Launched in September 2015, the Capital Markets Union (CMU) is a key pillar of the Investment Plan which aims to tackle investment shortages head-on by increasing and diversifying the funding sources for Europe’s businesses and long-term projects. In the third pillar of the Investment Plan - which focuses on removing obstacles to investment - the Commission committed to accelerate the process of creating a Capital Market Union.
In a report published on the 27th of February 2017, the European Commission points out that funding projects, as part of the Investment Plan for Europe, depend partly on the collective capacity of the EU and its MS to overcome barriers to cross-borders investment.
In this report, the European Commission underlines that the work undertaken in collaboration with the MS has focused on barriers that are in their areas of national competence and “which can be addressed by voluntary action and on which Member States are willing to work together”.
The report mentions 3 types of barriers that “hampers investors’ cross border operations throughout the investment cycle”.
Firstly, the “ex ante barriers” met by investors when they are considering engaging in cross-border activity. The report points out that the cross-border distribution of investment funds remains geographically limited (1/3 of funds marketed cross-border are sold in only one other Member State and 1/3 in no more than four other Member States). Marketing requirements, administrative arrangements and regulatory fees for marketing cross-border are mentioned as barriers to cross-border operations.
Secondly, the report mentions the “in itinere barriers” which are deterring investors form maintaining or increasing their cross-border exposure. The residence requirements imposed on the managers of financial markets players and insufficient financial literacy are cited as barriers.
Finally, the report points out “ex post barriers” which lead to difficulties at the end of the investment process. The differences in national insolvency regimes and the discriminatory and burdensome procedure for Withholding Tax Relief indeed represent issues for cross-borders investments.
In order to accelerate reforms to create and strengthen a Capital Market Union, the Commission calls on the Member States to discuss and to launch a roadmap to remove national barriers to capital flows. European Finances Ministers will meet on the 21th of March 2017 to discuss how to break down those obstacles to the CMU.
Read the full report of the European Commission and consult the roadmap of actions here