On Friday, the European Commission (EC) adopted the capital market recovery package, which is part of the commission’s overall strategy for recovery after the Covid-19 crisis, the EC Representation in Latvia told the Press Office.
The package proposes targeted changes to capital market rules that will encourage more investment in the economy, allow companies to recapitalize quickly and increase banks’ ability to finance recovery, the commission said.
The EC had already proposed a Banking Package on 28 April to ease bank lending to households and businesses across the European Union (EU), while measures adopted on Friday aim to help capital markets support European companies to recover from the crisis.
Valdis Dombrovskis (JV), Vice-President of the Commission for Economics for the People, said that the EC was continuing its efforts to help EU citizens and businesses during the crisis and the subsequent recovery from the new coronavirus. One way to do this is to help companies raise capital in public markets.
“The targeted changes adopted today will make it easier for our companies to get the finance they need and invest in our economy. Capital markets are vital to recovery, as public funding alone will not be enough to revitalize our economy. In September, we will present a broader Capital Markets Union action plan.” emphasized Dombrovskis.
The package includes adjustments to the Prospectus Regulation, the MiFID II Directive and securitization rules. All the amendments are at the heart of the Capital Markets Union project, which aims to better integrate national capital markets and ensure equal access to investment and financing opportunities across the EU, the EC said.
A prospectus is a document that companies must disclose to their investors when they issue shares and bonds. The EC proposed on Friday the creation of an “EU recovery prospectus” – an abbreviated prospectus – for companies operating in the public market.
This interim prospectus would be easy for companies to prepare, easy for investors to read and easy for national competent authorities to verify, the EC explained, stressing that it would reduce the length of the prospectus from hundreds of pages to just 30 pages. This will help companies raise capital, such as stocks, rather than increase debt. The second set of amendments to the Prospectus Regulation aims to make it easier for banks, which play a key role in financing the recovery of the real economy, to raise funds.
On Friday, the EC proposed some targeted changes to MiFID II requirements to reduce the administrative burden faced by experienced business-to-business investors. Less experienced investors will remain as protected as before.
These amendments address a number of requirements that were already identified in the public consultation as being too burdensome or hindering the development of European markets. Given the current crisis, it is even more important to alleviate unnecessary burdens and provide opportunities for emerging markets. The EC therefore proposed redrafting the requirements to guarantee a high level of transparency for the customer, while also ensuring the highest standards of protection and reasonable compliance costs for European companies.
At the same time, the Commission launched a public consultation on Friday on amendments to the MiFID II delegated directive to extend the research coverage regime to small and mid-cap issuers and bonds. Small and medium-sized enterprises (SMEs) in particular need a good level of investment research to be sufficiently visible to attract new investors.
“Today, we are also proposing changes to the MiFID rules that affect energy derivatives markets. This is to help develop euro-denominated energy markets, which are important for the euro’s international role, and to allow European companies to cover their risks while maintaining commodity market integrity. particularly for agricultural products, “stressed the EC.
The Commission is proposing a package of measures amending the Securitization Regulation and the Capital Requirements Regulation. Securitization is a tool through which banks can pool loans, securitize them and sell them on the capital markets. The aim of these changes is to facilitate the use of securitization in Europe’s recovery by enabling banks to expand their lending and free their balance sheets from non-performing exposures.
In the Commission’s view, it is appropriate to allow banks to transfer part of the risk of SME lending to the markets so that they can continue to lend to SMEs. In particular, the Commission proposes to establish a specific framework for simple, transparent and standardized on-balance sheet securitisations that would benefit from a prudential approach that reflects the real risk of these instruments.
In addition, the Commission proposes to remove existing regulatory barriers to the securitization of non-performing exposures. This can help banks get rid of non-performing exposures that are expected to increase due to the coronavirus crisis.
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