  format,  and  assess 
whether that information is easily accessible, usable, and available on a reasonable commercial basis 
for  market  participants. The  Commission has  tasked  the  European  Securities  and  Markets  Authority 
with submitting a written contribution on this matter. 

1.3. RECOMMENDATION ON PRIVATE PLACEMENTS 

The  expert  group  on  European  corporate  bonds  that  analysed  the  functioning  of  corporate  bond 
markets supported the development of private placements. Specifically, it noted that ‘The expert group 
encourages  the  development  of  private  placements,  building  on  existing  experience  and  markets.  In 
particular, the  development  of  private placements  for  small  and  medium-sized  companies  should  be 
stimulated. The expert group calls on the Commission to expedite its long-promised recommendation 
on private placements in order to extend good practices from lead Member States to other Member 
States’. 

The Commission launched an external study to identify market and regulatory obstacles to developing 
private placement of debt in the EU. 

The  study  also  included  several  recommendations  to  encourage  Member  States  to  take  national 
measures  to  support  private  placements  as  an  alternative  source  of  financing.  The  measures 
recommended by the study include: 

  Establishing  a  national  network  made  up  of  representatives  of  issuers,  arranger  banks  and 
institutional investors, i.e. mainly insurance companies. This network should create awareness 
on  private  placements,  e.g.  by  publishing  guides  on  private  placements  and  on  the  role  of 
arrangers  banks.  It  should  also  standardise  contractual  documents  such  as  non-disclosure 
agreements, transaction term sheets, loan agreements and bond notes. 

  Creating a withholding tax exemption for private placements, as was done, for example, in the 
United Kingdom. This should aim to avoid the taxation of interests when a foreign investor 

7 

 
 
invests in a private placement. This measure would favour cross-border investments and avoid 
fragmentation of the private placement market. 

  Creating  mechanisms  in  national  corporate  laws  to  facilitate  private  placement  issuances. 
Some  Member  States  have  already  taken  steps  in  this  direction,  for  instance  by  removing 
limits on the amount of debt that private companies can issue to favour the take-up of private 
placements/mini-bonds,  or  by  introducing  mechanisms  to  facilitate  the  representation  of 
bondholders. This latter point is crucial when the private placement issuers face difficulties in 
repaying  the  private  placements  and  when  a  restructuration  of  the  issuance  is  necessary.  A 
majority  —  rather  than  unanimity  —  of  investors  should  modify  the  terms  of  the  issuances 
when necessary. 

  Further  promoting  standardisation,  as  the  use  of  standardised  documents  and  processes  was 

identified as a good way to develop the private placement market. 

1.4. EUROPEAN  SECURED  NOTES  FOR  LOANS  TO  SMALL  AND  MEDIUM-SIZED  COMPANIES  AND 

INFRASTRUCTURE LOANS 

In the Capital Markets Union action plan, the Commission committed itself to assessing whether, and 
how,  to  build  a  pan-European  covered  bond  framework  and  to  exploring  the  feasibility  of  similar 
funding  tools  for  loans  to  small  and  medium-sized  companies.  Building  on  this  assessment,  the 
Commission followed up in the mid-term review with two further measures, namely: (i) to put forward 
a legislative proposal for an EU framework on covered bonds; and (ii) to assess the case for European 
secured notes for loans to small and medium-sized companies and infrastructure loans. 

In  March  2018,  the  Commission  adopted  a  legislative  proposal  for  a  covered  bonds  framework12. 
Covered bonds are debt obligations issued by credit institutions and secured against a ring-fenced pool 
of  assets  to  which  bondholders  have  direct  recourse  as  preferred  creditors.  Covered  bonds  are 
traditionally collateralised by high-quality assets, such as mortgage loans and public sector loans. At 
the same time, bondholders are still as entitled to claim against the issuing entity as ordinary creditors. 
This  double  claim  against  the  cover  pool  and  the  issuer  is  referred  to  as  the  ‘dual-recourse’ 
mechanism. 

European  secured  notes  is  a  covered-bond-like  instrument,  which  aims  to  cover  a  funding  segment 
located  between  traditional  covered  bonds  and  simple,  transparent  and  standardised  (STS) 
securitisations.  Loans  to  small  and  medium-sized  companies  and  infrastructure  bank  loans  are 
typically not eligible to serve as collateral for covered bonds as they do not meet the proposed criteria 
governing the quality of the covered assets. European secured notes could provide a useful additional 
source  of  funding,  in  particular  for  small  institutions  that  do  not  have  access  to  the  securitisation 
market and/or have difficulty issuing unsecured long-term debt. European secured notes could increase 
the variety of funding tools available to banks, which in turn could unlock more financing for small 
and medium-sized companies and infrastructure projects, thus contributing to economic growth. 

In  view of this potential, the Commission has taken three initiatives to assess the case for European 
secured notes and to identify potential measures necessary at EU level to create such an instrument. 
Namely,  the  Commission:  (i)  issued  a  call  for  advice  to  the  European  Banking  Authority;  (ii) 
commissioned a feasibility study by an external contractor; and (iii) carried out a survey in the covered 
bond industry in the form of a questionnaire on European secured notes. 

Proposal for a Directive of the European Parliament and of the Council on the issue of covered bonds 

12 
and covered bond public supervision and amending Directive 2009/65/EC and Directive 2014/59/EU, 
SWD(2018) 50, SWD(2018) 51. 

8 

 
 
                                                      
1.4.1.

  Call for advice to the European Banking Authority 

In October 2017, the Commission sent the European Banking Authority (EBA) a call for advice on the 
case for European secured notes. This advice should build on the extensive work already undertaken 
on covered bonds to identify best practices and give recommendations on how to harmonise covered 
bond frameworks in the EU. 

Specifically, the EBA was asked to assess the following three aspects: 

i. 

ii. 

iii. 

the  extent  to  which  these  best  practices  for  covered  bonds  could  apply  with  the  necessary 
modifications to European secured notes; 
the appropriate risk treatment of European secured notes in light of their features and expected 
risk-return profile; and 
the  effects  European  secured  notes  could  have  on  individual  banks  in  terms  of  asset 
encumbrance impact on unsecured bank creditors. 

The  EBA  issued  its  final  report  on  24 July  2018,  putting  forward  five  recommendations  for  the 
Commission  to  consider  should  it  wish  to  design  the  legislative  framework  for  European  secured 
notes13. 

According  to  the  EBA,  European  secured  notes  collateralised  by  loans  to  small  and  medium-sized 
companies  could  be  structured  as  a  dual-recourse  instrument.  Due  to  the  high-risk  profile  of  such 
loans, the EBA suggests a  more restrictive framework (especially as regards coverage, liquidity and 
disclosure requirements), strict eligibility criteria at both loan and pool level, and a minimum level of 
overcollateralisation of at least 30 %. 

In terms of capital requirement, the EBA advised that no preferential treatment be granted. However, 
the  Commission  could  think  about  having  a  differentiated  risk-weight  treatment  compared  to 
unsecured notes subject to certain considerations. 

The EBA does not recommend the creation of European secured notes collateralised by infrastructure 
loans. A dual-recourse structure for infrastructure loans is not appropriate given the lack of granularity 
in  a  cover  pool,  the  complexity  of  the  loan  structures  and  the  specific  and  different  nature  of 
infrastructure  projects  making  it  very  difficult  to  create  a  high-quality  dynamic  cover  pool  of 
infrastructure loans. 

The EBA recommends that the Commission investigate the case for a new distinct asset class for high-
quality  project  finance loans  in the  form  of  a  standardised  EU infrastructure  bond.  Furthermore, the 
EBA  would  need  to  specify  the  features  and  the  applicable  framework  for  this  potential  new 
instrument. 

Finally, concerning asset encumbrance, the EBA considers that the introduction of European secured 
notes collateralised by loans to small and medium-sized companies will not encumber the EU banking 
system’s assets to an extent that would cause concern in the current financial environment. 

1.4.2.

  Feasibility study 

The  Commission  procured  a  feasibility  study  on  European  secured  notes.  The  study  covers:  (i) 
European  secured  notes  collateralised  by  loans  to  small  and  medium-sized  companies  and  by 
infrastructure  loans;  (ii)  potential  regulatory  treatment  of  European  secured  notes;  (iii)  supervision; 

13 
https://www.eba.europa.eu/-/eba-publishes-its-assessment-of-european-secured-notes 

European Banking Authority (EBA) report on European secured notes, 24 July 2018, available at: 

9 

 
 
                                                      
(iv) existing structures; (v) investor considerations; (vi) a specific analysis of 11 Member States; (vii) 
potential market size; and (viii) costs and benefits of European secured notes and potential legislation. 
The final report was published on 18 October 201814. 

On the potential regulatory treatment of European secured notes, the study concluded that it would be 
appropriate to extend some of the specific prudential treatments granted to covered bonds under EU 
legislation.  These  include:  (i)  exemption  from  clearing  obligations  under  the  European  Market 
Infrastructure  Regulation15;  (ii)  exemption  from  bail-in  under  the  Bank  Recovery  and  Resolution 
Directive16; (iii) lower risk weighting than equivalent unsecured bonds under the Capital Requirements 
Regulation17; (iv) tier 2 treatment under the Liquidity Coverage Requirements Delegated Act18; and (v)  
favourable treatment under the Solvency II Directive19 only for European secured notes collateralised 
by loans to small and medium-sized companies. 

Many of the ‘best practices’ for covered bond legislation, structuring and supervision recommended 
by  the  EBA  can  be  applied  to  European  secured  notes  without  amendment.  These  include  best 
practices  for  dual  recourse,  segregation  of  cover  assets,  bankruptcy  remoteness,  administration  post 
insolvency, derivatives, appointing a cover pool monitor, supervisory oversight and the duties of the 
competent authority in insolvency scenarios. The other practices, except the loan-to-value limits, will 
require  some  modification  before  being  applied  to  European  secured  notes.  These  practices  include 
cover pools, geographical location of the underlying assets, coverage rules, liquidity coverage, stress 
tests and disclosure requirements. 

