A consultation document released today said the union will span all 28 EU member states and aims to further stabilise the EU financial system by opening up a wider range of funding sources.
The news comes after the European Central Bank (ECB) last month announced plans to inject €1.1trn into the eurozone in order to combat deflation.
“Compared to other parts of the world, European businesses remain heavily reliant on banks for funding and relatively less on capital markets,” said the Commission. “Stronger capital markets would complement banks as a source of financing.”
It said that over the next few months it will:
- review the prospectus directive to make it easier for firms, particularly smaller ones, to raise funding and reach investors cross border;
- work with the industry to put into place a pan-European private placement regime to encourage direct investment into smaller businesses, and;
- support the take up of new European long term investment funds to channel investment into infrastructure and other long term projects.
The Commission also said it is important that the new Union focuses on accommodating international investment into the pan-European market.
It hopes to utilise the EU’s international trade and investment policy, which aims to liberate the international movement of capital.
It will also contribute to international work on the free movement of capital, including the OECD Codes of Liberalisation of Capital Movements, which legislates the non-discriminatory liberalisation of capital movements.
“Direct marketing of EU investment funds and other investment instruments in third countries should be facilitated,” it said. “This could be achieved by reducing barriers for EU financial institutions and services to access third country markets, including opening markets for cross border asset management in future trade agreements.”
Richard Metcalfe, director of regulatory affairs at The Investment Association (IA) said he supported the proposals as the potential benefits of a retail capital markets union are “enormous”.
“It certainly needs a consistent approach to investment protection, which does not currently operate to the same high standard for all investment products.”
He added that the IA intends to put forward proposals regarding issues in wholesale markets to ensure that “systematically benign finance can complement existing funding channels”.
The European Fund and Asset Management Association (EFAMA) said an integrated capital market will help unlock capital and shift it towards investments in long-term projects, reducing the cost of investment funds and pensions savings for investors.
“A more capital market-based economy is one of the key solutions that will enable Europe to get back on the road towards growth recovery, and European asset managers have a crucial role to play in this changing landscape,” it said.
The association’s director general, Peter De Proft, said an EU-single market for personal pension will also play an important role in broadening capital markets in Europe.
“In particular, a pan-European pension product would help overcome the current fragmentation of the European pension systems by stimulating cross-border market integration.
Dependant on the results of the consultation, the European Commission will invite member states to organise consultation with the public and national parliamentarians to promote discussion on a capital markets union at a national level.
It will organise a conference this summer to draw the consultation to a close, while an action plan on the union will be published later in the year.