EU: Eurogroup finance ministers set the Capital Markets Union priorities for 2024-2029 | Hogan Lovells

What is the Capital Markets Union (CMU)?

The CMU is the EU’s initiative to create a truly single market for capital across the EU, with investment and savings flowing across all member states for the benefit of businesses and retail investors. The European Commission put forward its first CMU action plan in 2015 and whilst a lot of work has been done since, there is much more to do to achieve a well-functioning CMU. Barriers continue to exist, in particular, in the areas of supervision, taxation and insolvency.

Eurogroup Statement on priority areas for action

The Eurogroup statement issued on March 11 2024 is a political statement agreed by all 27 finance ministers across the EU and identifies priority areas for action for the next European legislative term of 2024-2029 to be progressed by the European Commission. Prior to issuing the statement, the Eurogroup analysed the current situation across Europe and internationally, using information gathered from the EU institutions and the IMF, whilst also engaging with market participants regarding their experience of institutional and retail investment within the EU market.

What is the A, the B and the C of capital markets?

The A, the B and the C of capital markets are the three following priority areas for action identified by the Eurogroup where measures are necessary to improve the functioning of the European capital markets.

• A.  Architecture: refers to the development of a smarter and more streamlined regulatory and supervisory system allowing funds to be better channelled into innovative EU businesses, with greater liquidity, risk taking and risk sharing together with higher resilience and financial stability.
• B. Business: refers to the aim of ensuring better access to private funding for EU businesses to invest, innovate and grow in the EU.
• C: Citizens: is the aim of creating better opportunities for EU citizens to accumulate wealth and improve financial security, by increasing direct and indirect retail participation through access to profitable investment opportunities.

The Eurogroup highlights the following specific measures which it considers to be imperative and urgent to be taken forward into the next European legislative term:

• Developing the EU securitisation market to allow for the efficient and transparent transfer of risks – the Eurogroup invites the European Commission to comprehensively assess the supply and demand factors holding back the development of the securitisation market in the EU with the review covering the prudential treatment of securitisation for banks and insurance companies and the reporting and due diligence requirements.
• Further supervisory convergence of capital markets across the EU – the Eurogroup invites the European Commission to assess ways to improve supervision in the EU through further developing the common rulebook as well as examining a broad range of options to enhance supervisory convergence through a more efficient and effective use of the existing powers of the European Supervisory Authorities and a possible targeted strengthening of their role and governance arrangements.
• Reassessing the regulatory framework to reduce regulatory burden and transaction costs for market participants – this is aimed at improving the EU’s competitiveness as a financial hub particularly for smaller market participants.
• Targeted convergence of national corporate insolvency frameworks – to facilitate further convergence in specific features of insolvency frameworks that could deter cross-border capital markets/investments notably the ranking of claims and insolvency triggers or the rules for financial collateral and settlement.
• Further harmonisation of accounting frameworks – to enhance the cross-border comparability of available information on companies.
• Increase the attractiveness of capital market funding for companies –  through better integrated market infrastructure in the EU and through further convergence and harmonisation of listing requirements across the European exchanges to ensure lower costs and easy access to make equity and bond financing in the EU more attractive, including for SMEs.
• Foster equity financing through well-designed corporate tax systems – to ensure EU companies have access to diversified sources of funding.
• Improve conditions for institutional, retail and cross-border investment in equity – in particular in growth/scale up venture capital.
• Bolster the EU’s edge in sustainable finance by scaling up the impact of the EU framework.
• Create an attractive, easy-to-use and consumer-centric investment environment.
• Support the wider use of longer-term savings and investment products, including through occupational and personal pension schemes.
• Facilitate the strengthening of an investor/shareholder culture amongst EU citizens to increase retail participation.

Next steps

The Eurogroup commits to monitoring progress on the measures set out in its report under the above mentioned categories at national and EU-level and to conducting regular performance reviews of European capital markets. Emphasising the urgency, the Eurogroup has called on Member States to swiftly implement the already adopted European legislative measures and looks forward to a rapid completion of the outstanding legislative work following the 2020 CMU action plan while inviting the industry to anticipate regulatory changes to ensure a smooth implementation of the measures aimed at building a genuine CMU.

EU Heads of State, the Euro Summit President, President of the ECB and President of the European Commission will take stock of the Eurogroup’s statement at the Euro Summit on March 22 2024. This statement, following on from ECB President Lagarde’s European Banking Congress speech, signals a renewed urgency to strengthen EU capital markets. This has the potential to result in significant incentives for investors to help provide vital funding to boost innovation and economic growth in the EU.