The  study  concluded  that  there  is  a  considerable  investor  appetite  for  European  secured  notes 
collateralised  by  loans  to  small  and  medium-sized  companies,  although  there  is  scepticism  as  to 
whether this asset class will actually develop. The study also finds that investors are less interested in 
European secured notes collateralised by infrastructure loans mainly because of their different credit 
risk  and  complexity.  Nevertheless,  it  appears  to  be  appropriate  that  infrastructure  bank  loans  are 
eligible for dual-recourse structures as long as these structures are completely distinct from European 
secured notes collateralised by loans to small and medium-sized companies 

In particular, European secured notes for infrastructure loans should not benefit from the preferential 
prudential treatment that is proposed for European secured notes for loans to small and medium-sized 
companies, nor should it follow the EBA’s best practices on covered bonds. They should be branded 
in  a  way  that  ensures  no  contagion  to  either  covered  bonds  or  European  secured  notes  for  loans  to 
small  and  medium-sized  companies.  In  addition,  Member  States  would  be  empowered  to  pass  the 

https://publications.europa.eu/en/publication-detail/-/publication/6883690a-d025-11e8-9424-

Regulation (EU) No 648/2012 of the European Parliament and of the Council on OTC derivatives, 

Directive 2014/59/EU of the European Parliament and of the Council establishing a framework for the 

14 
01aa75ed71a1/language-en/format-PDF 
15 
central counterparties and trade repositories (2012), OJ L 201, 27.7.2012. 
16 
recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, 
and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 
2013/36/EU, and Regulations (EU) No 1093/2010 and (EU) No 648/2012, of the European Parliament and of the 
Council (2014), OJ L 173, 12.6.2014. 
17 
requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 Text with 
EEA relevance (2013), OJ L 176, 27.6.2013. 
18 
No 575/2013 of the European Parliament and the Council with regard to liquidity coverage requirement for 
Credit Institutions Text with EEA relevance (2014) OJ L 11, 17.1.2015=. 
19 
the business of Insurance and Reinsurance (Solvency II) (2009), OJ L 335, 17.12.2009. 

Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of 

Commission Delegated Regulation (EU) 2015/61 of 10 October 2014 to supplement Regulation (EU) 

Regulation (EU) No 575/2013 of the European Parliament and of the Council on prudential 

10 

 
 
                                                      
necessary laws to develop the asset class, putting in place supervisory processes to protect the interests 
of covered bondholders. The securities would be exempt from bail-in under the Bank Recovery and 
Resolution Directive and associated derivatives would be exempt from clearing obligations under the 
European Market Infrastructure Regulation. 

All  investors  view  the  appropriate  fair  value  of  European  secured  notes  to  be  between  that  of 
traditional  covered  bonds  and  unsecured  bank  debt  of  the  same  issuer,  with  small  and  European 
secured notes for small and medium-sized companies having the potential to be closer in pricing to the 
former than to the latter. 

The  two  most  important  factors  in  determining  the  pricing  of  European  secured  notes  relative  to 
covered  bonds  are  the  prudential  treatment  for  bank  liquidity  purposes  and  the  collateral  eligibility 
under the European Central Bank framework. The supervisory framework for European secured notes 
was  also  considered  to  be  important.  As  it  would  be  more  difficult  to  define  the  asset  class  or 
harmonise  structures  across  Europe  as  compared  to traditional  covered  bonds, investors believe  that 
greater transparency, more reliance on local supervisory processes and a clear harmonised definition 
are all equally important determinants of European secured notes pricing. 

There  will  be  substantial  differences  in the  upfront  and  ongoing  costs  of  European  secured  notes in 
different countries and for different issuers, particular due to the varying level of IT changes needed to 
support a small and medium-sized companies’ loan-based transaction. This would not necessarily be 
the case for European secured notes for infrastructure loans given the nature of the underlying assets. 
Other  upfront  costs  are  expected  to  be  similar  to,  but  generally  slightly  higher  than,  the  costs  of  a 
traditional covered bond transaction. 

The  yield  demanded  by  investors  depends highly  on overall  market  yields. The  study  estimates that 
European secured notes’ yield would represent an additional cost relative to traditional covered bonds 
of 8 to 13 basis points, but a saving relative to unsecured funding of 43 to 48 basis points. The credit 
enhancement  required  by  rating  agencies  is  expected  to  be  around  23 %  although  this  will  vary 
substantially depending on the case. 

If it is assumed that the European secured notes market would eventually finance the same proportion 
of  the  eligible  underlying  assets  that  the  traditional  covered  bond  market  does  in  each  country,  the 
potential market size would be EUR 1 139 billion for European secured notes for small and medium-
sized companies and EUR 195 billion for European secured notes for infrastructure. However, given 
the  lower  collateral  efficiency  and  higher  cost  of  funds  for  European  secured  notes  as  compared  to 
covered  bonds,  it  is  highly  unlikely  that  this  would  be  the  case.  Under  two  of  the  three  scenarios 
outlined in the study report, the market size is estimated at between EUR 86 and 121 billion (the third 
scenario provides no estimate). 

The  feasibility  study  also  identified  a  number  of  possible  benefits  and  costs  of  EU  legislation.  The 
potential benefits of European secured notes legislation include an increase in the availability of funds 
and  a  reduction  in  the  cost  of  funding  for  the  underlying  assets  in  current  market  conditions  for 
specialised lenders and in future growth scenarios where traditional funding sources are inadequate. 

The costs of European secured notes legislation may include an adverse effect on the existing market 
for  traditional  covered  bonds.  This  can  be  broken  down  into  two  categories:  (i)  damage  that  would 
occur by ‘contagion’ if a European secured note were to default; and (ii) damage that would result in 
the absence of a default such as competition for investors (the range of potential costs of a default is 
estimated at EUR 100–400 million). 

11 

 
 
1.4.3.

  European secured notes task force 

In  January  2018,  the  European  secured  notes  task  force  of  the  European  Covered  Bond  Council 
provided a response to the Commission’s formal request for information and data on European secured 
notes. The request had set out 12 questions to be answered separately for each of the two underlying 
assets: (i) loans to small and medium-sized companies; and (ii) infrastructure loans. 

The  task  force  estimated  the  market  size  for  European  secured  notes  for  small  and  medium-sized 
companies  at  up  to  EUR 260  billion  for  the  eurozone,  based  on  current  total  lending  to  small  and 
medium-sized  companies  of  EUR 1.7  trillion  and  assuming  15 %  of  the  loans  were  refinanced  by 
European secured notes. The market for European secured notes for infrastructure was expected to be 
a multibillion-euro market with an annual issuance volume well above EUR 10 billion. 

Moreover, the task force considered the lack of the following as hurdles for the potential issuance of 
European secured notes: 

 
 
 
 

standardisation of underlying loans and definitions; 
transparency; 
liquidity; and 
track record and preferential treatment. 

To overcome some of these hurdles, the task force recommended that the types of loans for small and 
medium-sized companies and infrastructure loans that would be eligible for European secured notes be 
defined and harmonised at EU level. Certain limits would need to be placed on the types of assets that 
can be considered eligible. The need for flexibility would also need to be balanced by higher levels of 
required overcollateralisation. Finally, strict eligibility criteria and concentration limits would have to 
apply throughout the life of European secured notes to ensure that the quality of the evolving cover 
pool remains in line with that of the initial one. 

On the overcollateralisation level, the task force agreed that it should be higher than the one required 
for  covered  bonds  in  the  proposed  EU  Directive  for  a  covered  bonds  framework.  However,  they 
proposed  a  lower  level  than  the  EBA  —  around  10-15 %.  On  geographical  asset  diversification, 
respondents stated that while it may theoretically reduce the volatility of losses, pan-European loans to 
small and medium-sized companies and infrastructure portfolios may increase the complexity of the 
analysis by including country risk if the exposure is to countries having diverse credit quality. 

In terms of risk perception, European secured notes are likely to be perceived to be in between covered 
bonds  and  STS  securitisations.  European  secured  notes  are  not  expected  to  create  a  relevant  asset 
encumbrance  concern,  but  a  cap  on  their  issuance  relative  to  total  assets  could  be  considered  if 
necessary.  It  is  expected  that  extendable  maturities  would  be  the  ‘de-facto’  structure  of  European 
secured notes to: (i) mitigate refinancing risks; (ii) lower overcollateralisation requirements; and (iii) 
significantly increase their rating vs the issuer rating. 

Some task force members believed that loan-by-loan data would not be needed for European secured 
notes due to their double-recourse nature while others insisted on the necessity of such detailed data 
and  quarterly  investor  reports.  Respondents  agreed  that  the  supervision  and  administration  for 
European secured notes should be equivalent to the related requirements in the proposed EU covered 
bond Directive. 

12 

 
 
1.4.4.

  Conclusion 

The  call  for  advice,  feasibility  study  and  industry  contribution  identified  more  investor  appetite  for 
European  secured  notes  of  small  and  medium-sized  companies  than  for  infrastructure.  Respondents 
from  the  industry  also  expected  the  market  size  for  European  secured  notes  for  small  and  medium-
sized companies to be much bigger (potentially around EUR 260 billion) than for European secured 
notes for infrastructure (potentially around EUR 10 billion). 

According to the European Banking Authority (EBA), European secured notes for small and medium-
sized  companies  could  be  structured  as  a  dual-recourse  instrument,  but  with  a  more  restrictive 
framework  than  that  for  covered  bonds.  In  terms  of  capital  requirement,  it  is  advised  that  no 
preferential treatment be granted. However, the Commission could think about having a differentiated 
risk-weight  treatment  compared  to  unsecured  notes  subject  to  certain  considerations.  The  feasibility 
study  also  concluded  that  European  secured  notes  for  small  and  medium-sized  companies  could  be 
structured as a dual-recourse instrument. However, unlike the EBA, the study reasoned that it would 
be appropriate to extend some of the specific prudential treatments granted to covered bonds under EU 
legislation. In terms of overcollateralisation, both the EBA and the task force considered that the level 
should be above the one for covered bonds, with the EBA considering a level of at least 30 % to be 
appropriate and the task force considering 10 to 15 % to be adequate. 

The assessment of European secured notes for infrastructure was not as conclusive as that of European 
secured notes for small and medium-sized companies. The EBA does not recommend the creation of 
such  European  secured  notes,  because  a  dual-recourse  structure  is  not  appropriate  given  the  lack  of 
granularity in a cover pool, the complexity of the loan structures and the specific and different nature 
of infrastructure projects. These factors make it very difficult to create a high-quality dynamic cover 
pool  of  infrastructure  bank  loans.  However,  in  contrast  to  the  EBA,  the  feasibility  study  found  that 
infrastructure bank loans could be eligible for dual-recourse structures as long as these structures are 
completely distinct from European secured notes for small and medium-sized companies. In particular, 
European  secured  notes  for  infrastructure  should  not  benefit  from  the  same  preferential  prudential 
treatment proposed for European secured notes for small and medium-sized companies or follow the 
EBA best practices on covered bonds. They should be branded in a way that ensures no contagion to 
either covered bonds or European secured notes for small and medium-sized companies. 

1.5. SUPPORT FOR LOCAL CAPITAL MARKETS 

One of the main priorities of the Capital Markets Union is to boost local capital markets, allowing for 
more productive and innovative use of private capital and ensuring more diversified funding for small 
firms.  Developing  local  capital  markets  effectively  requires  complementary  efforts  at  national, 
regional and EU levels.  

