UK: Capital Markets Union: Positive First Steps

Last Updated: 24 February 2015
Article by David Strachan and Tim Rawlings

Most Read Contributor in UK, August 2017

The European Commission has fired the starting gun on the Capital Markets Union (CMU), the flagship agenda to deliver a single market for capital, by publishing its widely trailed first green paper (GP). In December we set the scene for the rapidly evolving CMU agenda and, although the GP is wide ranging, it contains little new information. 


The principles adopted for the CMU coincide with those of the Juncker Commission's growth agenda: maximising economic growth, increasing financial stability, removing barriers to cross-border investment, ensuring consumer protection, and enhancing competition. They apply to all 28 Member States.

The Commission's Approach

The Commission intends to take a "bottom-up" approach which will be "based on an assessment of the outstanding priorities, both in terms of likely impact and feasibility, underpinned by thorough economic analysis, impact assessment, and consultation." Further, the Commission makes the case that legislative and regulatory change will only be undertaken where necessary, with emphasis given to "market driven solutions". This approach aligns with signals sent by the Commission to date, that it will be pragmatic, tackling each issue or barrier at a time rather than developing a legislative agenda on the scale of the Financial Services Action Plan or the post-crisis reforms under Commissioner Barnier. Competing interests in the CMU agenda could make it difficult for the Commission to stay this course. 

Early Initiatives

The Commission has identified five areas "where there is potential to make early progress". All five are existing areas of work by the Commission, the market or other public bodies, that have been subsumed into the CMU agenda.

  1. Review of the Prospectus Regime – The Commission has launched a parallel consultation reviewing the prospectus regime, focusing on the triggers for when a prospectus is required, requirements for prospectus approval, streamlining the process, and simplifying the content, with the aim of reducing the administrative burden of issuing securities.


    Despite a number of recent and ongoing revisions to the prospectus regime, this latest review will revisit the amendments as well as fully assess the current impact of the regime and whether it disproportionately inhibits the issuance of equity and debt. The consultation highlights shortcomings in the current regime such as the costs, complexity, the length of prospectuses, and differences in application between Member States.

    The review includes: the calibration of existing exemption thresholds; the creation of an exemption for secondary issuances; extension of the regime for issuance on MTFs (although under the 'proportionate disclosure regime', which will itself be revised); a bespoke regime for admission to 'SME Growth Markets' (under MiFID); extension of the base prospectus facility; and harmonisation of the sanctions and liability requirements across Member States.

    If the Commission can introduce sufficient flexibility with proportionate requirements tailored to different participants, the reformed prospectus regime could extend access to the capital markets to a much large number of corporates while also reducing their costs.

  2. High Quality Securitisation – Building on separate consultations by the ECB/Bank of England and BCBS/IOSCO the Commission published a consultation seeking to develop simple, transparent and standardised (STS) securitisations. The aim is to revive the securitisation market, allow efficient and effective transfer of risk, enable securitisation to act as an effective funding mechanism for a broader range of market participants, and manage systemic risk.

    The capital framework for banks, insurers and investment firms will differentiate the treatment of STS from other securitisation to reflect different risk profiles. This could address market concerns about the calibration of risk weights. The method for identifying qualifying STS securitisation is broadly based on that used for the liquidity coverage ratio and the criteria developed by BCBS/IOSCO.

    Qualifying STS would likely have to comply with disclosure and transparency requirements, be limited to simple structures with homogenous pools of assets with a 'true sale' rather than a synthetic structure, ensure the creditworthiness of the borrowers is compliant with mortgage and consumer credit protections, and be listed on a trading venue. Derivatives would be limited to hedging purposes only and re-securitisation would be excluded. As qualifying STS would potentially benefit from more favourable capital treatment, this could lead to a split in the securitisation market between qualifying STS and non-qualifying STS.

    Further aspects of the consultation include: identification criteria for short-term securitisations; streamlining risk retention requirements for investors; a standardised structure for securitisation (legal form of the SPV, forms of transfer, and the rights and subordination of shareholders); monitoring and verification mechanisms for compliance with the STS criteria; and securitisation for SMEs. 

  3. Pan-European Private Placements (PEPP) – The private placement market differs to other areas of the CMU as there is known to be existing market demand. European companies have been accessing the US PP market for some time; more recently Germany has developed the Schuldschein market and France a PP market through the development of Euro PP.

    The next phase of development is already underway - led by the market a PEPP guide and standard documentation have been created, which "evolved" out of Euro PP. Despite this recent push to standardise and reduce costs, barriers to a PEPP still exist such as fragmented withholding tax regimes, insolvency and company law, which - if not tackled - will limit the growth of this market. 

