European Commission Publishes Action Plan on Building Capital Markets Union

The CMU is intended to strengthen access to public markets in the European Union, particularly for small- and medium-sized enterprises (SMEs).

On 30 September, the European Commission (EC) published its action plan regarding the building of a Capital Markets Union (CMU)—a true single market for capital—for all 28 member states of the European Union.

The free movement of capital has been a longstanding objective of the EC. In furtherance of this objective, the EC’s action plan sets out five priority actions needed to put the building blocks of a CMU in place by 2019. The priority actions outlined by the EC include

1. providing more funding choices to EU businesses and small- and medium-sized enterprises (SMEs);
2. ensuring an appropriate regulatory framework for long-term investment and financing of Europe’s infrastructure;
3. increasing investment and choices for retail and institutional investors;
4. enhancing the capacity of banks to lend; and
5. eradicating cross-border barriers and developing more consistent capital markets for all EU member states.

This LawFlash will focus on the first of the priority actions listed above: providing more funding choices to EU businesses and SMEs.

Strengthening Access to Public Markets

The EC plans to provide more funding choices to EU businesses and SMEs by reducing (or removing) the barriers that tend to limit the ability of smaller companies to access certain sources of equity and debt finance, including public markets, venture capital, and other sources of equity financing. The first step proposed by the EC is a plan to review and modernise the Prospectus Directive to improve access to public markets—particularly for SMEs.

The current Prospectus Directive provides for an EU-wide regime for prospectuses such that there is an equivalent level of investor protection across the European Union. However, prospectuses are expensive and administratively burdensome for companies to produce, and the cost of listing (particularly for SMEs) can represent a significant proportion of the funds being raised. As a result, the EC is proposing to amend the Prospectus Directive to reduce the cost of public fundraisings. The proposals include a review of the circumstances for when a prospectus is needed, slimming down the information required to be included in a prospectus, and streamlining the approval process. The EC is also proposing to create a more proportionate prospectus regime for SMEs.

The EC will explore how to support SMEs through the listing process through European advisory structures such as the European Investment Advisory Hub. In doing so, it will review the regulatory requirements for small firms listing on equity and debt markets (in particular, the new SME Growth Markets introduced by MiFID II) and work together to ensure that there are less onerous listing requirements without compromising investor protection. The EC will also work with the International Accounting Standards Board to explore the possibility of introducing a voluntary, tailor-made accounting solution for companies admitted to trading on SME Growth Markets.

Future Developments

The EC’s proposals for modernising the Prospectus Directive are expected before the end of 2015, while the review of the regulatory requirements for small firms listing on equity and debt markets will commence in 2017.

It will be an interesting three years watching the building blocks of the CMU fall into place. This LawFlash is the first in a series that will follow the key developments of the CMU as they unfold.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

London
Iain Wright
Jayne McGlynn