The publication by ESMA last week of its Position Paper on building more effective and attractive capital markets in the EU is the latest in a series of recent steps taken by EU authorities/groups to push for the mobilisation of further action towards an effective EU capital markets union (CMU). Notwithstanding the launch of the European Commission's second CMU Action Plan in September 2020 which emphasised the funding needed for the transition to a digital and sustainable economy ("massive investment that public money and traditional funding through bank lending alone cannot deliver"), EU capital markets remain fragmented, limiting the availability of varied forms of market financing for businesses.
"One of the key objectives of the CMU project was to develop greater access to diverse sources of financing, especially for SMEs and startups, in order to reduce the reliance on bank financing...it is...important to support the growth of a broad range of financing options in the EU, including corporate debt and private financing, such as private equity or venture capital." [ESMA Position Paper]
ESMA makes 20 recommendations in its paper, many of which are designed to foster ways of financing economic growth beyond public funding and pure bank financing. Improving the functioning of the securitisation market is a key theme, with ESMA keen to "...enhance the symbiotic relationship between bank and market-based financing."
In its October 2022 Article 46 Report on the functioning of the EU Securitisation Regulation, the European Commission did not propose immediate changes to the Level 1 text of the EU Securitisation Regulation, instead focusing on possible changes to the Level 2 regulatory technical standards on disclosure. It had already asked the Joint Committee of the European Supervisory Authorities (ESAs) for advice on the prudential treatment of securitisation for banks and insurance companies (subsequently provided by them in December 2022). ESMA would now like to see a proposal from the Commission aimed at revitalising the EU securitisation market, based on a comprehensive review of how it is functioning. The ESAs plan to give advice to the Commission on such a proposal in Q4 2024 – key themes will be prudential treatment, due diligence rules for institutional investors, reporting requirements for various asset categories, consistency of STS criteria, and supervision.
The securitisation-related themes focused on by ESMA are broadly similar to those identified by the Eurogroup as priority areas in its 11 March 2024 Statement on the future of Capital Markets Union. In that statement, it also encouraged the Commission to carry out a comprehensive assessment of all the supply and demand factors holding back the development of the securitisation market in the EU. Again, key themes were due diligence obligations, reporting, and the prudential treatment of securitisation for banks and insurance companies. In turn, those comments echoed similar priority areas identified by the ECB's Governing Council in its 7 March 2024 Statement on advancing the Capital Markets Union.
It is likely to be Q1/Q2 2025 before we see any initial response from the new Commission to the ESAs planned Q4 2024 advice on a proposal to revitalise the securitisation market (the Eurogroup has also asked that the Commission give an update in February 2025 on its CMU-related plans for the next 5-year legislative cycle). We will continue to publish our insights as developments occur.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.