Capital markets unionCompetitionSecurities

Comments on the new capital markets union action plan

12.05.2021Position paper


Our key messages

Guiding principles of capital markets union

Action 1: European single access point
Action 2: listing rules for SMEs
Action 4: equity investment by banks
Action 5: alternatives for SMEs whose credit applications have been turned down
Action 6: review of the regulatory framework for securitisation
Action 7: financial knowledge
Action 8: review of investor protection, requirements for financial advisers
Action 9: set incentives to encourage more private provision for old age
Action 10: tax obstacles
Action 11: insolvency law
Action 12: Shareholder Rights Directive
Action 13: amending the rules on the cross-border settlement of securities
Action 15: investor protection in the EU
Action 16: European supervision and single rulebook

Building capital markets union

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

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.

Action 1: European single access point

It is our understanding that ESAP should serve as a central location to collect and make available issuer-related information that is already required by European legal acts to be published. Information that has to be reported today but is not publicly accessible may not be published by ESAP, e.g. transaction reports. ESAP should only bundle static data from the issuers sphere, not dynamic data, especially no market data, as it would overload ESAP. Additional information obligations must not be associated with the establishment of ESAP. The existing requirements thus determine the widest scope of the information.

It is of utmost importance that a user of ESAP can identify who created and posted the information, for example, whether the information comes directly from the reporting company or has been published by another party.

In our opinion, it is very important for the acceptance and reliability of the information stored in ESAP that it cannot be changed. If there are corrections to information already published in ESAP, this should be done by setting an additional, corrected version of the information. It must be made clear that the corrected information is a modified version and references should be made between the original and the changed information.

The information voluntarily published in ESAP by non-listed companies should be clearly marked as voluntary. It is thus immediately apparent that they may not have to meet all of the extensive requirements applicable to listed companies.

It is unclear which group of companies is meant by the term “financial market actor”. This term is not defined and is only mentioned once in this consultation. In any case, we strictly reject the possibility of third-party companies (e.g. rating agencies, etc.) being able to post self-created information about a company listed in ESAP. Only the companies themselves and supervisory authorities / public bodies (to a limited extent and after consultation with the company) should be authorized to post information about a company in ESAP.

We believe that a clear structure of the access point is important for achieving broad acceptance and use of ESAP. Users should be able to find data easily and e.g. filter companies by country and/or industry.

Action 2: listing rules for SMEs

Small and medium-sized enterprises also have access to the capital markets, but the guiding principle “same business, same rules” should continue to apply. A repeat of past experience (e.g. Germany’s “Neuer Markt”) should be avoided, not least in the interests of investor protection. Simplifications for issuers usually come with corresponding disadvantages for investors. There should be a level playing field for all issuers in the same market.

Action 4: equity investment by banks

We recommend a careful review of the risk weights for equity exposures in the final implementation of Basel III. The high risk weight of 400% for speculative, unlisted equity exposures is not consistent with the risk weight for private equity exposures required in Article 155 of the CRR, which is intended to help finance the economy. The understanding of the term “private equity” and the specific risk weight of 190% in the CRR should be retained.

Under the current proposal, unlisted equity investments would increase from 150% to 400% without any evidence-based justification. There is a danger that a high risk weight for unlisted equity exposures will undermine banks’ support for the real economy in the form of private equity, venture capital and risk capital investment (especially start-ups investing in financial technology) as banks own or hold large stakes in these companies. In line with Article 155 of the CRR, an additional category with a 190% risk weight should be considered for private equity and venture capital exposures if portfolios are adequately diversified. The current proposals do not take account of the diversification within a private equity portfolio.

