Industry sees hope in EU capital markets initiative

The European Venture Capital Association (EVCA) is lobbying for pan-EU regulations more favorable to private equity fundraising and investment in its support of a new green paper published by the European Commission, which focuses on building a capital markets union.

The paper launches a public consultation and outlines Financial Services Commissioner Jonathan Hill’s vision for more effective capital markets across Europe. The objective is to free up cross border capital flows, and Hill specifically names private equity and venture capital as important sources of direct financing.

“This means having a prudential capital regime for insurers, pension funds and banks that encourages them to invest in long term assets,” said EVCA chief executive Dörte Höppner in a response to the green paper. “Yet, there are several pieces of key financial legislation that may have quite a chilling effect.”

Höppner specifically mentions Solvency II regulation for insurers, the proposal for the Institutions for Occupational Retirement Provision (IORP) directive for pension funds, and Capital Requirements Directive IV for banks as essential pan-regional tools in creating a single capital market. The regulations require institutional investors to set aside emergency capital for private equity and other investments perceived as risky, which the industry opposes.

The capital markets initiative may also have an effect on how the Alternative Investment Fund Managers Directive is implemented, which took effect last July, but is still being interpreted by national regulators. The European Securities and Markets Authority has pan-EU supervision over the directive, but some EU states have gone above and beyond the directive’s requirements when implementing it into national law, leading to an inconsistency in marketing rules across the EU that the directive sought to eliminate.  

The green paper asks a number of questions that suggest the creation of a super-regulator for capital markets in the region, including “Do you think that the powers of the [European Supervisory Authorities] to ensure consistent supervision are sufficient? What additional measures relating to EU level supervision would materially contribute to developing a capital markets union?”

Höppner describes the Commission’s discussion document as “encouraging,” saying, “We must also remove barriers created by national governments that discourage EU fund managers from raising funds in other member states; otherwise we are keeping capital ‘locked’ behind national borders.”

The Commission will organize a conference this summer to conclude the consultation and an Action Plan on Capital Markets Union will be published later in 2015.