Better Finance: European Commission releases watered down Capital Markets Union (CMU) Action Plan

24 September 2020 – The European Commission’s (EC) Directorate-General for Financial Services, Financial Stability and Capital Markets Union (DG FISMA) published a third action plan to build a Capital Markets Union (CMU) – this time for “people and businesses” – which sets 16 policy and regulatory objectives in order to “finally complete the Capital Markets Union”. [The CMU Action Plan quoting the EC President, Ursula von der Leyen]

Although the Action Plan is de facto built on the framework of the Final Report of the High-Level Forum on the Future of the CMU (HLF CMU Report), BETTER FINANCE is disappointed to see that retail investors are still not at the forefront on these policy and regulatory proposals.

The Action Plan says more than what it actually sets out to do: “Consumers should have more choice”, be “appropriately protected”, get “fair investment outcomes” since “savings generate low or even negative real interest rates”, the CMU should “contribute to building trust”, acknowledging that there is “limited comparability of similar investment products” or that “the current structure and features of retail distribution systems are often insufficiently competitive and cost- effective”.

Yet, the measures planned to implement Actions 7, 8, and 9 on making “the EU an even safer place for individuals to save and invest long-term” lack the ambition from both the HLF CMU Report and the European Parliament’s Economic and Monetary Affairs (ECON) own initiative report on the Capital Markets Union. [See here the consolidated text https://www.europarl.europa.eu/doceo/document/A-9-2020-0155_EN.html; note that the report was voted in the Committee only so far.]

Moreover, we are disappointed to see that on some counts the new CMU Action Plan limits itself to a few “quick fixes” for retail investors – the largest source of long-term funding for the EU economy – and delays its lofty ambitions (adequate protection, biased-free advice, competitive and cost-efficient financial products, transparent, comparable and understandable product information) for a retail investment strategy to 2022.

Nevertheless, BETTER FINANCE welcomes the initiatives enshrined in Actions 7 – 9 as a good, yet slow and late, start towards creating an investing environment that fosters retail investor participation, equity financing of the real economy and sustainable, decent long-term investment returns. These actions, coupled with the potential Digital Finance Action Plan and the Sustainable Finance Strategy, may have the potential to kick-start the construction of the CMU in earnest.

Guillaume Prache, Managing Director of BETTER FINANCE, believes “that a true Capital Markets Union must start by addressing all issues that discourage retail investors from investing their savings in the real economy and receive decent long-term returns (value for money)”.