Action 5: alternatives for SMEs whose credit applications have been turned down

The vast majority of small and medium-sized enterprises are financed by bank loans from the bank they have a long-term relationship with. In such relationships, open and proactive communication from both sides (bank and enterprise) about their financial situation helps to ensure stability. If, during their relationship, the SME has a credit application turned down – and the likelihood is very small – banks also explain the reasons for their decision. It may sometimes make good sense to refer existing borrowers or innovative start-ups to additional or alternative funding sources. We would, however, reject any general obligation for banks to direct SMEs to alternative capital market financing.

Action 6: review of the regulatory framework for securitisation

We support the European Commission’s intention to enhance the European securitisation market. Securitisations act as an urgently needed bridge between bank loans and the capital market. By involving the capital market, capital can be made available to overcome the economic impact of the pandemic and to finance climate protection.

The capital market “quick fix” was the first step on the way to strengthening the securitisation market. In particular, the introduction of an STS regime for synthetic securitisations has made it easier for the capital market to participate in the financing of small and medium-sized enterprises. And although the objective of strengthening the securitisation of non-performing loans is the right one, the regulation contained in the “quick fix” falls far short of industry expectations and needs.

It is therefore to be welcomed that the European Commission aims to take further measures to strengthen the securitisation market as part of its review of securitisation in the second quarter of 2021. In our opinion, the European Commission’s action plan is rightly prioritising adjusting the calibration of risk weights, streamlining disclosure requirements and simplifying the SRT process. We also believe it would make sense to review the treatment of securitisations when calculating the LCR.

1. Risk weights

Under securitisation regulation, the minimum risk weights for the highest credit quality step have increased from 7% to at least 10% for STS and at least 15% for non-STS securitisations. This has hit the highest quality tranches particularly hard. We propose reducing the minimum risk weights. Making the risk-weight floor more risk-sensitive might also be considered. In addition, there should be a fundamental review of the appropriateness of the risk weights. Furthermore, a separate calibration for prime securitisation segments, such as auto ABS (asset-backed securities) and prime European RMBS (residential mortgage-backed securities) might be considered.

Also, the risk weights in Solvency II should be appropriately adjusted to give insurance, as an important part of the capital market, better access to securitisations. The risk weights for the same high-quality securitisation are sometimes 39 times higher for insurers than they are for banks. Looking at the default risks insurance companies are exposed to when they acquire the securitisation in order to keep it, the risk weights are inappropriate. Moreover, insurance companies should also be able to invest in ABCP (asset-backed commercial paper) securitisations if these have a fully backed liquidity line.

2. Significant risk transfer

A requirement for the use of the special framework for securitisations is the presence of a significant risk transfer (SRT). The supervisory authorities check whether more than 50% of the risk has been transferred from the bank. This review process is very lengthy and complicates the securitisation. As long as there is uncertainty surrounding the status of SRT, the securitisation will not usually be set up. We therefore welcome the move to accelerate the process of recognising a significant risk transfer.

New rules on the SRT process should only apply to new transactions. Otherwise, the status of already approved securitisations might be revoked retrospectively and higher risk weights would apply. This would damage the securitisation market. We also propose that transactions with high levels of placement (e.g. 95% of each tranche) should be subject to less stringent requirements for demonstrating SRT and that SRT decisions on these transactions should be fast-tracked in order not to hold up the placement process unnecessarily.

3. Disclosure

Requirements for disclosure to investors should not apply to ABCP securitisations and other securitisations in which only a few institutional investors participate and bonds are not publicly placed. Investors in such transactions already have sufficient information at their disposal, which they can request bilaterally according to their needs. A general and therefore more extensive disclosure requirement for such transactions is an unnecessary cost factor which has no additional value.

4. High-quality liquid assets (HQLA)

As a part of the review of securitisation regulation, the LCR should also be adjusted to prevent securities being disadvantaged over similarly performing products. STS securitisations in the highest credit quality step and with a minimum issue size of €250 million should also be recognised as level 2A assets like covered bonds listed under Article 11(1)(c) of the LCR Regulation in order to prevent qualitatively high value and highly liquid STS securitisations being at a disadvantage over covered bonds.