  4. Improving SME Credit Information – Overcoming SME information asymmetries can be split into three subtopics, (i) standardised and common credit information, (ii) harmonised financial reporting, and (iii) a central database where market participants can access data.

    The GP seeks to achieve (ii) through harmonising accounting standards. The EU mandates IFRS for consolidated financial statements of companies with securities admitted to trading on an EEA regulated market. Below this level some harmonisation is provided through the EU Accounting Directive. However, financial reporting remains fragmented on national levels. One potential solution is to adopt an approach similar to that taken by the UK through FRS 101 and 102. FRS 101 enables most subsidiaries, in their individual financial statements, to use recognition and measurement bases of IFRSs but with less disclosure. FRS 102 is an accounting standard based on the IFRS for SMEs but amended to make it more suitable for UK companies. Achieving harmonised accounting standards is achievable in principle, but recent experience shows how difficult this might be in practice, for example the failure to get the IFRS for SMEs endorsed for use across Europe.

    Initiatives are already underway with a view to achieving (i) and (iii). The ECB is working towards a Central Credit Register for the Eurozone by 2017. HM Treasury and the Bank of England have also consulted on the mandatory sharing of SME credit data between lenders through Credit Referencing Agencies, and potentially reviving the UK Comprehensive Business Register. Overcoming the information problems would be a significant step forward to increase bank finance but also to enable non-bank financing. 

  5. Encouraging the uptake of European Long Term Investment Funds (ELTIF) – The proposed ELTIF regulation is aimed at aligning long-term investment strategies with returns and providing an EU vehicle for, inter alia, infrastructure finance. ESMA is expected to commence its work on the technical standards during 2015.

    Areas 1 - 4 of the Commission's early priorities for the CMU are focused on SMEs, but alongside SMEs in the Commission's 'investment plan for Europe' sits infrastructure investment. The Commission seeks to encourage the uptake of the ELTIF vehicle. However, it is still too early to see what effect ELTIFs will have on long-term finance. 

Medium to Long-Term Initiatives

Looking beyond these five 'quick wins', the Commission will seek to focus on a broad range of potential areas to secure cross-border finance, develop a deeper capital pool and overcome information problems. These initiatives are likely to include bonds (covered, green and mini bonds), a review of the EU venture capital directive, insolvency law, tax, company law, FinTech (including crowdfunding), pension provision and products, private equity, leverage loans, corporate governance and market infrastructure. 

Policy Tension

The GP sets out the intention to revisit decisions made in the middle of the crisis to ensure the right balance between financial stability and growth has been struck. While review of the market and regulation may identify legitimate cases where the regulatory standards are disproportionate when applied in practice and that inhibit growth, determining the level that balances growth and stability is likely to be a point of political sensitivity. Although the GP does identify aspects of, e.g., Solvency II and the Prospectus Directive that could be revisited in order to develop the CMU, there is – unsurprisingly – a notable absence of ambition to re-open Directives and Regulations that have recently been agreed. This may leave some in the industry disappointed.


The barriers to the development of the CMU identified in the GP are not new and have been widely reported; these include inter alia a historical bias to certain sources of finance, different characteristics of pension provision, and heterogeneous equity cultures. Moreover, the GP does not give sufficient weight to other barriers such as tax and insolvency which will limit how far the CMU, and even the early initiatives, can progress. The Commission's approach turns on quick wins to kick start the single market in capital and pushes these bigger barriers into the long grass, at least for now. While this approach is politically pragmatic given the difficulties and sensitivities involved in obtaining even small reforms in these areas, e.g. tax requires unanimity in the Council, the CMU agenda is unlikely to be achieved unless these issues are tackled.


Some stakeholders have concerns that the CMU could lead to a single supervisor for EU capital markets. The paper has very little to say on this beyond: "there may be a further role for the European Supervisory Authorities to play in increasing convergence". 

Timetable & Next Steps

The Commission's focus on market-based solutions over legislative ones is very welcome, as is its emphasis on the need for analysis of the barriers facing CMU before jumping to solutions. The 'quick wins' are important, but the changes which could really drive the CMU forward – insolvency and tax reform – remain distant and difficult. The road to CMU looks to be long and winding.

Responses to the GP are due by 13 May 2015. The Commission will host a conference in Q3 2015 and a roadmap is expected to be delivered in Q4 2015. The Commission aims to put in place the building blocks of CMU by the end of its mandate in 2019.

Market participants, trade associations, corporates and investors across the EU should all be actively engaging with the GP and the Commission. The breadth of the CMU requires those on the supply and demand side as well as intermediaries to participate with the CMU if its aims are to be achieved.  To find out more about the outlook for financial regulation and the Capital Markets Union see our regulatory top 10 predictions for 2015

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.