Developing and integrating local capital markets should go hand in hand. Capital markets in several 
EU  countries,  in  particular  countries  in  Central,  Eastern  and  South-Eastern  Europe,  lag  behind 
Western European countries in terms of size and liquidity. EU countries in Central, Eastern and South-
Eastern Europe account for 8 % of the EU’s gross domestic product, but only 3 % of the EU’s capital 
market20.  To  create  a  properly  functioning  single  capital  market  across  the  EU,  those  local  capital 
markets  have  to  catch  up.  The  Commission  recognised  this  challenge  in  the  Capital  Markets  Union 
action plan launched in 2015 and further elaborated the case in the mid-term review of 2017. 

20 

See the European Financial Stability and Integration Report 2018. 

13 

 
 
                                                      
The Commission assessed how to support local capital markets in the EU by building on the work of 
the Vienna Initiative, which is an international private-public policy coordination platform focusing on 
the financial sector in Central, Eastern and South-Eastern Europe21 and which established a dedicated 
working group on the Capital Markets Union. This report is also based on the relevant experience of 
the Commission’s Structural Reform Support Service22. 

1.5.1.

  Economic rationale 

Economic  research  confirms  that  deep  and  liquid  capital  markets  contribute  to  economic  growth  as 
they improve the availability of capital for long-term investment and lower its costs23. Several benefits 
of capital market development are particularly relevant for catching-up economies. Strong institutions, 
a stable legal system and observing the rule of law are prerequisites for expanding local capital market 
ecosystems.  Transparency  requirements  imposed  by  public  listing  have  positive  effects  on  local 
business  standards.  Well-functioning  capital  markets  also  help  attract  foreign  investors,  which  puts 
additional  pressure  on  receiving  countries  to  continue  to  improve  their  business  and  regulatory 
environment. This, in turn, helps local companies to expand, setting off a ‘virtuous cycle’. 

Local capital markets are especially important for medium-sized companies, which are large enough to 
tap local capital markets, but too small to look for capital across borders. For such companies, access 
to  national  public  equity  markets  is  more  important  than  access  to  centralised  regional  hubs. 
Geographical  proximity  lowers  transaction  costs,  helps  overcome  cultural  barriers  of  entrepreneurs 
and  helps  investors  understand  the  business(es)  that  they  are  financially  supporting.  Local  stock 
markets  can  also  attract  the  interest  of  private  equity  and  venture  capital  funds  that  find  in  these 
markets  either  an  exit  for  their  investments  or  information  on  the  risk  premia.  As  companies  grow, 
they may turn to markets with a regional and European dimension. 

Better-developed  local  capital  markets  can  fully  reap  the  benefits  of  participating  in  the  EU  Single 
Market. Pursuing cross-border financial integration requires adequate market infrastructures, a strong 
regulatory  environment  and  market  participants  that  are  ready  for  international  business.  Such 
foundations can help broaden the channels for cross-border listing and trade of securities and establish 
connections between market infrastructures. An integrated EU capital market should offer easy access 
both to the large pools of assets and investors at European level and to market financing at local level. 

1.5.2.

  Vienna Initiative working group on the Capital Markets Union 

The  Vienna  Initiative  recognised  the  importance  of  capital  market  development  for  converging  the 
economies  of  Central,  Eastern  and  South-Eastern  Europe.  On  6 March  2017,  the  Vienna  Initiative’s 
Full  Forum  in  Luxembourg  decided  to  set  up  a  working  group  on  the  Capital  Markets  Union. 
Members of the Vienna Initiative, representing public authorities from the Central, Eastern and South-

21 
22 

www.vienna-initiative.com 
The Commission created the Structural Reform Support Service in 2015 to help Member States prepare, 
design and implement growth-enhancing reforms. The support is tailor-made, available to all EU Member States 
upon request, requires no co-financing and mobilises experts from all over Europe and beyond, from the public 
and private sectors. Following the request by a Member State, the Commission’s support covers the entire 
project cycle throughout which the ownership of the reforms remains with the Member State. 
23 
Stability and Integration Report. 
https://ec.europa.eu/info/sites/info/files/european-financial-stability-and-integration-review-2018_en.pdf. 

The economic arguments presented in this section were analysed in the 2018 European Financial 

14 

 
 
                                                      
Eastern  Europe  countries,  international  institutions24  and  commercial  banks,  were  invited  to 
participate. The Commission was entrusted with coordinating and chairing the meetings. 

The working group’s objective was to provide an overview of the level of development and challenges 
faced by capital markets in the Central, Eastern and South-Eastern Europe countries. A broad range of 
stakeholders  from  the  region  actively  participated  in  the  working  group’s  discussions.  Their 
contributions led to the formulation of recommended policy measures at the national, cross-border and 
European  level.  The  working  group’s  report25  was  endorsed  by  the  Vienna  Initiative  Full  Forum  in 
London on 12 March 2018. 

1.5.3.

  Structural Reform Support Programme 

The Commission’s Structural Reform Support Service provides country-specific technical support to 
requesting Member States under the Structural Reform Support Programme. Since the Capital Markets 
Union  action  plan’s  adoption  in  2015,  the  Structural  Reform  Support  Service  has  been  supporting 
Member States to implement reforms to develop capital markets. Furthermore, the Structural Reform 
Support Service has closely followed the Vienna Initiative work on Capital Markets Union from the 
outset.  Some  of  the  policy  measures  identified  by  the  Vienna  Initiative  have  been  presented  to  the 
Structural  Reform  Support  Service  in  the  form  of  applications  for  technical  support  from  the 
participating  Member  States.  By  working  directly  with  national  authorities,  the  Structural  Reform 
Support Service has gained practical experience in the area of local capital market development. 

Numerous  technical  support  projects  in  the  financial  sector  address  policy  priorities  of  the  Capital 
Markets Union. In 2017, the Structural Reform Support Service agreed to support Member States with 
projects on: (i) capital market diagnostics; (ii)  national development strategies (the Czech Republic, 
Estonia,  Italy,  Poland  and  Portugal);  (iii)  increasing  small  and  medium-sized  companies’  access  to 
financing  (Estonia,  Cyprus,  Latvia,  Lithuania  and  Slovenia);  (iv)  developing  central  securities 
depositories  (Ireland  and  Hungary);  (v)  evaluating  market  barriers  for  developing  Fintech  (Estonia, 
Slovakia);  (vi)  strengthening  insolvency  frameworks  (Estonia,  Greece,  Croatia,  Cyprus  and 
Lithuania); (vii) regional harmonisation of some financial instruments (Estonia, Latvia and Lithuania); 
(viii)  removing  specific  national  barriers to  capital  market  development (Bulgaria,  Latvia,  Lithuania 
and  Romania);  and  (ix)  increasing  capital  market  supervision  (Croatia  and  Romania).  A  test-case 
project on financial literacy has also recently begun in Belgium. 

1.5.4.

  Policy directions taken 

The  policy  measures  taken  to  support  local  capital  markets  need  to  fully  observe  the  subsidiarity 
principle,  i.e.  at  the  lowest  possible  level  that  still  ensures  the  efficiency  of  the  planned  measures. 
Many measures to support local markets are carried out at national level. Regional cooperation may 
also be encouraged to open up markets and promote cross-border links. The staff working document 
outlines national best practices and examples of regional cooperation, and discusses targeted initiatives 
taken to enhance the Single Market. 

1.5.4.1

  National level 

i.  National strategies for capital market development 

The European Investment Bank, the European Bank for Reconstruction and Development,  

24 
the International Monetary Fund and the World Bank Group. 
25 
Final-Report-March-2018.pdf 

http://vienna-initiative.com/wp-content/uploads/2018/03/VI-Capital Markets Union-Working-Group-

15 

 
 
                                                      
Several Member States have either recently adopted or are preparing national capital market strategies. 
These strategies set out the problems that need to be addressed and the policy initiatives to boost local 
capital  markets.  They  are  usually  prepared  by  the  government  and  incorporate  the  views  of  public 
authorities (e.g. the markets regulator, the ministry of finance) and private partners (e.g. business and 
investors associations), reflecting the specific needs of the local market. Some strategies also set out 
accompanying  measures  such  as  communication  or  education  initiatives,  for  instance  to  raise 
awareness about capital market opportunities to attract foreign investors. 

The Structural Reform Support Service has helped several Member States develop strategies. One of 
the first such initiatives was launched in the Czech Republic. The World Bank published a report on 
the  country  in  201726  providing  an  independent  analysis  of  the  current  Czech  capital  market  to 
underpin  and  inform  a  strategy  for  its  further  development.  The  report  concludes  that  the  Czech 
market has a high growth potential that should be exploited given that at its current level of operation 
the  market  cannot  support  the  country’s  economic  growth  so  that  it  enters  the  upper  tier  of  EU 
economies. Capital market diagnostic studies sponsored by the Structural Reform Support Service are 
now being extended to other EU countries. Studies are under way for Poland, Portugal and Italy and 
one  has recently  been  completed  for  Estonia. They  often draw  on the  prior  work  undertaken  by  the 
government and local stakeholders. 

Some  Member  States  also  take  stand-alone  measures  to  boost  their  national  capital  markets.  In 
Lithuania, a series of regulatory amendments designed to encourage the growth of the local equity and 
debt market, venture capital and crowdfunding were passed in recent years. The Latvian government is 
implementing the financial sector development plan adopted in early 2017, which includes a revision 
of the legal framework for pension funds. The Danish government has launched a package of reforms 
to  strengthen  the  equity  culture  among  entrepreneurs,  targeting  various  tax  incentives  and  the 
transparency  of  pension  funds’  equity  investments.  An  investment-savings  account27  based  on  the 
successful Swedish model is being introduced in some countries. 

Financial  education  is  of  key  importance  and  should  be  tackled  in  every  national  strategy.  Surveys 
show that the level of financial literacy of small entrepreneurs has a direct impact on their readiness to 
access capital markets to find funding. Both investors and companies need to better understand capital 
markets to use them more actively. Most Member States have developed national financial education 
strategies and their common challenge is to expand programmes aimed at capital market participants. 
The measures set out in the 2017 joint Member States/Commission roadmap28 on removing national 
barriers to capital flows included ones on financial literacy. There was also a report published in April 
2018  on  promising  financial  literacy  initiatives  in  Member  States  for  consumers  and  small  and 
medium-sized companies29. The Structural Reform Support Service also supports some projects in this 
area. For example, Czechia is developing a new communication strategy on financial literacy. Belgium 
will also develop innovative and easily accessible educational tools for financial education. In general, 
national authorities show great interest in this policy area. 

ii. 