The haircuts on RMBS and auto ABS (25%) and on securitisations of SME loans (35%) should be removed and Article 13(14) of the current version of Delegated Regulation (EU) 2015/61 (LCR) should be deleted.

Action 7: financial knowledge

The Association of German Banks has been committed to improving financial literacy throughout Germany for the last 25 years. Our two student competitions SCHULBANKER (School Banker) and JUGEND UND WIRTSCHAFT (Youth and the Economy) have been running successfully for over 20 years and have reached over 85,000 and 20,000 students respectively in Germany, Austria and Switzerland. Enhancing financial literacy on a broad scale is a challenge since Germany’s political system is a federal one and all relevant decisions concerning education are taken in the 16 federal states rather than by the Ministry of Education in Berlin.

Our association’s solution to this challenge is to offer a wide variety of programmes and projects (a total of ten) that teachers nationwide can integrate into different school subjects (e.g. political and social science, German, maths). The result: we reach students, even if financial education or economics is not on their curriculum.

Our projects target primary and secondary schools with the goal of first laying a basis: familiarising children with simple aspects of money (history, use, worth) in primary school. Subsequently, the projects aim at deepening their knowledge, so that students can understand economic and financial concepts in more depth.

Our gateway to the students is the teachers. The association has built up an extensive network of passionate teachers throughout Germany. To keep them up to date about our projects, we send them a regular digital newsletter, with custom-made articles on recent economic events or financial issues that teachers can integrate into their lessons (the newsletter has approximately 9,000 subscribers).

Without economic understanding, basic financial literacy and some financial skills, citizens find it much harder to make their way through life. It is strongly in the interests of the government, society and the financial sector that people take a self-confident and responsible approach to money. 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.

Unlike its members, the Association of German Banks is able to operate as a non-brand player on the market. Given the expertise that lies within the financial sector, it is natural that the association should consolidate and channel it to share with society.

Every three years, our association conducts a major youth survey (among 14 to 24 year old youths). How do they rank the importance of economic issues at school? How do they acquire economic knowledge? How good is their economic/financial knowledge? How do they use social and digital media? How many use online banking? Do they invest and, if so, in what and for what purpose? The survey has proven extremely helpful not only to the Association of German Banks, but also to its members and the political sector.

Action 8: review of investor protection, requirements for financial advisers

There is no need to adjust the criteria for accepting inducements. MiFID II already sets the bar very high by specifying, for example, that inducements may only be accepted if they are likely to improve the quality of the service for clients. Further tightening of the rules could result in a de facto ban on accepting inducements if banks found that the time and effort they had to invest was no longer worth their while. In the absence of commercial viability, banks would no longer be able to offer investment advice to all sections of the population nationwide. Retail clients wishing to invest small amounts would be in particular danger of having no further access to professional investment advice.

We support the proposal to reduce information overload for experienced retail investors. Investors with sufficient knowledge and experience to be familiar with the functioning of, and risks associated with, financial instruments often find it annoying to receive extensive information at regular intervals. Banks should therefore be allowed to enable experienced retail clients to opt out of receiving certain information.

Banks already require their investment advisers to be highly qualified and undergo regular training programmes. In Germany, this is closely monitored by the financial watchdog BaFin. We are not aware of any deficiencies relating to the qualifications of advisers in Germany. Standardisation in the form of establishing EU labels, for example, would be highly burdensome, especially in Germany with its approximately 140,000 registered investment advisers.

Action 9: set incentives to encourage more private provision for old age

We support the proposals on retirement provision announced in the action plan. Introducing an information platform giving citizens a transparent and readily understandable overview of all their personal pension entitlements will go a long way towards ensuring that they make adequate provision for their old age. A neutral information platform has the potential to reveal gaps in retirement provisioning and set incentives to invest in private pension schemes.

