13 May 2021

BDB: Comments of the Association of German Banks on the new capital markets union action plan

The Association of German Banks has warmly welcomed the capital markets union project fromthe outset. It is a project that needs to be pursued with ambition. The European Commission’snew action plan for capital markets union of 24 September 2020 is an important step forward.

Building capital markets union

We share the Commission’s view that an efficient, single European capital market will be key to
financing the post-COVID recovery and modernisation of the European economy, as well as to
ensuring Europe’s long-term competitiveness and sovereignty – especially after the exit from the
European Union of the UK with the global financial centre of London.

This paper sets out our comments on most of the measures announced in the action plan.

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Our key messages

Action 1: A European Single Access Point (ESAP) makes good sense and will provide investors across the EU with easier access to comparable issuer data. The ESAP should begin by consolidating data made available by issuers subject to disclosure requirements. The second step should be to open it up to the voluntary submission of data.

Action 2: Measures making it easier for small and medium-sized enterprises to access regulated capital markets should not compromise the current level of investor protection.

Action 4: The requirements for banks (under Basel III) regarding risk weights for equity investments in unlisted companies should be revised to avoid precluding such investments in the future.

Action 5: Banks already consider it part of a stable bank-customer relationship to refer potential borrowers to capital market funding sources when it seems appropriate to do so. We do not believe it would make good sense to introduce a blanket obligation to refer clients to providers of alternative funding every time a loan application is turned down.

Action 6: The Commission’s action plan sets the right priorities for adjusting the calibration of risk weights, streamlining disclosure requirements and simplifying the SRT process. We also consider it important to review the treatment of securitisations when calculating the LCR.

Action 7: The Association of German Banks has been committed to improving financial literacy throughout Germany for the last 25 years. With our projects, we seek to build up this knowledge so that students will leave school to become smart consumers. This virtuous circle results in an improved relationship between customers and their bank.

Action 8: Investment advice provided by banks is of great importance to many investors. The current requirements for banks and investment advisers are sufficient and should not be tightened further. The information overload for experienced retail investors should be reduced.

Action 9: A neutral information platform has the potential to reveal gaps in pension entitlements and create incentives to make greater provision for old age. A data interface is also needed to enable a third party nominated by the customer (such as their bank) to retrieve the pension overview electronically and take account of the information in the advice they provide.

Action 10: The procedures for refunding withholding tax need to be reformed to eliminate this tax obstacle to cross-border investment. Other tax barriers should also be removed.

Action 11: Targeted measures are needed to harmonise certain capital market aspects. Firstly, capital market participants should be given more effective protection against counterparty default risk and confidence in the use of notified market infrastructure systems should bebolstered. Efforts to move towards a more standardised insolvency regime across the EU should retain successful, tried and tested elements of existing national regimes.

Action 12: Efficient and standardised processes introduced under the EU’s Second Shareholder Rights Directive (SRD 2) are an important building block of capital markets union. It will nevertheless also be essential to take account of established national company law to avoid causing new problems.

Action 13: It makes good sense to revise the rules on cross-border securities settlement. Investors should find it just as quick and convenient to invest in capital market products across the EU as it is in their own country. EU-wide standardisation of settlement and asset servicing processes will not only increase efficiency, but also foster an investment culture.

Action 15: The gap in inner-European investment protection created by the termination of bilateral investment treaties should be closed by introducing effective instruments in EU law for uniform, pan-European legal protection of investment projects and their funding.

Action 16: A supervisory framework that is as consistent as possible in terms of both supervision and civil-law requirements is a key prerequisite for a single, internationally competitive European capital market. It is also important to ensure that the uniform legal framework is applied and enforced equally effectively in all member states.

Guiding principles of capital markets union

Our assessment of the action plan is based on the following guiding principles, which we believe should underpin the design of capital markets union:

• Everyone should benefit from capital markets union: states, businesses and citizens.
• Capital markets union should enhance Europe’s competitiveness, innovative performance, financial market stability and sovereignty.
• Investors need the same diversified, transparent and uncomplicated access to capital markets across the EU.
• Issuers need to be able to finance their business, investments and growth in a manner that is as cost-effective and unbureaucratic as possible and at the same time innovative and dependable in the long term.
• A balance needs to be struck between the conflicting objectives of protecting investors on the one hand and satisfying the financing goals of issuers on the other.
• Banks have long been important, tried and tested intermediaries and central service providers in the capital market. Investors and issuers number among the banks’ customers; banks therefore have an interest in ensuring that the needs of both are met. It is in the interests of banks themselves that capital market processes function as efficiently as possible – also across national borders.
• For small and medium-sized enterprises, and also businesses that do not want a public listing, securitisation of the tried and tested bank loan and private placements brokered by banks are possible ways of tapping new sources of funding. For innovative start-ups and growth companies, the expansion of the venture capital market in Europe has a key role to play.
• To boost the cross-border market, it will be necessary to build on established national legal regimes and principles – while also taking steps towards EU-wide harmonisation in selected areas.
• On the basis of efficient, dependable pan-European legal foundations, market participants will be able to develop solutions and products that meet the needs of the business community and prove competitive over time. This will require a uniform EU-wide framework that promotes and protects the objectives and interests of capital market participants. An approach along these lines makes far greater sense than European standardisation of individual products....

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