Improving the business environment 

www.mfcr.cz/assets/cs/media/Zprava_2017-10-02_CZ-CM-Assessment-Report-Final.pdf 
It allows the account holder to buy and sell shares actively without being taxed at every transaction. 

26 
27 
Instead, a holding tax is calculated and collected. 
28 
29 
available at: 
http://ec.europa.eu/transparency/regexpert/index.cfm?do=groupDetail.groupDetailDoc&id=37326&no=1 

https://ec.europa.eu/info/files/170519-roadmap-national-capital-barriers_en 
The financial literacy report presented to the Financial Services Committee on 13 April 2018 and is 

16 

 
 
                                                      
A  business-friendly  environment  is  essential  for  developing  capital  markets.  Creating  such  an 
environment  typically  involves  a  number  of  elements  that,  taken  together,  help  and  encourage  
companies and investor to participate in capital markets. These include: (i) stable legal and judiciary 
systems;  (ii)  an  efficient  administration;  and  (iii)  insolvency  regimes  that  allow  for  seamless  and 
efficient  liquidation  of  bankrupt  companies.  Promoting  employee  share-ownership  schemes, 
particularly  in  a  favourable  legal  and  fiscal  environment,  may  also  help  to  increase  corporate 
efficiency and to develop local stock markets (see Section 3.3 of this paper for more information on 
employee share-ownership schemes). 

The  Commission  issued  recommendations  to  several  Member  States  to  reform  their  insolvency 
frameworks, improve the efficiency of their judicial systems or adjust incentives in their tax regimes 
(e.g.  Belgium).  Furthermore,  the  Structural  Reform  Support  Service  has  agreed to  provide technical 
support  to  several  Member  States  for  their  insolvency  frameworks  (Estonia,  Lithuania,  Croatia, 
Cyprus and Greece). The Structural Reform Support Service also helps some countries  design modern 
regulatory  solutions  that  will  help  their  innovative  financial  services  and  Fintech  industry  to  grow 
(Estonia  and  Slovakia).  Lithuania  has  recently  completed  a  Structural  Reform  Support  Service 
supported  project  to  improve  the  investment  environment  for  institutional  investors  and  is  taking 
measures based on the recommendations. 

Prudential  supervision  is  a  vital  part  of  the  overall  business  environment.  Adequate  oversight  of 
market  participants  and  their  operations  is  an  important  prerequisite  for  building  stable  and 
trustworthy capital markets. The available supervisory capacity and expertise does not always match 
the expansion of financial markets, especially in smaller countries. Supervisors should be encouraged 
to recruit candidates with market experience and arrange for short-term study visits for some of their 
staff  in  firms  they  oversee.  An  alternative  could  be  to  organise  exchange  programmes  with  firms 
abroad  or  other  supervisors  within  the  EU  to  avoid  conflicts  of  interest  with  monitored  market 
participants.  The  Structural  Reform  Support  Service  supports  projects  ‒  such  as  one  carried  out  in 
Romania  and  another  one under  way  in  Croatia  ‒  that  aim  to  increase the risk-based supervision  of 
capital markets. 

iii. 

Public support for access to capital markets 

The  high  costs  of  preparing  an  initial  public  offering  and  complying  with  the  related  legal 
requirements  are  a  significant  barrier  for  small  and  medium-sized  companies.  However,  they  may 
make  targeted  use  of  public  funds  —  either  from  the  national  budget  or  EU  structural  funds  —  to 
overcome this barrier. 

For  instance,  in  Poland  a  programme  entitled  ‘4  Stock:  facilitating  small  and  medium-sized 
companies’ access to capital markets’, implemented by the Polish Agency for Enterprise Development 
and  the  Warsaw  Stock  Exchange,  is  co-financed  by  EU  structural  funds.  It  reimburses  50 %  of  the 
small and medium-sized companies’ costs incurred for preparing an initial public offering. Since 2011, 
the programme has facilitated access to NewConnect stock and Catalyst bond markets of the Warsaw 
Stock Exchange for numerous companies. 

Several other Member States are about to undertake similar projects, often co-financed by public or 
EU  funds.  The  Structural  Reform  Support  Service  sponsors  projects  aimed  at  creating  small  and 
medium-sized  companies’  equity  support  instruments  in  Estonia,  Latvia,  Lithuania,  Slovenia  and 
Cyprus. The equity support instruments will co-finance the issuance of equity or debt and will cover 
the costs of the initial public offering, such as consultancy, drafting of documents, legal advice, etc. 

Public  funds  can  also  support  other  costs  for  small  and  medium-sized  companies’  participation  in 
capital markets. The support provided for analytical reports is a notable example as they are expensive 

17 

 
 
for  small companies to  prepare.  Some  stakeholders  point  out the  effectiveness  of  public support for 
creating private equity / venture capital funds that invest in the equity of local companies. Tax relief is 
also considered relevant, for example on any compensation granted to listed small and medium-sized 
companies for their listing expenses. 

The full or partial privatisation of some state-owned companies through the local stock exchange gives 
a  boost  to  capital  market  development.  Examples  include  the  initial  public  offerings  of  Tallinn  Port 
and  Eesti  Energia  planned  on  the  Estonian  stock  exchange  in  2018.  Furthermore,  companies  with  a 
majority  public  stake,  including  at  municipal  level,  tend  to  give  preference  to raising  funds  through 
capital markets. Another successful example of raising funding was the 2017 issuing of green bonds 
by Altum, the Latvian development financing institution. 

1.5.4.2

  Regional level 

i. 

Facilitating foreign listing and investment 

Cross-border cooperation has already started among the capital markets of Central, Eastern and South-
Eastern  Europe.  There  are  three  regional  alliances  of  stock  exchanges  with  more  or  less  advanced 
integration  of  services:  (i)  the  Nasdaq  Baltic  Market;  (ii)  the  ‘CEESEG’  holding  (including  Vienna 
and  Prague);  and  (iii)  the  SEE  Link  platform30.  However,  cooperation  between  national  stock 
exchanges  could  be  increased,  as  many  small  stock  exchanges  in  the  region  do  not  have  enough 
investors and issuers. 

To broaden the scope of instruments available to local investors and to help local issuers list on other 
EU  markets,  national  stock  exchanges  can  create  markets  dedicated  to  foreign  trading.  They  may 
attract new members to local stock exchanges by offering them direct access to liquid instruments in 
Europe and the rest of the world. These new markets may help overcome some of the barriers related 
to  small  market  size.  One  concrete  example  in  this  area  is  BSE  International,  a  joint  project  of  the 
Bulgarian  Stock  Exchange  and  Deutsche  Börse  to  grant  local  investors  access  to  foreign  markets, 
including  foreign  listing.  The  project  has  set  up  a  new  regulated  market  for  instruments  with  EU-
compliant prospectuses and established a new multilateral trading facility for all other instruments. It 
will allow financial instruments that have already been admitted to trading in other EU Member States. 

Cooperation  among  stock  exchanges  may  also  extend  beyond  regions.  One  example  is  the  London 
Stock Exchange ELITE programme, which helps selected small and medium-sized companies access 
various  long-term  financing  opportunities,  dedicated  training  and  professional  networks.  It  was  first 
implemented by Borsa Italiana and has expanded all over Europe. The Budapest stock exchange, for 
example, has implemented ELITE since 2017. 

ii. 

Leveraging EU legislation to facilitate cross-border access to infrastructures 

Central security depositories (CSDs) carry out the post-trade settlement of security transactions and, in 
that  role,  provide  crucial  financial  infrastructure  services.  The  Central  Securities  Depositories 
Regulation introduced an internal market for the operations of what were traditionally national CSDs. 
It  makes  it  possible  to  set  up  links  between  CSDs  to  support  cross-border  trading,  clearing  and 
settlement of securities. 

One  example  of  regional  cooperation  in  this  area  is  the  ongoing  ‘SEE  Link’  project  to  facilitate 
settlement procedures for the participating stock exchanges. The proposed solution includes settlement 
in the respective local CSDs based on standardised instructions exchanged between investment firms 

30 
Yugoslav Republic of Macedonia, Slovenia, Serbia and Bosnia and Herzegovina. 

A technology-based integration project including the stock exchanges of Bulgaria, Croatia, the former 

18 

 
 
                                                      
and regional CSDs through SEE Link brokers. Another example of regional cooperation, which builds 
on the possibility of setting up CSD links under the Central Securities Depositories Regulation, is a 
project  supported  by  the  Structural  Reform  Support  Service  in  Hungary.  The  project  aims  to  link 
KELER, the Hungarian central security depository, to the CSDs of selected Member States from the 
region to provide investors with access to the linked CSDs with the full range of custodian services. 

Some market infrastructure organisations, such as the central counterparties, are costly and complex to 
create.  Central  counterparties  place  themselves  between  counterparties  of  a  derivative  contract, 
becoming the buyer to every seller and the seller to every buyer for clearing derivative transactions, 
which are costly and complex to create. As derivative trading is still nascent growing in many markets, 
there  is  not  necessarily  a  case  for  creating  national  central  counterparties  in  every  country.  The 
existing  central  counterparties,  which  the  European  Securities  Markets  Authority  has  already 
authorised or recognised as compliant with the EU standards in accordance with EU law, could further 
develop their clearing services and provide them to other stock exchanges in the region. 

iii. 

Creating regional markets by harmonising regulation 

Some  market  segments  could  benefit  from  a  harmonised  legal  framework  at  regional  level  that  
complies  with  EU  law.  The  coordination  within  clusters  of  national  regulators  may  support  the 
development  of  new  asset  classes  and  increase  the  pool  of  investment  instruments.  The  ongoing 
harmonisation of laws on covered bonds and securitisation in the Baltic countries, aided by technical 
support from the European Bank for Reconstruction and Development is a relevant example. 

A  reform  of  the  legal  framework  for  the  issuance  of  covered  bonds  and  securitisation  was  first 
launched  in  Lithuania.  Latvia  and  Estonia  have  joined  the  initiative,  carrying  out  the  compatible 
reforms with the support of the Structural Reform Support Service. In November 2017, the Ministers 
of  Finance  from  Latvia,  Estonia  and  Lithuania  signed  a  joint  Memorandum  of  Understanding  on 
cooperation  for  regional  capital  market  development  in  the  Baltics31.  Objectives  include  creating 
common asset classes, market infrastructures and index labels. Ultimately, the initiative may increase 
the size of selected market segments and attract investors to the region. The new regional products will 
have to be compliant with emerging EU legal frameworks, e.g. for covered bonds. 