Given the complexity of the issue and the sheer range of different systems on offer, however, many citizens are reluctant to make a decision, especially in view of the long-term implications involved. A consolidated overview of pension entitlements will not, in itself, be able to solve this problem. There will continue to be a need for professional advisers to help citizens make informed decisions based on their personal needs. This should be taken into account from the outset when designing a digital overview of pension entitlements.

Citizens should therefore be able to give their adviser access to the digital overview of entitlements. This will require a data interface enabling a third party nominated by the customer (such as their bank) to retrieve the overview electronically and take account of the information in the advice they provide. Otherwise, there is a danger that the lack of seamless processing and the effort involved in granting third parties access to digital pension overviews will result in financial advisers not obtaining the information at all. Naturally, third parties should only be able to retrieve such information on the instructions, or with the consent, of the person concerned.

The Second Payment Services Directive (PSD2), which has been effective since September 2020, could serve as a blueprint for using electronic interfaces to allow nominated third parties access to sensitive personal data.

We therefore recommend introducing a legal requirement for an interface giving nominated third parties an alternative access channel to overviews of personal pension entitlements.

Action 10: tax obstacles

Under the standard withholding tax (WHT) procedure, relief from WHT is obtained through WHT refunds, which are directly requested from the source country’s tax authorities by the withholding agent, who needs to obtain preliminary certificates of tax residency per investor. As a result, investors have to wait a very long time for their refunds. This money is then unavailable for further investment in the short term. On top of that, obtaining the tax relief is so complex and costly that investors often decide to forego the relief to which they are legally entitled. The upshot is that they end up paying WHT at the maximum rate.

Reforming WHT procedures is therefore key to mobilising capital and investment income. It will not be possible to integrate capital markets without tackling WHT procedures. This will not necessarily involve harmonising tax codes or tax rates. As the Commission’s action plan points out, a significant burden is caused by divergent, burdensome, lengthy and fraud-prone refund procedures for tax withheld in cases of cross-border investments.

A standardised system for claiming WHT relief at source, such as the OECD Treaty Relief and Compliance Enhancement (TRACE) system, could offer a solution. The work of the OECD and its TRACE project aims to establish a global model and is the most advanced work to date in this area. It will benefit both investors and tax authorities and help to combat tax fraud. Better harmonised and standardised systems will also make post-trade processes more efficient and interoperable.

The code of conduct on withholding tax published in December 2017 is the most recent EU initiative in this field. Unfortunately, however, the code has proved to be a list of non-binding recommendations which have failed to produce concrete results. Steps are urgently needed to implement a standardised and harmonised system of tax relief at source and simplified tax refund procedures. TRACE may provide a starting point for establishing a welcome level playing field.

The Association of German Banks therefore warmly welcomes the Commission’s proposal for a common, standardised, EU-wide system for WHT relief at source. This supports the action undertaken by the Commission in its tax package of July 2020. In action 8 of the package, the Commission makes improving the business taxation environment a priority. It states that, as tax barriers to cross-border investment persist, the Commission “will propose a legislative initiative for introducing a common, standardised, EU-wide system for withholding tax relief at source, accompanied by an exchange of information and cooperation mechanism among tax administrations. Options considered will include both legislative and non-legislative interventions and take into account the OECD Treaty Relief and Compliance Enhancement (TRACE) initiative. The objective will be on the one hand to lower significantly tax compliance costs for cross-border investors and on the other hand to prevent tax evasion.”

In addition to the withholding tax issue, we also see a need for measures to overcome further tax obstacles to capital markets union (see Position paper of the Association of German Banks on capital markets union 2020, 19 February 2020).

