Only two years ago the European Union adopted two regulations that serve as the pillars of the European Banking Union. In October 2015, the Commission launched an ambitious plan to establish a European Capital Market Union until 2019. Although both “unions” go in the same direction – an even more integrated and centralized European financial market – and use the same institutional instruments, they are based on a different motivation.
By Peter Sester (Reference: CapLaw-2015-56)
While the Banking Union and its two pillars, the Single Supervisory Mechanism Regulation and the Single Resolution Mechanism, are characterized by a highly risk-adverse, if not overshooting, post-crisis driven motivation, the European Commission finally seems to realize that competitive financial markets and a regulatory framework that is more friendly to risk taking is absolutely necessary to inject the desperately needed oxygen into the economy of the EU member states, particularly but not only in the Mediterranean.
For the first time since the Financial Service Action Plan of 1999 the European Commission addresses the task to build a fully integrated European capital market capable of competing with leading international financial markets, particularly the ones in the US. Therefore, re-calibration of over-risk-averse banking regulation is proposed with regard to specific sectors of the financial market: securitization and infrastructure finance in particular. Further objectives of the Action Plan on Building a Capital Market Union are:
- growth and attractiveness of the European capital market (and its corporate sector) for investors from third countries,
- coming closer to the depth and structure of the US capital market, which is considered as benchmark,
- facilitating larger volumes of direct financing through public markets (stocks and bonds), and
- enhancing the importance of investment capital and private placement.
The first steps in this direction are a regulation laying down common rules on securitization and creating a European framework for simple, transparent and standardized securitization and a revision of the Prospectus Directive. The (final) proposal of the Securitization Regulation was already published by the European Commission; the proposal of the Prospectus Directive is expected to be published in November or December. The latter will lead to a kind of de-regulation, or in the wording of the Action Plan on Building a Capital Markets Union: “This will update when a prospectus is needed, streamline the information required and the approval process, and create a genuinely proportionate regime for SMEs to draw up a prospectus and access capital markets.”
However, at least from an institutional perspective (using the term in the sense of New Institutional Economics), these new legislative proposals do not mark the real start of the European Capital Market Union. In fact, the process already started in the aftermath of the financial crisis when the European legislator realized that the effectiveness of its traditional approach – building on (so-called full-harmonization) directives and a coordination of national supervisory bodies – to the task of creating a fully integrated market had come to its limits if not failed. Starting with the Regulation of Credit Rating Agencies in 2009, followed by EMIR in 2012 and MiFIR (plus MiFID II) as well as MAR in 2014 the European legislators clearly favors regulations over directives. Furthermore CESR was upgraded to a permanent “water and bricks” institution, which subsequently has been granted and will be granted more and more power vis-à-vis national securities and/or financial regulators.
This shift towards regulations and European authorities (ESMA, EBA and EIPO) is much more than a mere technical (“legalistic”) and bureaucratic modification of the familiar path. In contrast, this paradigm change will among others lead (at least in the medium-run) to a significant change in the legal consulting industry, just like in the area of antitrust law where Brussels is THE center of European antitrust lawyers, a few clusters for banking and securities lawyers will emerge. From a Swiss perspective, this change offers opportunities and possesses challenges. Challenges emerge particularly for the traditional Swiss strategy to gain access to EU markets: the autonomous implementation (autonomer Nachvollzug), which is perfectly coherent with directives but not regulations. Opportunities arise for Swiss lawyers, because when facing EU regulations instead of transposed directives (consequently national law) there is no longer a substantial reason (missing bar admission/formal qualification and increased liability risks) why Swiss finance lawyers should not offer legal advice on subjects falling within the scope of an EU regulation – provided that they invest in the building of the respective competence.
Peter Sester (peter.sester@unisg.ch)