1.5.4.3

  European and international financial instruments 

Financial  support  instruments  may  help  the  development  of  local  capital  markets.  For  instance, 
specific support schemes may partially cover the costs of listing small and medium-sized companies’ 
shares.  Public  investment  funds  may  also  buy  a  part  of  small  and  medium-sized  companies’  equity 
directly,  thereby  helping  build  the  demand  for  those  shares.  EU  financial  aid  may  come  from  the 
European  Structural  and  Investment  Funds,  the  European  Investment  Bank  or  the  European 
Investment Fund. It may need to be explored how targeted EU financial support, e.g. in the form of a 
public-private  investment  fund,  could  contribute  to  addressing  the  funding  gap  faced  by  small  and 
medium-sized companies at the stage of initial public offering. 

The  European  Investment  Bank  and  the  European  Investment  Fund,  and  international  financial 
institutions  including  the  European  Bank  for  Reconstruction  and  Development  and  the  World  Bank 
Group, also facilitate the development of capital markets, especially in the Central, Eastern and South-
Eastern Europe region. Their investments bring liquidity to local capital markets and help them grow. 
Subject  to  their  investment  strategies  and  the  supervisory  framework,  they  could  invest  in  the  debt 

Press release: https://ec.europa.eu/commission/commissioners/2014-

31 
2019/dombrovskis/announcements/baltic-states-create-pan-baltic-capital-market-joint-initiative-supported-
european-commission-and_en. 

19 

 
 
                                                      
instruments  issued  by  banks  in  the  region  to  meet  their  ‘minimum  requirement  for  own  funds’  and 
‘eligible  liabilities’  in  accordance  with  EU  legislation.  International  financial  institutions  also  offer 
products  such  as  venture  capital  investment,  securitisation  and  credit  guarantee  schemes  or  project 
bonds.  Designated  local  institutions,  such  as  development  banks,  may  contribute  to  the  successful 
deployment of these products, for example by providing guarantees. There is also scope to combine 
better products from international institutions with EU grants and other EU financial instruments. In 
some  countries,  potential  recipients  of  EU  funds  find  it  difficult  to  obtain  regulatory  relief,  in 
particular capital relief, as set out in the EU regulatory framework. 

1.5.5.

  Conclusion 

Many measures can be introduced at national, regional and EU levels to boost local capital markets 
and give greater impetus to economic development and convergence in the EU as a whole. This paper 
sets  out  a  selection  of  those  measures,  to  inspire  and  motivate  public  and  private  market  players  to 
further grow and integrate capital markets in their respective Member States and regions. Under the 
Capital  Markets  Union,  the  Commission’s  departments  will  closely  follow  and  support  progress  in 
building an interconnected ecosystem of strong, transparent and accessible capital markets in the EU, 
including through continued technical support. 

2.  RETAIL INVESTMENT 

Retail  investment  is  a  direct  source  of  alternative  funding  for  the  real  economy  when  channelled 
through capital markets in the form of direct investments in financial instruments. The EU has one of 
the  highest  saving  rates  in  the  world32  with  households  holding  financial  assets  of  almost  220 %  of 
gross domestic product. While savings generally facilitate the availability of funding for the economy, 
the savings of EU households are predominantly held in cash or deposits, and only a small part is held 
in direct market instruments, i.e. financial securities. Listed shares and bonds each represented 4 % of 
households’ financial assets. Investments in funds represent 6 % of households’ financial assets. The 
largest  proportions  of  household  savings  are  held  in  the  form  of  bank  deposits  (30 %),  pension 
entitlements (20 %), and claims against life insurance. 

Encouraging retail investment in capital markets is one of the key objectives of building the Capital 
Markets  Union.  Already  in  the  2015  action  plan  on  building  a  Capital  Markets  Union33  the 
Commission sets out several measures to address the challenge of fostering retail investments. 

Several factors prevent people from investing in capital markets instruments, such as: (i) costs; (ii) the 
complexity  of  the  financial  products  offered;  (iii)  lack  of  access  to  quality  information;  (iv)  the 
paperwork needed to open and run separate investment accounts; and (v) tax-related issues34. Several 

Retail investors are the main providers of funding for the economy, with total holdings of financial 

Communication ‘Action Plan on Building a Capital Markets Union’, COM(2015) 468, 30.9.2015. 
According to a recent study ‘most households do not invest at all on capital markets or do so very 

32 
assets close to EUR 34 trillion in 2016 (Eurostat). 
33 
34 
infrequently across their lifetime as an average consumer is overwhelmed by the sheer complexity of, and 
uncertainty associated with investment products which is partly due to the generally low familiarity with basic 
financial concepts. When searching for the most suitable investment seeking advice from non-independent 
advisors (at banks and insurers) remains the norm for the average investor, except in the United Kingdom and 
the Netherlands. However, research indicates that financial institutions almost exclusively offer in-house 
packaged products to retail investors.’, https://ec.europa.eu/info/publications/180425-retail-investment-products-
distribution-systems_en 

20 

 
 
                                                      
measures  in  the  Capital  Markets  Union  action  plan  and  mid-term  review  seek  to  overcome  these 
issues. 

2.1. REPORTS  BY  THE  EUROPEAN  SUPERVISORY  AUTHORITIES  ON  COSTS  AND  PERFORMANCE  OF 

RETAIL INVESTMENT PRODUCTS 

On  10 January  2019,  the  European  Supervisory  Authorities  published  the  results  of  their  first 
comprehensive  analysis  of  costs and  performance  of the  main  categories  of  investment  products: (i) 
undertakings for collective investment in transferable securities; (ii) alternative investment funds sold 
to retail investors; (iii) structured retail products; (iv) investment based insurance products (unit linked 
and profit participation); (v) pensions products; and (vi) structured deposits. 

The reports contribute to the Capital Markets Union action to foster retail investment and follow up on 
the  Capital  Markets  Union  mid-term  review.  The  requests  to  the  European  Supervisory  Authorities 
complement other measures to improve the functioning of retail investment markets, such as the study 
on distribution systems of retail investment products across the EU and the study on options for online 
tools supporting retail investors. 

The  reports  show  major  differences  in  the  costs  and  performance  of  retail  investment  products  and 
their transparency across different Member States and different product categories. The differences in 
net performance are primarily due to the impact of ongoing fees. The reports also include information 
on different market segments and regions where investors appear to be in a sub-optimal situation and 
identify those issues that call for careful analysis 

The  report  shows  that  for  undertakings  for  collective  investment  in  transferable  securities  funds  the 
total  costs  of  a fund  presents  a  significant  drain  on  fund  performance, affecting  retail  investors to a 
much  higher  extent  than  institutional  investors.  On  average,  retail  clients  pay  twice  as  much  as 
institutional clients. The impact varies across asset classes, with costs on average accounting for 25 % 
of  gross  returns  in  2015-2017.  Ongoing  costs  such  as  management  fees  constitute  over  80 %  of  the 
total cost paid by customers, while entry and exit fees are less significant. 

For retail investors in alternative investment funds and structured retail products, market transparency 
is particularly limited. There is practically no up-to-date data available on costs and performance and 
the size of structured deposits is too small to assess its features. 

For  investment  based  insurance  products  and  pension  products  the  report  concludes  that  the 
differences  between  products  make  comparing  their  performance  very  challenging,  for  example  in 
view of the values of guarantees, the impact of smoothing mechanisms and terminal bonuses of profit 
participation products, and the impact of risk and volatility. Given the insufficient data available from 
market providers on past performance, the European Insurance and Occupational Pensions Authority 
(EIOPA) requested additional data from insurance undertakings. Similar requests were necessary for 
personal  pension  products.  The  report  shows  that  costs  vary  depending  on  the  type  of  product, 
premium, risk category and jurisdiction. Variations in asset management costs related to different risk 
categories are a major factor. 

For structured deposits, the report includes a mapping of the specific regulatory requirements on pre-
contractual  disclosure  and/or  reporting  applicable  to  structured  deposits  at  European  and  national 
level.  It  also  identifies  the  data  sources  that  would  be  required  to  fulfil  the  request.  The  report 
concludes that the market for structured deposits in the EU is limited in size and that data on costs and 
performance  is  not  widely  available.  It  therefore  sets  out  steps  for  the  EBA  to  take  to  obtain  more 
accurate and standardised data in the future and therefore improve the reliability and overall quality of 
its response. 

21 

 
 
Due to data limitations, the reports do not cover all products. There are also still some methodological 
issues  that  have  to  be  dealt  with.  Due  to  availability  and  comparability  of  data,  the  three  European 
Supervisory  Authorities  (ESAs)  applied  different  methodologies  and  used  different  sources  of 
information  when  preparing  the  reports.  While  the  European  Securities  and  Markets  Authority 
(ESMA) used private data vendors, the EIOPA sampled the data from the industry. The EBA based 
their  analysis  on  information  received  from  the  national  competent  authorities. In  addition, the time 
horizon  was  different,  such  as  10  years  for  undertakings  for  collective  investment  in  transferable 
securities and 1-2 years for insurance-based investment products. 

While  the  coverage  for  some  categories  of  products  may  not  yet  be  sufficient,  the  situation  should 
improve  in  the  next  years  thanks  to  the  full  implementation  of  the  pre-contractual  disclosure  and 
reporting  requirements  introduced  through  recent  legislative  measures,  e.g.  for  undertakings  for 
collective investment in transferable securities, Markets in Financial Instruments Directive/Market in 
Financial  Instruments  Regulation,  Insurance  Distribution  Directive,  Institutions  for  Occupational 
Retirement  Provision  Directive  (IORPSII)  and  packaged  retail  and  insurance-based  investment 
products (PRIIPs). Specifically in the insurance sectors, before the PRIIPs Regulation started to apply, 
data on some categories of products were not collected in a way that could be used by the European 
Supervisory Authorities. 

The difficulties in achieving complete and comparable data for some categories of products re-confirm 
the  need  for  uniform  requirements  for  pre-disclosure  information  of  the  main  characteristics  of 
products at EU level. In spite of all the difficulties, there are common trends in the level of costs and 
their impact on performance across Member States for products of similar characteristics, for example 
undertakings for collective investment in transferable securities and unit-linked insurance products. 

The results of the reports were presented by the European Supervisory Authorities and discussed with 
stakeholders  at  a  technical  workshop  organised  by  the  Commission  on  21 January  2019.  The 
differences in the scope and granularity of data of the three reports were considered to be problematic. 

In  the  coming  months,  the  Commission  will  discuss  with  European  Supervisory  Authorities  and 
national authorities the results of the first reports, the reasons for differences between Member States 
or  similar  categories  of  products,  the  difficulties  faced  during  the  process,  the  completeness  of  the 
reports  and  the  European  Supervisory  Authorities’  suggestions  for  improvements  to  future  report 
cycles. 

These  first  results  provide  a  baseline  for  future  assessments  and  to  further  develop  the  reporting, 
including, where appropriate, possibly extending the scope for improvements in the methodology. 

