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16 October 2015

CityUK: Lack of awareness of alternative forms of finance could hinder potential of EU growth companies

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A new report published by TheCityUK and EY finds that future European financial stability could be at risk over the long-term because of a lack of sufficient knowledge and awareness about complementary and alternative forms of finance among EU growth companies.

TheCityUK launched its new report in conjunction with EY, titled ‘Capital Markets Union: The perspective of European growth companies’. The report argues that not only could this hinder their future growth potential, but that sole reliance on bank funding could leave businesses exposed in the event of future economic downturns if credit supplies are constrained, or when quantitative easing stops.

The report advocates the potential role credit bureaux and central credit registries could play in easing the disclosure of credit information for those companies seeking finance, as well as the need to simplify the information requirements set out in the EU Prospectus Directive.

Chris Cummings, Chief Executive, TheCityUK, said, “TheCityUK has long been championing the important role alternative finance can play in complementing bank lending. The European Commission’s Action Plan on CMU makes clear its intention to promote information and support for companies seeking market-based funding, but what this report underlines is the urgency that should be attached to this if Europe’s growth companies are to have the confidence to move away from sole reliance on bank financing, and a CMU is to be fully realised. Both the public and private sectors have an important role to play in supporting this.

“The work the Commission is already undertaking on modernising and simplifying the Prospectus Directive as part of its CMU Action Plan will help to address the barriers for growth companies seeking to list and TheCityUK will continue to engage closely on this project.”

Andy Baldwin, EY’s Head of Financial Services in EMEIA, said, “The CMU is a great example of policymakers fixing the roof while the sun shines, but cultural and behavioural barriers to CMU run deep. Despite the funding difficulties they faced in the crisis, high growth companies just aren’t looking beyond bank finance. If we’re to change this, alternative finance needs to be seen as an addition to bank finance not an alternative, and the companies who stand to benefit have to be more involved in shaping the CMU.

“It’s going to be critical to strike the balance between making the necessary structural changes to tax and insolvency laws and getting the speed of change right. If things move too quickly, there’s a risk of overburdening Europe’s growth companies, which would hinder rather than encourage growth and job creation in the short-term.”

Full report

Full press release

© City of London

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