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Developing equity financing in the EU - Financing of the EU economy
Now is the time to really invest in CMU as the ‘Promised Land’
By De Backer Philippe - MEP, Committee on Economic and Monetary Affairs, European Parliament
CMU was sold as the ‘Promised Land’ with deeper and more integrated capital markets in Europe. It could not have come at a better time with a globalising economy and technological developments. Capital markets are currently witnessing a wave of disruption and innovation, driven by new technologies. From crowdfunding to smarter smartphones and FinTech, these are changes that will revolutionize the way we think about and interact with the world of finance as businesses, investors and consumers. This increased access and transparency through technology can help drive an equity culture but only if European regulation is there to support it.
At the moment Europe’s businesses – especially SME growth companies – cannot fully exploit opportunities because they lack sufficient access to venture capital and the capital markets. Moreover, Europe’s investors cannot fully exploit opportunities because they lack easy and transparent access to equity investments and do not have an equity culture. The key issue here is a lack of convergence between Member States.
For instance, looking at one of the most important pillars of CMU, the Prospectus Directive Review, we see that the Commission is delivering only on part of its promise. Although the EU Prospectus Regulation will convert rules and procedures for large public offerings, it does not apply convert for smaller companies such as high growth companies. As a result, we could end up with 28 different regimes depending on Member States appetite. This fragmentation hampers the functioning of a single capital market and the creating of an equity culture.
An equity culture cannot be dictated by regulation; it can only be facilitated.
In order to get CMU right for investors and issuers we need to view it from a different perspective. What do they expect from a single EU capital market? Issuers expect the same rules and procedures for accessing capital markets, and they expect these to be proportionate for their size. Investors expect to be able to invest across the EU with the same transparency rules and protection. At the same time, we must make way with the zero-risk mentality in Europe. Regulators have protected investors so much that their access to equity markets is diminishing. With the right uniform information and protection investors must be trusted to make their own investment decisions. An equity culture cannot be dictated by regulation; it can only be facilitated.
In general CMU should be aimed at incentivizing an equity-based culture and leveraging technology to remove remaining barriers to access for individual and institutional investors. Possible actions could include a level the playing field in the taxation of debt and equity financing and removing barriers to cross-border investment.
For me it is clear. Without the convergence of rules and procedures and democratisation of investments there won’t be a European single market for capital that can ride the technology wave. The missing piece of the puzzle is the Member States. What vision did they have in mind when they voted in favour of CMU? My message to the Member States is, without an investment in CMU you won’t get a return. Now is the time to invest.