2.2. MAPPING INVESTMENT SAVING ACCOUNTS IN THE EU 

Capital market instruments, in particular equity, have historically generated higher returns than other 
liquid asset classes. More retail participation in this asset class could, as part of a diversified portfolio 
and  in  case  of  sufficiently  long  holding  periods,  help  to  increase  returns  on  households’  savings. 
Reviving the culture for investing in capital markets in the EU is therefore an important goal of the 
Capital Markets Union. As one of the measures to achieve this goal, the 2017 Capital Markets Union 
mid-term review35 sets out measures to examine the potential of investment saving accounts and map 
the  Member  States  experiences  with  such  accounts.  Based  on  this  mandate,  this  section  explores 

35 
8.6.2017. 

Communication on the mid-term review of the Capital Markets Union action plan, COM(2017) 292, 

22 

 
 
                                                      
different  characteristics  of  investment  saving  accounts,  as  currently  implemented  in  the  Member 
States. The information is based on a survey carried out among the Member States.  

There  is  no  common  definition  of  an  investment  saving  account.  However,  the  core  objective  of 
investment saving accounts is to make it easier and more rewarding for households to save in the long 
term  in  financial  instruments  such  as  shares,  bonds  and  investment  funds.  To  this  end,  investment 
saving accounts generally provide several benefits: 

a)  They enable users to diversify risk and income channels. By regularly adding to their investment 
saving account over long periods, users mitigate the investment timing risk. In addition, there are 
often  fiscal  incentives  linked  to  investment  saving  accounts,  such  as  an  exemption  from  capital 
gains tax on all individual purchases or sales of securities. 

b)  Investment  saving  accounts  can  sometimes  lower  the  cost  for  investors,  particularly  as  these 
accounts  can  make  it  simple  for  an  investor  to  invest  in  individual  capital  market  instruments, 
rather than buying packaged products like investment funds or life insurance products. Contrary to 
such packaged investment products, individual instruments purchased through investment saving 
accounts are directly owned by investors, which could for example grant them the right to attend 
and vote at shareholder meetings. 

c)  The  experience  in  some  Member  States  shows  that  investment  saving  accounts  have  been 
instrumental  in  increasing  the  share  of  equity  finance  available  to  small  and  medium-sized 
companies. 

2.2.1.

Investment saving accounts schemes in Member States 

Although investment saving account schemes have emerged only recently, they are now offered in an 
increasing number of Member States:  12 Member States have already established investment saving 
accounts and 13 have no such regimes36. 

Table 1: Investment saving accounts in the EU 

No 

Member 
State 

Name of scheme 

Entry 
into force 

Total  value 
in EUR 

1 

2 

3 

4 

5 

Estonia 

Investeerimiskonto 

Finland 

sidottu pitkäaikaissäästäminen 
(osakesäästötili)37 

2011 

2010 

2020 

France 

Plan d’Epargne en Actions (PEA)  N/A 

Hungary 

tartós befektetési szerződés 

Ireland 

Special 
Accounts (SSIA) 

Savings 

Investment 

2010 

N/A 

N/A 

N/A 

N/A 

N/A 

N/A 

Number  of 
accounts 
(% 
adult 
population) 

5 000 

N/A 

N/A 

N/A 

N/A 

There are no individual savings accounts (ISAs) in Austria, Cyprus, the Czech Republic, Germany, 

36 
Greece, Lithuania, Luxembourg, the Netherlands, Portugal, Romania, Slovenia and Spain. Information is 
missing for Croatia, Latvia, Belgium and Bulgaria. 
37 
that should be tabled in 2019 and, if adopted, enter into force from the beginning of 2020. 

The Ministry of Finance of Finland has launched a proposal for a law on investment saving accounts 

23 

 
 
 
                                                      
6 

7 

Italy 

PIR  —  Piani 
risparmio a lungo termine 

individuali  di 

2017 

Malta 

No information 

Indywidualne  Konto  Emerytalne 
(IKE)  

2014 

2004 

8 

Poland 

Indywidualne 
Zabezpieczenia 
(IKZE) 

Konto 
Emerytalnego 

2012 

17.5 billion 

797 000 

283 906 

268 

1.9 billion 

0.4 billion 

951 600 
(<10 %) 

691 000 
(<10 %) 

9 

Slovakia 

Dlhodobé investičné sporenie 

10 

Sweden 

Investeringssparkonto (ISK) 

2016 

2012 

N/A 

N/A 

50 billion 

2.3 million  

11 

United 
Kingdom 

Individual  Savings  Accounts 
(ISA) 

Cash ISA 

Junior ISA (JISA) 

Child Trust Fund (CTF) 

ISA 1991 

655 billion 

(42.8 %) 

12  Denmark 

Aktiesparekonto 

2019 

N/A 

N/A 

2.2.2.

  Main characteristics of investment saving accounts 

The specific structure of an investment saving account depends on their individual purpose as defined 
by  the  Member  State  in  question.  The  purpose  of  the  investment  saving  account  influences  the 
characteristics  of  the  account  as  regards  fiscal  incentives,  the  structure  of  the  account,  the  eligible 
providers  of  investment  saving  accounts  and  permitted  financial  instruments.  Other  distinguishing 
features include the distribution of supervisory responsibilities among national competent authorities 
and the legal basis for the establishment of these schemes. 

2.2.2.1

  Purpose of the accounts 

The purpose of investment saving account schemes differs across Member States. While they differ in 
form,  most  investment  saving  accounts aim  to  encourage  long-term  investment  in  securities  and the 
accumulation  of  retirement  savings.  Some  of  them  also  aim  to  encourage  people  to  develop  good 
saving and investment habits, to accumulate capital for buying a house and to save for  their or their 
children’s  education.  Some  Member  States  also  use  investment  saving  accounts  to  channel  retail 
investor savings into small and medium-sized companies’ financing. 

As these schemes are fairly new, there is a lack of data on their effect. However, those Member States 
that  have  carried  out  research  in  the  area  have  noted  encouraging  results.  In  Ireland,  the  special 
savings  investment  accounts  scheme  achieved  its  aim  of  encouraging  people  to  save  for  at  least  5 
years.  A  survey  showed  that  55 %  of  policyholders  continued their saving  habits  after  the  scheme’s 
initial term and 77 % of those who continued to save, saved the same amount or more38. 

38 

Special savings investment accounts. https://taxpolicy.gov.i.e./wp-content/uploads/2011/04/0613.pdf 

24 

 
 
 
 
                                                      
 
2.2.2.2

  Legal basis and supervisory authority 

In most Member States, the investment saving account schemes are put in place through a legal act, a 
tax  law  or  both.  Member  States  that  provide  tax  incentives  for  investment  saving  accounts  usually 
include specific references to investment saving accounts in their tax laws. 

In most cases the tax authority is responsible for supervising the investment saving account schemes 
which corresponds to the schemes’ link with tax incentives. However, the financial supervisor often 
also plays a role and Member States argue that their involvement is necessary given that investment 
saving accounts, as any other financial product, fall under the remit of their competence. 

2.2.2.3

  Eligible instruments 

The  range  of  eligible  instruments  in  an  investment  saving  account  differs  between  Member  States 
depending on the purpose of the scheme and considerations about the variety, liquidity and potential 
risk of the portfolios to be put together. 

Less than half of Member States with investment saving account schemes allow investment in a broad 
range  of  financial  instruments.  Eligible  financial  instruments  most  frequently  include:  (i)  securities 
admitted  to  trading  on  a  regulated  market  (including  corresponding  non-European  Economic  Area 
markets  and  those  of  OECD  countries);  (ii)  instruments  traded  on  a  trading  platform  and  units  in 
investment  funds,  e.g.  listed  shares  and  bonds;  (iii)  undertakings  for  collective  investment  in 
transferable securities (UCITS); and (iv) bank deposits. 

In some countries, the tax incentives of the investment saving accounts were contingent on the account 
being used to invest in national instruments. Such a characteristic could be an obstacle to the cross-
border flow of investment in EU. 

2.2.2.4

  Eligible account holders 

There can be certain restrictions on a person’s eligibility to benefit from an investment saving account 
scheme.  In  most  Member  States,  only  natural  persons  can  open  an  investment  saving  account. 
However, although no Member State excludes individuals who are not nationals of that country, if the 
investment  saving  account  provides  tax  incentives  ‒  which  is  usually  the  case  ‒  the  account  holder 
would only benefit if they are a tax resident of the country in question. 

Some  Member  States  have  no  age  restrictions  for  people  opening  an  investment  saving  account.  In 
Ireland, Malta and the United Kingdom (for stocks and shares, innovative finance investment saving 
accounts  and  lifetime  investment  saving  accounts)  account  holders  must  be  at  least  18  years  old. 
Poland  has  a  minimum  and  maximum  age  requirement  for  people  opening  an  investment  saving 
account  ‒  16  years  old  and  under  60/65 respectively.  In  the  United Kingdom,  a  lifetime  investment 
saving account can be opened only between the ages of 18 and 40. 

2.2.2.5

  Investment saving accounts providers 

Various  financial  institutions  may  offer  investment  saving  accounts,  including  credit  institutions, 
investment  firms,  asset  management  companies  and  insurance  companies.  All  Member  States  allow 
credit institutions to  offer  investment  saving  accounts  and  more  than  half allow investment  firms  to 
offer  them.  As  this  is  primarily  seen  as  a  retail  investment  product,  few  countries  extend  the 
distribution network beyond this remit. However, in some Member States it is also possible for asset 
managers  and  insurance  companies  to  offer  products  under  the  national  investment  saving  account 
scheme. 

25 

 
 
2.2.2.6

  Fiscal incentives 

Types of incentives 

All  the  Member  States  with  investment  saving  account  schemes  have  established  tax  incentives 
sometimes  in  combination  with  state  contributions.  Tax  incentives  may  take  three  forms:  (i)  an 
exemption or limitation of tax; (ii) a tax deduction; or (iii) a deferral of tax liability. 

Nine  Member  States  offer  either  a  tax  exemption  or  a  reduced  tax  on  interest,  gains  and  dividends 
received on money or investments inside an investment saving account. However, some of these nine 
Member  States  make  the  tax  exemption  or  reduction  conditional  on  a  certain  holding  period  of  the 
investment  saving  account  and  apply  a  scaling  determined  by  the  holding  period.  For  example,  in 
Hungary, after 5 years of holding, the tax rate is 0 %, after 3-5 years it is 10 % and within the first 
3 years, the normal tax rate of 15 % applies. Three Member States have put in place a ‘tax wrapper’ in 
which  gains  are  not  taxed.  For  example,  Sweden  has  an  annual  tax  on  investment  returns  that  is 
calculated  by  taking  the  market  value  of  the  securities  in  the  account  and  multiplying  it  by  a 
standardised interest rate. The amount is calculated on the basis of the market value at the start of each 
quarter and deposits and withdrawals during the quarter. 

