EU Flash: European Commission takes new measures to further strengthen the Capital Markets Union and the Banking Union


The European Commission presented seven new proposals on European financial markets, including a proposal for changes to SME listings rules, proposals encouraging sustainable finance and investments and a proposal to enable sovereign bond-backed securities.

Below you can find a summary of these topics.

Capital Markets Union: better access to financing through capital markets for SMEs

The Commission proposed new rules aiming to make it easier for small and medium enterprises (SMEs) to get financing through public markets. The initiative should help EU companies to tap market-based funding more easily and cheaply so that they can expand.

The aim is to avoid excessive administrative burden for SMEs trying to list and issue securities on 'SME Growth Markets', a new category of trading venue dedicated to small issuers, and to foster the liquidity of publicly-listed SME shares.

The initiative should boost the number of initial public offerings (IPOs) by SMEs and enable companies listed on those markets to attract a broader range of investors.

This legislative proposal will bring technical amendments to the Market Abuse Regulation and the Prospectus Regulation, as well as to delegated acts under MiFID II.

Sustainable finance: Making the financial sector a powerful actor in fighting climate change

The European Commission proposed a number of measures to promote sustainable finance,  confirming Europe's commitment to be the global leader in fighting climate change and implement the Paris Agreement.

Key features of the measures

  • A unified EU classification system ('taxonomy'): criteria for determining whether an economic activity is environmentally-sustainable, thus providing clarity on which activities are considered sustainable so investors take more informed decisions.
  • Investors' duties and disclosures: consistency and clarity on how institutional investors, such as asset managers, insurance companies, pension funds, or investment advisors should integrate environmental, social and governance (ESG) factors in their investment decision-making process. In addition, asset managers and institutional investors would have to demonstrate how their investments are aligned with ESG objectives and disclose how they comply with these duties.
  • Low-carbon benchmarks: new category of benchmarks, comprising the low-carbon benchmark or "decarbonised" version of standard indices and the positive-carbon impact benchmarks that reflects companies' carbon footprint and gives investors greater information on an investment portfolio's carbon footprint.
  • Better to advice to clients on sustainability: consultation to assess how best to include ESG considerations into the advice that investment firms and insurance distributors offer to individual clients. When assessing if an investment product meets their clients' needs, firms should also consider the sustainability preferences of each client.

Financial Union: proposal to enable sovereign bond-backed securities

The Commission launched a new  proposal to remove unwarranted regulatory obstacles by granting sovereign bond-backed securities (SBBS) the same regulatory treatment as national euro-area sovereign bonds denominated in euro. SBBS are a diversified pool of euro-area sovereign bonds which include sovereign bonds from all euro area Member States according to their economic weight. When buying SBBS backed by that pool, investors can choose to buy the higher or the lower risk securities, depending on their risk appetite.

These securities would be issued by private institutions as claims on a portfolio of euro-area government bonds. Investing in such new instruments is intended to  help investors such as investment funds, insurance companies, or banks to diversify their sovereign portfolios.

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