Making strides towards a Capital Markets Union

On February 18th 2015, the European Commission set the wheels in motion for a fully functioning Capital Markets Union, through the launch of its green paper Building a Capital Markets Union (the "Green Paper").

"The goal is to build a true single market for capital for all 28 Member States by 2019."

In the Green Paper the European Commission identifies five priorities for early action:

i. lowering barriers to accessing capital markets ;
ii. widening the investor base for SMEs ;
iii. building sustainable securitisation ;
iv. boosting long term investment ; and
v. developing European private placement markets.


With respect to (i) above (lowering barriers to accessing capital markets), the European Commission has launched a parallel public consultation focusing specifically on the review of the current prospectus regime, Consultation Document - Review of the Prospectus Regime (the "PD Consultation Document"). The PD Consultation Document highlights several potential shortcoming of the current prospectus regime and identifies three fundamental aspects which need to be reviewed, specifically:

a. when a prospectus is need;
b. what information a prospectus should contain;
c. how prospectuses are approved.


With respect to item (iii) above (building sustainable securitisation), the European Commission has launched a second parallel public consultation to meet this objective, Consultation Document - An EU Framework for simple, transparent and standardised securitisation (the "Securitisation Consultation Document"). In the view of the European Commission, the development of a high quality securitisation market, which would rely on simple, transparent and standardised securitisation instruments, is an important step towards achieving a Capital Markets Union; a sustainable high quality securitisation market will promote further integration of the EU capital markets, support the diversification of funding sources, thereby freeing up capital and facilitate bank lending to those who need it.

The Securitisation Consultation Document asks a number of questions about the identification criteria for qualifying securitisation. It goes on to consider the prudential treatment of securitisations - including bank capital requirements - and the regulatory frameworks applicable to other institutional investors. Questions are also raised in relation to promoting SME securitisation. Apart from the above mentioned questions, the Securitisation Consultation Document includes also facts on securitisation markets in the US and in Europe. The Securitisation Consultation Document provides an overview of the framework for EU securitisation already in place. Relevant legislation includes, for example, the Capital Requirements Regulation for banks, the Solvency II Directive for insurers and AIFMD Directive for asset managers. Other legal provisions, notably on information disclosure and transparency, are laid down in the Credit Rating Agency Regulation (CRAIII) and the Prospectus Directive.

To sum up, the Securitisation Consultation Document seeks views from the stakeholders on how best to implement a high quality securitisation definition in EU legislation, and what requirements should apply to it - in terms of capital and solvency requirements, due diligence and transparency obligations.