Action 11: insolvency law

We welcome the Commission’s aim of making national insolvency regimes more efficient and of speeding up procedures. But as the Commission notes, national regimes differ starkly, especially in terms of their efficiency. Germany, for example, and certain other member states have national regimes whose quality and efficiency is internationally recognised (see IMF annual Doing Business ranking). It would be counterproductive to dismantle them simply for the sake of establishing uniform European rules. The result would be to hinder rather than promote future cross-border investment. The European approach should therefore be to take tried and tested elements of existing national regimes as a starting point which can then be built on. The application of European rules should, moreover, be largely optional to avoid destroying efficient national systems. It should also be borne in mind that insolvency law is closely connected to other national regimes such as company, labour and tax law. These links should not be compromised.

It is imperative, in any event, that measures taken by European lawmakers to protect market participants against the risk of counterparty default are legally efficient. Priority should be given to targeted individual measures aimed at harmonising certain aspects of the capital markets.

It must be ensured that collateral and netting agreements are legally effective and enforceable as risk mitigation instruments throughout Europe in the event of a counterparty default. There is a need for adequate safeguards to guarantee the functioning of netting agreements and financial collateral agreements in an insolvency. To this end, the European legal framework should be further harmonised and fleshed out. This could be achieved in the upcoming review of the Financial Collateral Directive and Settlement Finality Directive or should at least be coordinated with these.

Action 12: Shareholder Rights Directive

Our association fully supports the implementation of efficient and harmonised processes to deliver the objectives of SRD 2. We therefore welcome the Commission’s plan to introduce an EU-wide definition of “shareholder” and further clarify rules governing the interaction between investors, intermediaries and issuers. It will nevertheless be important to ensure that an EU-wide definition of shareholder does not give rise to new problems in applying national company law. There is a need, in particular, to take account of different classes of share (e.g. bearer shares and registered shares), as well as their different designs under different national regimes.

We have also identified a number of other critical issues with respect to SRD 2.

  • The absence of clear definitions and rules regarding aspects such as the scope of the directive, together with differing thresholds for shareholder identification and diverging transposition, implementing regulation and market practices in member states combine to generate legal uncertainty and operational risks. This makes it extremely problematic, both legally and operationally, to interpret and apply many of the SRD 2 requirements along the custody chain.
  • The rigid deadlines set by the SRD 2 Implementing Regulation result in shareholders receiving unnecessary duplicate information, especially about general meetings. This is because national company law requirements are not compatible with the strict deadlines of the Implementing Regulation.
  • The definition of, and rules regarding, (electronic) voting are not harmonised in the national legal systems of the EU27.
  • To achieve straight-through processing across the entire information chain, issuers must also be obliged to use fully electronic ISO-compatible communication. This should also apply to the receipt of such messages (e.g. voting instructions). Straight-through processing will otherwise always fail at the interface between the issuer and intermediary chain.
  • Last but not the least, the SRD 2 regime should take greater account of the needs of retail clients for clear information and of the medium through which such clients receive information from the intermediary.

In the light of the points outlined above, the Association of German Banks welcomes and supports the European Commission’s planned investigation of, and market consultation on, the items listed in the description of action 12.

Action 13: amending the rules on the cross-border settlement of securities

The Association of German Banks supports proposals to revise the rules on cross-border securities settlement. This will increase competition among CSDs operating primarily at national level in the EU, thus making their services more efficient. 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. The servicing and custody of cross-border investments should not give rise to new, cumbersome processes generating additional costs. EU-wide standardisation of settlement and asset servicing processes will not only increase efficiency, but also foster an investment culture.

From a purely financial point of view, it makes no difference to investors whether a product is issued in Germany, France, Italy or another EU member state. Issuers, for their part, want to have the broadest possible access to investors throughout the EU. But despite the considerable progress that has been made on harmonisation, capital market products in the EU are subject to numerous national civil law requirements, such as those of company, securities and insolvency law, as well as national tax and regulatory rules. As a result, and for historical reasons, too, many operational processes for the settlement, custody and servicing of capital market products are also inconsistent across the EU.

