Vice President Valdis Dombrovskis

Opening remarks at the Public Hearing on the Capital Markets Union Mid-Term Review

Brussels, 11 April 2017


Dear Ladies and Gentlemen,

I am happy to see so many interested participants. More than two years ago, together, we embarked on a crucial venture - revamping the EU's Capital Market's Union. Today, we want to take stock of how far we have come.

There is broad consensus on why we need a Capital Markets Union. It seeks to deliver on the fundamental function of reallocating resources to the most efficient uses. In this sense, CMU is about bringing finance back to basics, and focussing it on the needs of the 'real economy'.

After a decade of low to moderate growth, there is no shortage of investment needs in Europe. You cannot build a "unicorn" on bank loans and retained earnings only. The scarcity of risk finance has long been a drag on our business sector.

CMU needs to nurture and strengthen new forms of risk finance alongside a restored bank credit mechanism. Respondents to our public consultation encouraged us to continue promoting private markets for equity and debt through a mix of legislation and other tools. And to use financial innovations to bridge the information between investors and businesses. Stakeholders also called for more proportionate legislation for small quoted companies.

Infrastructure also needs private capital. In transport alone, the investment needs are estimated to be in the order of €600 billion in the period up to 2030. We have to build a strong pipeline of projects. But we also need to ensure that the funding needs are met by a ready supply of capital. This is why one of our first actions under CMU was to reduce the capital held by insurance companies against their exposures to infrastructure projects. This is also why we have introduced comparable adjustments in last November's banking proposals. We will shortly introduce lower capital requirements for infrastructure corporates in Solvency II – the next phase for infrastructure projects.

We also have to mobilise private capital to fund sustainable investment. The Paris climate agreement marked a watershed in global commitments to tackling climate change. It put finance at the heart of this policy. Investor demand for sustainable projects is driving rapid growth of green bond markets. It is also spurring financial sector interest in pooling and packaging of energy efficient mortgages. Respondents to our public consultation stressed that financial regulation must accelerate the flow of private capital from environmentally unsustainable to sustainable green projects. It must create the right set of laws and incentives for financial markets to fully play their part in this tectonic shift.

We have established a High Level Expert Group, made up of some of the most respected policy experts in the field. By the end of this year, they will provide us with recommendations on how to better align financial regulation with the needs of sustainable finance. An interim report will be published this summer and a hearing will take place in July. I am delighted that the Chair of the High Level Expert Group, Christian Thimann, will take part in the opening panel.

President Juncker has put the Capital Markets Union at the core of his efforts to boost investment. It complements the use of public finance through the European Fund for Strategic Investments. The combination of enabling regulation and public finance is the best way to trigger changes. Here, I refer to initiatives, such as the Fund of Funds, where the targeted use of public finance could also drive private investment in venture capital.

To be clear - I am not calling for new resources to be made available to subsidise capital market building. I believe that there is scope within existing frameworks to use resources as a catalyst for new solutions for risk finance, infrastructure or sustainable applications. These solutions should become self-sustaining and be quickly weaned off public support. 


We have delivered more than half of the initially programmed 33 actions. This has included an agreement on the simplification of prospectuses, important legislative and non-legislative actions on venture capital, and more recently the Action Plan on Consumer Financial Services. We have tabled substantive proposals on preventive restructuring and to tackle the bias against equity in national tax systems.

Also, based on last year's consultation, I may ask my services to work on a legislative proposal to address remaining sources of friction to cross-border passporting of funds. Often, these frictions have their origin in residual host country arrangements, which are not addressed in EU legislation. The only effective way to tackle them may be through a change of the relevant legal texts.

A lot has already been accomplished, but the work continues.

For this to succeed, we also need the commitment of the Member States and the European Parliament. We have seen that with the good will and engagement of both co-legislators, important progress can be made in a short space of time. The Prospectus Review is a case in point.