Two Member States offer a deduction to investors in the form of an amount of savings per year that 
can  be  deducted  from  taxes.  For  example,  in  Finland,  savings  of  up  to  EUR 5 000  per  year  can  be 
deducted. 

One  Member  State  offers  a  deferral  of  tax  liability,  though  the  difference  between  contribution  and 
disbursement is still subject to income tax. 

The  United  Kingdom  and  Ireland  pay  a  bonus  on  savings  in  form  of  contributions.  In  the  United 
Kingdom the lifetime investment saving account gives a 25 % bonus on savings, while in Ireland the 
exchequer contributes 25 % of the amount saved up to a limit of EUR 2 500. 

Minimum and maximum amounts 

Eight Member States set a maximum amount that can be deposited in an investment saving account,  
either  overall  or  per  year.  In  cases  where  the  investment  saving  account  scheme  runs  for  a  limited 
period only, e.g. 5 years, Member States combine the annual limit with an overall limit during period 
in question. For example, in Italy, where the investment saving account scheme runs for a minimum of 
5 years, investors can deposit up to EUR 30 000 a year and not more than EUR 150 000 in total. 

In  Poland,  the  maximum  annual amount  for  one  investment  saving  account  scheme  is  1.2  times  the 
estimated  average  monthly  salary  in  the  country  for  a  given  year  (around  EUR 1 200  in  2018).  For 
another  scheme,  it  is  three  times  the  average  estimated  monthly  salary  for  a  given  year  (around 
EUR 3 000 in 2018). 

Two Member States have a minimum amount that must be paid into the investment saving account. In 
Hungary  the  minimum  amount  to  open  an  account  is  HUF 25 000  (around  EUR 80).  In  Ireland  a 
minimum monthly contribution of EUR 12,50 in the first 12 months is required. 

2.2.2.7

  Restrictions on withdrawals 

Investment saving account schemes may have different restrictions on the  withdrawal of funds. This 
normally  depends  on  the  purpose  of  the  scheme  (whether  it  caters for  retirement  or  other long-term 
savings) and the views on how harmful such a restriction would be on the participants. 

In most Member States, it is possible to withdraw money from the investment saving account at any 
time. In five, however, investors lose their tax benefit if they withdraw money earlier than the scheme 
intends.  For  example  in  France,  when  investors  withdraw  money  before  the  8th  year,  they  cannot 

26 

 
 
make use of the whole tax benefit. Two Member States apply a charge or an exit tax in cases of early 
withdrawal. 

Three Member States restrict withdrawals before the investor reaches a certain age or before maturity 
of the scheme. For example, in Finland withdrawal is only possible at the age of 68 or in case of death 
or  divorce.  In  Slovakia,  investors  can  withdraw  money  after  15  years.  Withdrawals  from  a  United 
Kingdom  lifetime  investment  saving  account  before  the  age  of  60,  for  any  purpose  other  than  the 
purchase of a first home or terminal illness, leads to a 25 % charge on the amount withdrawn. 

2.2.2.8

  Number of accounts allowed and possibility to switch provider 

A limit can be placed on the number of accounts permitted per person for technical reasons such as 
simplification  for  taxation  purposes  or  due  to  the  structure  of  the  tax  benefits.  Six  Member  States 
restrict  the  number  of  accounts  per  person.  In  most  cases,  only  one  account  per  person  is  allowed, 
unless the Member Sate in question offers multiple investment saving account schemes, in which case 
a  person  can  hold  one  of  each.  Five  Member  States  have  no  limits  to  the  number  of  accounts  per 
person. 

There  do  not  appear  to  be  any  barriers  to  switching  investment  saving  account  provider  within  a 
Member State. 

2.2.2.9

  Cross-border activity 

Although investment saving accounts are generally offered to residents of a given Member State, there 
are  situations  where they  could take  on  a  cross-border  dimension, for  example, when  an  investment 
saving account holder moves to another EU Member State. 

According to the survey, an individual would not be able to transfer their investment saving account 
balance  to  an  investment  saving  account  in  a  different  Member  State.  However,  in  most  cases  they 
would be able to maintain their existing accounts even while being residents abroad. This would still 
entail implications for the holder of the investment saving account, given that tax benefits related to 
the scheme could be lost due to the individual no longer being a tax resident of the Member State in 
which the investment saving account is held. 

2.2.3.

  Conclusion 

The  development  of  investment  saving  accounts  in  the  EU  is  still  at  an  early  stage  and  the 
characteristics  of  national  accounts  differ  from  one  Member  State  to  another.  However,  most 
investment saving accounts aim to encourage long-term investment in securities and the accumulation 
of retirement savings. They may therefore help to strengthen a culture of investing in capital markets 
in the EU. 

It  is  worth  noting,  that  the  development  of  investment  saving  accounts  in  Member  States  could 
potentially  be  supported  by  technical  support  from  the  Commission’s  Structural  Reform  Support 
Service. 

2.3. MAPPING OF EMPLOYEE SHARE-OWNERSHIP SCHEMES IN THE EU 

Employee  share-ownership  schemes  are  a  type  of  employee  benefit  plan  that  allocates  or  allows 
employees to acquire shares in their company. Employee share-ownership schemes serve as a tool to 
motivate and reward employees and potentially help tackle issues such as high labour turnover or the 
retention of key employees. Employee share-ownership schemes usually run through a collective legal 

27 

 
 
 
vehicle  or  foundation  that  is  set  up  by  a  company  to  periodically  allocate  some  of  the  company’s 
shares to the employees. 

In  Europe,  8.5  million  employees  have  access  to  an  employee  share-ownership  scheme.  They  are 
widespread particularly among large companies, with 86.6 % of all large European companies offering 
employee share-ownership schemes. Their number has increased by 3 % to 4 % on average each year 
since 2006. 

Employee  share-ownership  schemes  provide  a  number  of  benefits  to  employees,  companies  and  the 
economy as a whole. They have a positive impact on the economy of Member States as they support 
companies, including small and medium-sized companies and the job market. For workers, financial 
participation in their company can contribute to job satisfaction, a sense of ownership, mutual respect 
between employers and employees, overall performance and can help employees find opportunities in 
their  home  countries.  Aligning  the  interests  of  employees  and  management  can  also  lead  to  higher 
productivity. 

Employee  share-ownership  schemes  gives  workers  rights  to  be  consulted  and  involve  them  in 
decision-making  have  proven  beneficial  for  both  employees  and  the  company.  Benefits  include 
sustainable  governance,  transparency,  social  dialogue,  mutual  respect  between  employers  and 
employees,  and  other  aspects  such  as  recruitment,  retention,  motivation,  job  satisfaction  and  skills 
development, as well as overall performance and profitability. 

Some  research  indicates  that  companies  partly  or  entirely  owned  by  their  employees  are  more 
competitive and profitable, and face less absenteeism39.  Also, experience in the United States shows 
the  significant  impact  financial  participation  can  have  in  terms  of  economic  growth,  fostering 
industrial change and making sure that all workers participate in this growing prosperity. 

On the other hand, narrow-based plans for selected groups of employees, such as performance shares 
and stock options granted as a form of remuneration conditional on meeting certain performance goals, 
need  to  be  well  designed  to  ensure  that  the  incentives  provided  are  properly  aligned  with  the 
company’s long-term interests. 

Also,  for  employees,  holding  shares  in  their  own  company  might  be  a  poor  portfolio  decision, 
involving the ‘double risk’ of becoming unemployed and losing their savings — which are invested in 
the company — if the company experiences financial difficulties. Moreover, the employees may have 
difficulties in selling their shares. 

Employee share-ownership schemes can be relevant for small and medium-sized companies for which 
one of the biggest challenges is to attract and retain experienced managers and other personnel. Small 
and  medium-sized  companies  typically  lack  the  well-developed  and  extensive  internal  labour  force 
found in many large firms40. Opportunities for promotion can also be limited or non-existent. In this 
case, employee share-ownership schemes might bridge the gap between the need for greater employee 
effort and commitment on the one hand, and potential labour turnover on the other. 

By enabling individuals to familiarise themselves with investing in equity, employee share-ownership 
schemes  have  the  potential  to  increase  people’s  general  understanding  of  investing  in  shares.  This 
could lead people to participate more broadly in capital markets  ‒ one of the objectives of the 2017 

39 
For example, according to the Centre for Strategic Analysis of the French Republic the absenteeism rate 
decreases by 52 % and the social performance of a company having a scheme in place is 52 % higher than other 
companies that do not have an employee share-ownership scheme or a employee savings plan. 
40 
while they are used considerably less by small and medium-sized companies. 

In the EU, employee share-ownership schemes are mainly developed in large and listed companies 

28 

 
 
                                                      
Capital  Markets  Union  mid-term  review.  Companies  providing  employees  with  investment  accounts 
that they could use to buy shares of other companies would bring additional benefits to employees and 
capital markets in general. 

2.3.1.

  Economic landscape in the EU 

The  development  of  employee  share-ownership  schemes  differs  across  Member  States.  These 
differences are influenced largely by the specific features of national rules and fiscal incentives and by 
other factors such as individual preferences. In some countries, employee share-ownership schemes do 
not play a major role in the economy. 

Figure 1: Proportion of private companies offering employee share-ownership schemes in EU-28 in 2019 and 2013 % 

Overall  participation  in  employee  share-ownership  schemes  is  still  relatively  low.  Despite  the 
increases in interest, 68 % of firms in the EU do not provide any type of employee share-ownership 
scheme. 

Although  many  large  European  companies  offer  employee  share-ownership  schemes,  the  majority 
only  offer  narrow-based  plans,  i.e.  only  the  management  benefits  from  these  plans41.  Of  the  2 709 
largest  European  companies  only  1 401  offered  broad-based  plans,  open  to  all  employees42.  On 
average, 51.7 % of EU companies have broad-based employee share-ownership schemes. 

41 

There are two classes of employee share plans in the EU. The first one is the ‘broad-based’ employee 
share plan which is available for all employees. In such a plan employees usually invest their own money into 
shares of the company they work for at a discounted price. The second type of plan is a ‘narrow-based’ plan, 
which is dedicated to selected staff, e.g. executives, senior managers and core employees. They usually receive 
shares for free as a result for achieving pre-defined performance goals. 
42 

EFES, Economic Survey of employee share ownership in European Countries, 2017, page 152. 

29 

 
 
 
                                                      
Figure 2: The % of EU companies having broad-based employee share plans in 2017 
Source: Annual Economic Survey of Employee Ownership in European Countries in 2017, EFES 

2.3.2.

