Eurogroup to urge EU to ease ‘regulatory burden’ on financial sector through CMU revival

Eurozone finance ministers are set to call for an easing of the ‘regulatory burden’ financial companies face on Monday (11 March), according to a Eurogroup draft statement obtained by Euractiv, as part of a sweeping series of measures aimed at deepening the EU’s Capital Markets Union (CMU).

The document outlines multiple “imperative and urgent” reforms that the 20 Eurogroup ministers want to be implemented by the next European Commission, which assumes office in the months after the EU elections this June.

“We invite the Commission, following a thorough assessment, to consider bringing forward additional measures to reduce regulatory burden in the EU’s financial market framework,  for smaller market participants in particular, to improve the EU’s competitiveness as a financial hub,” the statement reads.

Among other measures, the document urges scrapping regulatory “impediments” to institutional and retail investments in EU capital markets, including pension funds.

It also calls on the EU’s financial supervisory authorities to reduce “compliance costs and regulatory burden” for financial businesses, recommending “reducing barriers” to boost financial risk diversification across member states.

“Reducing fragmentation, regulatory burden, and high transaction costs can increase the EU’s attractiveness as a financial hub,” the text notes.

In particular, it urges the European Commission to consider factors that may be “holding back” the development of Europe’s securitisation market, calling on the EU executive to consider their capital treatment as well as their due diligence and reporting obligations under bank and insurance rules.

In addition to reducing companies’ regulatory burden, the draft document calls for streamlining listing requirements across European stock exchanges and broadening the so-called ‘consolidated tape’, a system that aggregates data on financial transactions, across different parts of the market.

It also recommends strengthening the role of the European Supervisory Authorities to oversee the harmonisation and enforcement of rules.

This would include boosting the centralisation of data collection and storage by the EU markets watchdog — the European Securities and Markets Authority. 

The text also encourages the introduction of national tax incentives to boost investments in EU equity markets.

Echoing comments by Belgian Finance Minister, Vincent Van Peteghem, whose country holds the Presidency of the EU Council, the document recommends improving citizens’ financial literacy to “facilitate [their] access to capital markets”.

Finally, the Commission is urged to monitor the progress of national and EU measures to deepen capital markets, “based on quantitative key performance indicators and  qualitative information providing a clear picture, at ministerial level, of the progress made.”

Dusting off CMU plans to tackle growing economic pains

Overall, the letter indicates renewed support from the bloc’s financial chiefs for the CMU, plans for which were first introduced in 2015 under the Juncker Commission.

Michele Morena, a partner at the Brussels-based consultancy Kreab, welcomed the fact that “even if ministers have different views, they’re thinking about deepening the CMU and debating solutions for financing Europe’s needs. To channel money from the savings of Europeans, you need a financial market that functions properly,” he told Euractiv. 

The document also comes at a time of deepening anxiety about Europe’s competitiveness, as record high-interest rates, structurally elevated energy prices, and slowing trade with China place increasing burdens on the EU economy.

On Thursday (7 March) the European Central Bank’s Governing Council — its main decision-making body — noted that a single capital market is “imperative” for ensuring Europe’s continued prosperity.”

Much like the Eurogroup, the Governing Council emphasised that achieving a fully-fledged CMU improves the resilience of the EU’s banking sector, enhancing risk diversification across the eurozone, and mobilising the “massive private investments that are needed to carry out the green and digital transitions.”

“Europe has lost competitiveness in a durable manner for the last couple of decades,  which was certainly accentuated during the financial crisis,” ECB President Christine Lagarde said on Thursday.

“It is one of the reasons why the Governing Council was a unanimous and very strong supporter for the Capital Markets Union to be rolled out, obstacles to be removed, supervision to be strengthened and capital to be kept and made to work at home, in Europe, rather than elsewhere,” she added.

Last week at a Eurogroup meeting in Ghent, French Economics and Finance Minister Bruno Le Maire, called on member states to strengthen the CMU on a “voluntary basis” to “liberate European growth from the chains it finds itself in.”

“It could be two, three, four, five countries, it doesn’t matter,” said Le Maire.

He added, “We will see when we’ll be 27 (member states), but as it’s impossible to begin right now with 27, let’s begin with just a few of us.”

[Additional reporting by Anna Brunetti]

[Editing by Anna Brunetti/ Rajnish Singh]

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