Remarkable progress has been achieved over the years in removing the barriers to cross-border capital market activities in the EU, especially in the area of clearing and settlement and in the custody and servicing of securities. Take, for example, market standards for the operational handling of all types of corporate action: these were drawn up with the involvement of all parties concerned and have succeeded in eliminating differing practices. As a result, processes for corporate actions are now virtually identical across the EU, which has led to corresponding increases in efficiency. The use of the Eurosystem’s Target2-Securities (T2S) settlement platform has also brought about harmonisation. A number of barriers nevertheless remain, as the 2017 report by the European Post Trade Forum (EPTF) expert group points out, and new barriers have emerged.

It is important to begin by removing the most important of these obstacles and, in parallel, to support and complete the harmonisation efforts under the T2S framework before embarking on further harmonisation measures. Our association therefore recommends rigorously pursuing the process already started with continued action by market participants (in the form of standards and market practices) backed by amendments to existing EU legislation. The planned action 13 (CSD cross-border passport) does not go far enough, in our view.

We suggest the following targeted measures:

  • Review of the CSDR
    • In particular, a review of the rules on settlement discipline, which not only cause complex problems of operational implementation but – especially where the mandatory buy-in requirement is concerned – also have a significantly adverse impact on the securities business. Instead of increasing settlement efficiency, the rules make trading more difficult and disproportionately increase costs. Adjustment is urgently needed in this area, as well as clarification of operational implementation issues.
    • A review of the prudential requirements for CSDs. CSDs should be low-risk because they are systemically important. But the rules should not result in tried and tested forms of financing no longer being available to banks and their clients. It should, for example, continue to be possible to grant and draw on credit lines if they are fully collateralised.
  • Review of the Settlement Finality Directive and the Financial Collateral Directive: as a result of business continuing to evolve, some of these requirements are no longer fit for purpose. In addition, differing implementation in member states has had a negative impact on the original objective of these directives. Corresponding adjustments need to be made, especially to the scope (third-country systems) and membership (direct/indirect participants).
  • Reduction of the complexity of the reporting regime, in particular for transaction reporting in areas such as
    • customer and staff data,
    • reporting securities transfers,
    • reporting corporate actions,
    • flagging short sales,
    • reporting securities financing transactions (SFTs) with central banks, and
    • the transfer of reporting obligations under Article 9(1a) of EMIR (as amended by the EMIR Refit).
  • Finally, a cost-benefit analysis of T2S harmonisation measures should be carried out. As long as T2S or CSDs charge additional fees for cross-border transactions or settlements on top of national costs, cross-border investments will remain unattractive.

Action 15: investor protection in the EU

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: European supervision and single rulebook

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. The goal should be to establish an effective, modern and – given the continuously evolving nature of markets – sufficiently flexible framework. In the interests of a level playing field and to make it easier to do business across borders, it is important to ensure that the uniform legal framework is applied and enforced equally effectively in all member states. With this in mind, we welcome the Commission’s intention to take stock of the situation in the fourth quarter of 2021.

We also welcome the Commission’s plan to examine whether supervisory convergence can best be fostered by giving the ESAs further powers over and above those granted following the last ESA review. We nevertheless take the view that only business with a purely European dimension, such as ELTIFs, should be placed under the direct supervision of the ESAs. It is especially important that business which is strongly influenced by national law should continue to be supervised primarily by national competent authorities as it is these that have the expertise needed to do so.

The Commission is correct to point out that the Wirecard case needs to be carefully analysed in order to move the regulatory and supervisory regime forward. It should be borne in mind, however, that a considerable amount of criminal intent was involved in the Wirecard scandal, which makes detection extremely difficult even in a well-functioning regime. In Germany, the Financial Market Integrity Strengthening Act (Gesetz zur Stärkung der Finanzmarktintegrität – FISG) has already introduced measures to help prevent such cases of fraud in future. The requirements of the FISG concerning the monitoring of financial reporting, corporate governance and auditor liability could serve as a basis for discussion at European level.


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