  Main characteristics 

2.3.2.1

  Persons eligible 

Companies handle the way employees acquire shares in different ways, with either the company or the 
employee  taking  the  initiative.  In  case  the  company  takes  the  initiative,  shares  are  given  to  an 
employee as part of their salary or as a bonus. It is also possible for a company to give employees the 
option to acquire shares or not. Some companies offer shares to employees at a discounted rate or as a 
‘buy three get one free’ opportunity. 

There are two main categories of employee share-ownership schemes: narrow-based plans, which are 
for  selected  staff  such  as  executives,  senior  managers  and  some  core  employees  only43,  and  broad-
based plans, where all employees44 are eligible to buy shares of the company at a discounted price45. In 
the latter case, the number  of shares  that can  be bought  at favourable  conditions  per  year  is  usually 
limited,  for  example  to  one-half  of  the  gross  monthly  salary.  Furthermore,  a  discounted  price  is 
conditional upon a certain holding period46. 

Narrow-based plans intended for selected groups of employees are typically performance shares and 
stock options. As such, they are a form of remuneration and usually conditional on achieving certain 
performance goals. In most cases, such schemes are not linked to any fiscal incentive. Therefore, they 
do not face particular mobility barriers except those that arise from various tax regimes in the EU. 

Broad-based  plans  intended  for  all  employees  are  typically  share  purchase  plans.  Employees  are 
encouraged  to  buy  shares  through  a  discount  of  usually  10-20 %  of  the  market  share  price.  The 
discount can be regarded as a form of remuneration, while the remaining 80-90 % are the employees’ 

43 
These selected people usually receive shares for free but only if they achieve defined results. 
44 
Employee share-ownership schemes may also be opened to ‘third parties’ like in Austria where the 
beneficiaries of leveraged plans enjoying tax concessions can also be retired employees and family members 
(spouse, children) of employees. 
45 
one free’ way. 
46 

EFES, Employee Share Ownership Benefits and Risks, Facts and Policies, July 2018, page 25-30. 

Some companies offer shares to employees at a discounted rate or they offer shares in a ‘buy three get 

30 

 
 
 
                                                      
personal investment. The success of such schemes depends essentially on fiscal incentives, the usual 
fiscal incentive being that the discount is free of tax and of social contributions47. 

Most  Member  States’  policies  aim  to  give  all  employees  access  to  employee  share-ownership 
schemes.  Nevertheless,  many  businesses  have  a  share-ownership  plan  for  some  employees  only.  A 
certain difference in treatment between staff members may be justified to meet employees’ different 
needs and interests. For instance, in Spain, some plans are for all employees and some are restricted to 
selected employees. As an example, long-term incentive plans, restricted shares plans and unapproved 
option plans are predominantly confined to executives. But employee share-ownership schemes may 
also be opened to ‘third parties’ like in Austria where the beneficiaries of leveraged plans enjoying tax 
concessions can also be retired employees and family members (spouse, children) of employees. 

Companies usually start with employee share plans for executive directors (concerning an average of 
four  individuals  in  large  European  companies).  At  a  later  stage,  they  introduce  employee  share 
schemes  for  senior  managers  (up  to  1 %  of  employees).  The  schemes  are  then  introduced  for 
middle-management and selected employees (up to 5 to 10 % of employees) and then finally rolled out 
to all employees. 

In 2017, 86.6 % of large European companies had employee share plans as detailed in the below table. 

Table 2: % of large EU companies having employee share plans in 2017 

2.3.2.2

  Size of companies 

In the EU, employee share-ownership schemes are mainly developed in large and listed companies and 
used  considerably  less  by  small  and  medium-sized  companies.  Only  one  million  employees  have 
access  to  employee  share-ownership  schemes  in  small  and  medium-sized  companies48.  Small  and 
medium-sized companies might also be especially reticent about employees’ involvement in company 
decision-making  which  employee  share-ownership  scheme  schemes  can  entail,  depending  on  the 
specifics of the scheme in question. 

By  comparison,  in  the  United  States,  Employee  Stock  Ownership  Plan  (ESOP)49,  are  more  widely 
developed.  The  ESOP  is  specifically  designed  for  small  and  medium-sized  companies  and  holds 
USD 1 300  billion  for  around  14  million  employee  shareholders  of  small  and  medium-sized 
companies.  This  plan  is  very  advanced  and  works  as  a  ‘leveraged  buy  out’  to  encourage  small  and 
medium-sized  companies’  transmission  to  employees.  In  the  United  States,  this  scheme  is  an 
alternative way to receive financing via equity. For instance, in 2014, the 10 000 companies offering 
an ESOP in the United States counted some 10 million employee owners holding total asset of more 
than  USD 1.3  billion.  The  plan  serves  as  a  form  of  life  insurance  by  accumulating  company  assets. 

47 
EFES, About employee share ownership, 22 September 2018. 
48 
EFES, Economic Survey of employee share ownership in European Countries, 2017. 
49 
United States ESOP function as a form of life insurance through the accumulation of company assets. 
They can roll the amount over into an individual retirement account (IRA), as can participants in any qualified 
plan. Shares are allocated to employees and may be held in an ESOP trust until the employee retires or leaves the 
company. As in every other form of qualified pension plan, employees do not pay taxes on the contributions 
until they receive a pension from the plan when they leave the company. 

31 

Plan typeTargetUsual number of employees% of large European companies% cumulated1Executive Directors1 to 104.0%4.0%2Senior ManagementUp to 1%21.0%25.0%3Selected employeesUp to 5-10%10.0%35.0%4All employees100%51.7%86.6% 
 
 
                                                      
Companies  provide  their  employees  with  stock  ownership  often  without  upfront  costs  to  the 
employees; they are, however, part of employees’ remuneration for work performed. There is also a 
link between the plan and pensions. 

The recent development of employee share-ownership schemes across Europe was mostly observed in 
listed  companies.  However,  many  unlisted  companies  also  have  some  form  of  employee  share-
ownership scheme. For instance, in Austria, although most employee share-ownership schemes are in 
large  companies  listed  on  the  stock  exchange,  there  are  some  models  for  smaller  companies.  In 
addition,  employee  share-ownership  schemes  can  be  developed  in  public  companies  as  well  as  in 
private  companies,  as  observed  in  Spain.  In  Sweden,  to  facilitate  small,  young  and  innovative 
companies in recruiting and retaining key personnel, specific rules on easing the taxation of employee 
stock  options  were  introduced  on  1 January  2018.  For  company’s  shares,  that  are  not  admitted  to 
trading on a regulated market, the benefit of an option may not be taxed as employment income. 

Table 3: Proportion of private companies offering employee share plans by employee representation and size class in EU-28 
in 2009 and 2013 (%) 

2.3.2.3

  Fiscal incentives 

Employee share-ownership schemes can be linked with tax-advantages, but not always. In some cases, 
employee  share-ownership  schemes  can  be  introduced  at  the  employer’s  discretion,  but  provide  no 
special  tax  incentive.  Such  schemes  may  be  used  for  granting  shares,  options  or  cash  equivalent 
without conforming to the requirements imposed on tax-advantaged plans. 

Fiscal  incentives  favouring  employee  share-ownership  schemes  have  been  observed  in  20  Member 
States in 2018 (up from 15 in 2015). For instance in Spain, the ‘Sociedades Laborales’ are exempted 
from taxes in connection with company formation and transformation, as well as capital gains. They 
are also exempted from notarial deeds on transfers to the company, from notarial deeds on bond debts 
and from debenture bonds. 

However,  providing  a  suitable  fiscal  incentive  is  generally  assumed  to  promote  employee  financial 
participation.  Member  States’  strategies  indicate  that  fiscal  benefits  lead  to  more  employee  share-
ownership  schemes.  For  example,  France  ‒  which  has  a  long  tradition  of  employee  financial 
participation  ‒  has  some  of  the  highest  fiscal  benefits  and  the  most  developed  employee  share-
ownership schemes in the EU. In contrast, in Germany fiscal benefits are low as is the use of employee 
share-ownership  schemes.  Also,  in  Denmark,  fiscal  incentives  were  phased  out  in  2012  and  most 
companies decided to no longer offer employee share-ownership scheme plans following the changes 
in legislation. 

Beyond  the fiscal  incentives,  employee  share-ownership  schemes  benefit employees  by  giving  them 
direct access to capital markets. However, the benefits received through such schemes in the form of 

32 

 
 
 
company  shares  may  have  otherwise  come  through  regular  monetary  remuneration.  In  this  case, 
locking employees into non-liquid savings could be considered as negative unless they perceive it as a 
‘compulsory savings’ mechanism. 

2.3.2.4

  Administration of employee share-ownership schemes 

Small  and  medium-sized  companies  regularly  cite  the  administrative  effort  as  an  obstacle  to 
introducing employee share-ownership schemes. It can be difficult for a company to know what the 
best  structure  for  an  employee  share-ownership  schemes  is  and,  in  general,  administering  employee 
share-ownership schemes can seem a complex and time-consuming task. A company wanting to set up 
an  employee  share-ownership  scheme  and  then administer it  may  need  access  to  outside  experts.  In 
most Member States, it is possible to fully or partially outsource employee share plan administration to 
professionals. An important consideration is employees’ lack of knowledge of how to deal with shares. 
In  most  Member  States,  companies  cooperate  with  financial  advisory  firms,  providers  of  integrated 
financial services and consulting firms to administer employee share-ownership scheme plans. 

When  employees  join  employee  share-ownership  schemes  they  normally  have  online  access  to 
information  about  the  scheme  and  their  holding.  However,  these  are  not  brokerage  accounts.  The 
online access is limited to the company’s stock. Furthermore, even though employees have access to 
online information about their share, they have limited discretion on what they can do with them, i.e. 
sell their shares or exchange them for other shares. 

2.3.3.

  Conclusion 

Building  on  previous  work  carried  out  by  the  Commission  and  other  EU  institutions,  the 
Commission’s departments will continue to work closely with industry stakeholders to promote best 
practice for employee share-ownership schemes to provide opportunities for individuals to get familiar 
with capital markets and give them a first insight into equity investment. 

3.  CONCLUSION 

The  Commission  has  delivered  almost  all  of  the  non-legislative  measures  of  the  Capital  Markets 
Union action plan and mid-term review. The measures outlined in this document along with the many 
initiatives undertaken by the Commission in the past 4 years, contribute significantly to more efficient 
and liquid capital markets in the EU. 

While  the  Commission’s  measures  are  already  starting  to  bear  fruit,  it  will  take  a  few  years  before 
their full impact is felt throughout the EU. It is up to the next Commission to decide on future policies 
that  will  complete  the  work  on  the  Capital  Markets  Union.  The  Commission’s  departments  will 
continue to monitor and assess the market situation and the results of the several studies planned or 
already under way will provide further input to help guide the work of the future Commission. 

33