Access to funding for businesses in the EU could become not just easier, but a lot more diverse, following the 30 September launch of a regional Action Plan for Capital Markets Union (CMU).
A long-discussed and keenly anticipated watershed among EU finance professionals, CMU aims to standardise rules and regulations on business lending in ways that would open up greater involvement from different non-bank sources, such as crowdfunding and angel investors – the latter type famously responsible for boosting the coffers of the US start-ups that went on to become global tech giants.
However, fulfilling that Action Plan is unlikely to be straightforward: a cornerstone of the process is that the European Commission will need to review around 40 pieces of national legislation that have been passed in the wake of the financial crisis, which set tighter terms on lending in efforts to minimise the risks associated with the crash.
Those laws will need to be amended to accommodate the liberalisation, and financial services commissioner Lord Hill has been tasked with itemising the changes and effecting them by 2019.
In a Commission statement, Hill said: “I want the CMU to help European businesses, and our SMEs in particular, have a wider range of funding sources. I want it to give SMEs more options for investing their money. I want to knock down barriers to make it easier for capital to flow freely across all 28 member states.”
Writing in the Financial Times, Hill elaborated on his vision. “In the US,” he explained, “small and medium-sized companies raise about five times as much funding from capital markets as in the EU.
“If European venture capital markets were as deep as those in the US, our companies could have raised an extra €90bn over the past five years. And the differences between EU countries are even bigger than those between Europe and the US.”
With stronger and more unified capital markets, he added, European firms could benefit from:
And by reducing reliance on bank funding, Hill added, “we could help make the financial system more resilient, particularly in the eurozone”.
BBA chief executive Anthony Browne said: “The UK banking sector is strongly supportive of the Commission’s plans to build a CMU that works for investors, businesses and, ultimately, consumers across the EU.
“We welcome the pragmatic and proportionate balance between legislative and non-legislative approaches within the Action Plan. Progress towards 2019 must be both visible and measurable, which is why the clear building blocks and deadlines set out today are a huge step in the right direction from Commissioner Hill.”
Browne added: “The Action Plan will unlock EU investment, better connect financing to investment opportunities, increase competition and create a more diverse and stable financial system.
“The BBA believes the Commission’s proposals will enable stronger capital markets and complement the already well-functioning European banking industry.”