However, we have also seen protracted delays on other legislative files. The securitisation regulation was heralded as one of the flagships of the CMU Action Plan. It was brought forward by the Commission as a solid basis to reopen high-quality securitisation markets. Quickly agreed by the Member States, it has since been delayed in the European Parliament. I hope that the ongoing trilogues can finally resolve this impasse.

Some respondents to the public consultation told us that the impact of measures has yet to be felt on the ground. We acknowledge these concerns. CMU involves a deep rebalancing of our financial system. This is a profound structural change. Regulatory reform is only one part of the change that is needed. It takes time to build the financial circuits, market conventions and technical and legal infrastructures that will allow market participants to transact confidently on a pan-European scale. Corporates, investors and supervisors need to fully embrace the transparency and disciplines that capital markets require. We were always clear that this would be a long-term process.

However, we are determined to make a decisive contribution now.

We want to build on the current momentum and, while still under this Commission's mandate, force irreversible changes.


Ladies and gentlemen,

The CMU mid-term review is not just another stock-taking exercise. This review needs to propose solutions to the important investment challenges we currently face. Some of these were not foreseen at the time the initial Action Plan was conceived.


Most notably, we must devise and implement this programme at a time when our largest capital markets hub is leaving the single market. London has traditionally pooled and managed liquidity from across Europe, and provided most of the financial risk-management to the rest of the continent.

The prospect of Europe's largest financial centre leaving the single market thus makes our task more challenging, but all the more important.

The rest of the EU economy needs more advanced capital markets more than ever to complement bank lending with other sources of funding.  We therefore need to redouble our effort to build the functioning Capital Markets Union across the EU-27.

Particular consideration would need to be paid to those market segments, such as derivatives trading and clearing, or management of alternative investment funds - where the UK accounts for over 70% of current EU activity.

Successful capital markets cannot be built on shifting sands. We need to have the fundamentals in place – such as trusted and timely financial reporting, clear and standardised contracts, sound infrastructures. Critical to that is strong and effective supervision – performed to the same standard across all participating markets.

Hence, the critical importance of the efforts by ESAs to strengthen supervisory convergence. We need to ensure that the ESAs have the powers to deal with observed weaknesses in national enforcement. This is necessary to ensure that our investors and markets are protected from predatory behaviour from unscrupulous actors in jurisdictions with lax supervision. The future product intervention powers under MiFID will be an important new tool - but we will need to develop capacity to deploy new powers quickly.

The recent consultation paper on ESAs review opens an important reflection on our supervisory framework. This covers the governance of the ESAs, their powers, and the funding that they need to serve as effective supervisory hubs in their respective fields. CMU deepening may also be the occasion to reflect on targeted changes to the powers of ESMA in particular. The consultation on the ESAs review is therefore the first step in a very important conversation about the supervisory architecture that we need for the future CMU.

Technological innovation is transforming capital markets by bringing in new non-bank market players, increasing competition, providing new solutions and driving down costs. Responses to our public consultation suggest that the areas where fintech intersects most closely with CMU include crowdfunding, supply chain finance, robo-advice, online shareholder voting, and the potential application of block chain technology in post-trading. We need to recognise and integrate the potential of digitisation to change business models in those segments through data-driven solutions in asset management, investment intermediation and product distribution.

We have discussed some of these issues recently, at our FinTech conference. We will draw on the responses to the public consultation on fintech to identify new issues that may need to be integrated into the CMU policy framework. In other cases, such as crowdfunding, the Commission and ESMA have been closely following developments across the Member States.

Ladies and Gentlemen,

The Capital Markets Union mid-term review needs to develop convincing answers to the challenges ahead. The [180] or so contributions to our January consultation are unanimous: stronger and deeper pan-European capital markets are not a luxury - they are a necessity. And they are, above all, a major opportunity.

I am grateful to the speakers, moderators and panellists today for sharing their thoughts on how we make the most of these opportunities.

We all leave here wiser and better equipped for the task ahead.

I wish you all a productive and enlightening day.