13 June 2020

EFAMA: Final Report of the High-Level Forum on Capital Markets Union

“Europe needs more than ever a well-functioning CMU to support its economic recovery and provide alternative sources of financing, putting the financial well-being of European citizens at its centre. We commend the High-Level Forum...” says EFAMA’s Tanguy van de Werve

Taking inspiration from past European successes, such as the creation of UCITS, the report* rightly emphasises the need to foster retail investors’ participation in capital markets by developing a stronger equity culture in Europe (through the development of second and third-pillar pensions as well as greater financial literacy) and by ensuring that investors benefit from high-quality, reliable and fair advice, so as to promote confidence and trust in the functioning of capital markets.

Against this backdrop, we particularly welcome the HLF’s call for an urgent review of the PRIIPs regulation (and more generally of disclosure rules across legislations, focusing on digital communication). We see this review as absolutely necessary to fix a number of significant flaws in the PRIIPs KID and to avoid jeopardizing the success of the UCITS brand.

“Citizens should be empowered to take good decisions for their financial well-being, by giving them access to clear and reliable information in an affordable manner and making full use of new digital solutions. Financial regulation must be fit for harnessing the potential of new technologies “, added T. van de Werve.

EFAMA further embraces the recommendation on targeted adjustments to the ELTIF regulatory framework to accelerate the take up of these products by investors with a long-term investment horizon and offer a new source of financing to unlisted companies, SMEs and infrastructure projects. We have made concrete proposals to that effect.

The report makes a number of technical recommendations around relief at source of withholding taxes which is warmly welcomed by EFAMA as a response to a long-standing request from the asset management industry.  We note  however that there are wider tax issues which need to be taken into consideration. Recognising that taxation is an important driver of investment decisions, it is important to consider how it can be used to incentivise cross-border investments, and to resist the temptation of erecting new tax obstacles as we relaunch our economies

The report rightly highlights the pivotal role CMU plays in achieving the objectives of sustainable growth in Europe and to deliver Europe’s New Green Deal. It stresses the importance of good governance and improved corporate transparency on all ESG aspects and the potential of active stewardship.

Insufficient availability of comparable and reliable ESG data remains a key challenge to unleash the potential of sustainable finance. Therefore, we applaud the recommendation to establish an EU Single Access Point (ESAP). This would result in a central access to financial and non-financial public corporate disclosures under the existing EU regulations, including NFRD and SRD II. This is in line with the recent call by several trade associations, including EFAMA, for a central EU ESG data register**.

On a more critical note, we are disappointed to see that the report does not refer, even incidentally, to the increasingly important issue of data costs. Asset managers are among the most important users of data (market data, index data, ESG data…) and have been witnessing a steady increase over recent years in the cost of use of such data, which does not appear to be commensurate with the cost of production and dissemination by data providers and distributors. This constitutes a clear impediment to the effective functioning of CMU that needs to be addressed head-on through decisive actions from policymakers and supervisors.

full response

© EFAMA - European Fund and Asset Management Association