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  • Pierre-Yves Rahari
    Pierre-Yves Rahari

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    The Capital Markets Union: a land of opportunities for Asset Managers Part 1 of 2

      Time to read: 3min

    Juncker once famously said “Borders are the worst invention ever made by politicians”.
    Since taking up office in 2014, his Commission has been addressing exactly that: Remove obstacles for sustained improvement to the economy which will benefit the European people, regardless of where they are located. This is embodied in Juncker’s ambitious Investment Plan for Europe.


    Five years on from the conception of Juncker’s Plan, it has been reported that EU GDP is up by 0. 6%, it is set to create 1.4 million jobs by 2020 and has helped to mobilise billions in private investment for the public good (exceeding original target of €315 billion).
    These are not modest statistics – Juncker’s Plan is showing results and have laid down the foundations for further growth in the future. But there is still much to do.


    A key ingredient in Juncker’s Plan is the Capital Markets Union (CMU). Since 2014, EU press have been dominated by a blizzard of challenging news; the monumental bailout of the Greek economy, a migration crisis and more recently, the UK’s Brexit referendum result so it is no wonder the CMU has had modest publicity to date. But it is an important Single Market project and one of the key pillars of Juncker’s Plan.


    Essentially, the CMU’s key objective is to improve the free flow of investment all across Europe by providing the infrastructure to encourage people and companies to look across their national borders for investment opportunities and capital to benefit its people, businesses and infrastructure.


    The CMU & the future of EU Supervision
    Refreshingly, the CMU is not another stand-alone piece of regulation or legislation that adds to the mounting compliance burden that most European firms are already grappling with. Instead, the CMU is an umbrella for 23 separate but complementary proposals; a few of which have been adopted into legislation so far.


    In its essence, most of the proposals formed under the CMU umbrella is to move the European economy in one direction; To rejuvenate investments and deepen its integration by harmonising national regulation, legislation and supervision, and breaking down obstacles to cross-border investments.


    As with any growth programmes, ensuring that proper safeguards are in place is crucial to ensure lasting and sustained results, whilst protecting all parties involved. To be fair, major European regulations introduced in recent years such as MiFID II (and also those about to be enforced e.g. PRIIPS) are playing a part in this vision for Europe by enhancing investor protection, increasing transparency and improving market efficiency to bring the confidence back into the European investments market. Though it may seem that the list of new regulation is ever increasing, we see that the themes and ambition are very much aligned.


    With respect to supervision, removing national obstacles to cross-border investment and flow of money has accelerated the call for supervisory and regulatory convergence in the EU. This is particularly important in the area of funds distribution to encourage more cross border investments and support the creation of a Single Capital Market.


    Perhaps, another argument for more commonality in supervisory principles, outcomes and culture is that one must also consider that breaking down national barriers may come with risks to the financial stability of the bloc. National crises will no longer be contained in the scenario of a true Single Market; the European Union will truly be operating as one. Enhanced convergence in supervision will help to address this new systemic risk and has been a strategic priority of the CMU proposals.

     

    This article originally appeared on the AlgoMe Consulting web site. 


    Authored by @Pierre-YvesRahari and @ColinNg

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    Luuk Jacobs

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    The CMU is a logical step in the further integration of the EU/Europe. However it is currently probably more challenging then ever to get everyone behind the plan. I believe not so much because of what is happening in the periphery but more in the culture of the different countries. The Germans focussing on worldwide trade and internal stability, the French with a protectionism and socialism deeply rooted in their social and political system, the more East European countries still finding their political place and getting used to the freedoms of capitalism (yes even 30 years on), South Europe partly recovering still from the crisis and others potentially getting even deeper in it and the Nordics continue doing what they have always done, concentrating on their own trade and partly sailing their own waters. Maybe a simplified view on the situation.

    It will be up now to Ursula van der Leyen to take on the torch of Juncker and push through the next elements of CMU. With a more polarised EU Commission this progress I think will be slow.

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