Roadmap for the Capital Markets Union to 2019

The Capital Markets Union remains a key foundation of European integration (see info box). The European Commission continued to advance this project in 2016.

The term "Capital Markets Union" brings together numerous measures. These include a securitisation framework, changes for insurers concerning risk calibration for investments in infrastructure and European long-term investment funds, and amendments to the Regulation on European Social Entrepreneurship Funds (EuSEF) and the Regulation on European Venture Capital Funds (EuVECA). It also includes a European framework for covered bonds and an analysis of the effects of financial market regulation on investors.

In its progress report dated 14 September 2016, the European Commission set out the progress made in implementing the Capital Markets Union. The following serve as examples:

Amendment of the Solvency II regime

Delegated Regulation (EU) 2016/467², which entered into force in April 2016 and amends Solvency II, is the first Capital Markets Union measure implemented to promote infrastructure investments. The initiative affects how regulatory capital requirements are calculated; BaFin published corresponding information on "day 1 reporting".

New Prospectus Regulation

In December 2016, the European Parliament and the Council paved the way for a new Prospectus Regulation that will make it easier for small and new enterprises in particular to access the capital market through expanded exemptions and partially relaxed prospectus requirements.³

Venture capital funds/social entrepreneurship funds

In July 2016, the European Commission published a proposal to amend the Regulation on European Social Entrepreneurship Funds and the Regulation on European Venture Capital Funds. This is a key element of the Capital Markets Union action plan and is aimed at helping diversify sources of funding and free up capital by simplifying access for investors, fund managers and portfolio companies to EuVECA and EuSEF funds.

New securitisation framework

The European Commission intends to reinvigorate the securitisation market to improve funding for infrastructure projects as well as SMEs, and to expand the investor base. For this purpose, the Commission published a package of two legislative proposals in September 2015.

One of these is a cross-sectoral securitisation regulation that will be applicable to all securitisations. It contains due diligence requirements for investors, retention requirements for originators, sponsors or original lenders, and transparency requirements.

In addition, the regulation defines the criteria for simple, transparent and standardised securitisations (STSs) and outlines a specific supervisory architecture for them. Under the Commission's proposal, the European Securities and Markets Authority would maintain a publicly available list showing which securitisations are STSs. This list is intended to be based on a self-assessment by the parties to a securitisation, but modifications may also be made by the competent supervisory authorities. Consultation within the European Parliament took place between the summer of 2016 and the end of the year, with the discussion focusing in particular on the amount of the risk retention. The trilogue negotiations began in January 2017.

The plan is for banks to face lower regulatory capital requirements for STS securitisations than for other securitisations. The second legislative proposal therefore concerns the Capital Requirements Regulation (CRR). The Commission intends to amend it to make banks' capital requirements for securitisation exposures more risk-sensitive, which also includes the simplifications for STS securitisations already mentioned. Similar arrangements are to be put in place for insurers. The supervisory treatment of securitisations for insurers is specified in a delegated act to Solvency II. BaFin believes that it is imperative for the lessons learned from the financial crisis to be taken into account when developing a new securitisation regime. In this regard, especially this new type of simpler, more transparent securitisation is very welcome.

Consultation on covered bonds

As part of its efforts to create the Capital Markets Union, the European Commission held a consultation on covered bonds which lasted until the beginning of 2016. Based on the consultation and as part of the upcoming mid-term review of the Capital Markets Union in June 2017, the Commission intends to present the legislative amendments that may be necessary to help develop the market for covered bonds throughout the EU. The Commission's assessment in the consultation paper is that the market is currently fragmented as a result of national regulations. It attributes this primarily to the different national jurisdictions and supervisory practices. However, these national differences also stemmed from the close link between the regulations on covered bonds and the non-harmonised insolvency laws in the member states. As part of the consultation process, the German delegation emphasised in particular the great significance of the market for local Pfandbriefe and the important role that these bonds play in funding. Should EU law be modified, particular care must be taken not to adversely affect well-functioning markets for covered bonds such as the German Pfandbrief market.

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