Capital Markets Union should ease cross-border investment and finance for SMEs 

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The EU Capital Markets Union (CMU) should provide a new, more efficient way to channel savings into small business ventures and protect cross-border investors in the EU, says a non-binding resolution voted on Thursday. MEPs want CMU building blocks, such as a wider range of investment choices, risk mitigation tools and clear information on investment opportunities across the EU to be in place by 2018, so as to complement bank financing. The CMU project was launched earlier this year.

Reliable non-bank sources of business finance should be further developed alongside well-established bank financing, says the text. EU firms will be less vulnerable to tight bank lending terms if market players are able to raise debt, equity and venture capital directly from the market, it adds.

 

Protect and inform investors


MEPs stress that for the CMU to function smoothly, cross-border insolvency rules must be made to work. They also call for a recovery and resolution framework to be set up for non-banks, in particular central counterparties, i.e. intermediaries between buyers and sellers who manage the risk arising when an investment party defaults on a deal.


High-quality, easily comparable financial information on firms seeking crowd funding or peer-to-peer loans should be available across borders, say MEPs. They underline that small and medium-sized enterprises (SMEs) and retail investors need financial education to help them to avoid risky investments and better inform them of the range of products on the market, such as equity or corporate bonds.

 

Focus on SMEs


To help SMEs to raise money on financial markets, regulatory requirements need to be SME-friendly, procedures simple and the administrative burden proportionate. For example, EU member states should review equity financing rules that are too burdensome for private companies, says the text.


Possible changes or additions to existing financial rules should aim to remove entry barriers for SMEs, improve access to finance for innovative companies and ensure that prudential standards are proportionate to the risks that such companies may cause. MEPs believe that simple transparent and standardised securitisation (i.e. pooling together various types of debt to create new high-quality financial instruments) may be useful for some SMEs. They also note that as a highly diverse group, SMEs should have access to various instruments to improve financing.


Finally, MEPs stress that to ensure that capital flows efficiently across the EU the CMU legislation needs to be brought into force in all member states, and accompanied by a certain degree of standardization in the financial markets.

Facts 
  • The European Commission officially launched the CMU project in February 2015, with green paper consultations. An action plan should be presented by the end of this year.