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Financing of the EU economy - Is the CMU on the right track?

Capital Markets Union: Maintaining momentum

By Grilli Vittorio - Chairman of the Corporate and Investment Bank, J.P. Morgan


Six months on from the publication of the Capital Markets Union (CMU) Action Plan is a good moment to reflect on progress made and what still lies ahead.

Complementing Europe’s strong tradition of bank financing, a properly functioning CMU will unlock more investment from within the EU and help mobilise capital channelling it to all sectors of the economy, including SMEs, and infrastructure projects. It will also provide households with better options to meet their retirement goals.

In order to put in place the building blocks of this CMU by 2019, the European Commission has, rightly, distinguished between shorter and longer term goals.

In the short-term, the Commission has published constructive legislative proposals to revive the securitization markets, make it easier for firms to issue a prospectus, and facilitate insurers investing in infrastructure. We support these initiatives, which will help align savers and investors in Europe in a more efficient way.

In Italy, we sometimes say, “chi ben comincia è a metà dell’opera”, a good start is half the work. However, it is vital that EU policymakers keep up the momentum on these short term goals. The European Parliament and Member States should maintain the same level of urgency as the European Commission, while also giving due attention to quality of the legislation. The basic principles of the CMU, especially openness to third country access, should also not be forgotten in the rule-making process.

While concentrating on short term goals, we must not lose sight of the bolder and more ambitious longer term goals of CMU. For example, the Commission does not shy away from harmonization of securities ownership rights and insolvency law, which have largely been the prerogative of individual Member States. The European Commission is keen to make it easier to distribute and market investment funds across borders, which is a praiseworthy goal that will lead to investors in Europe having greater choice among more competitive products while further enhancing the competitiveness of Europe’s funds industry on the global stage.

I believe the European Commission is correct in taking time to consult with various stakeholders on how to best translate these plans into concrete policy actions. There will be many practical and legal challenges related to the completion of the single market in financial services and consultation should increase the overall quality (rather than the quantity) of financial services legislation. Policymakers should be ambitious towards addressing policy objectives in a targeted, focused manner, thus avoiding the long-term impact caused by imprecise rules.

In that spirit, we welcomed and have responded to the European Commission’s call for evidence on the EU regulatory framework for financial services. We support much of the regulatory reform agenda to date. We believe that the financial system is now safer and more resilient, and that capital markets are more robust and transparent than ever before. However, we also feel that the significant volume of legislative change may have led to inconsistencies, gaps and unintended consequences, which could impact market liquidity, systemic resilience or hinder our ability to meet our clients’ needs and help the economy to grow. We would welcome a periodic review of the legislative agenda, which could regularly benchmark regulation against the objectives of growth and resilience.

While we urge policymakers to continue to be move forward with the CMU in a thoughtful and ambitious way, the responsibility falls equally on market participants to support the momentum. We are committed to continuing to advise policymakers on what we think works well and less well. It is only by working together – regulators, policymakers and practitioners – that we can turn a good start into an even better ending.