Posted on Nov 27, 2021
The package includes changes to the Markets in Financial Instruments Regulation (MiFIR), the rules for alternative investments such as hedge funds (AIFMD), the European Long-Term Investment Funds framework (ELTIF) and the creation of a single European data hub for company data (ESAP).
The proposals are mainly aimed at more transparency in the fragmented European capital markets, for example by creating a common European ticker tape for trade data (‘consolidated tape’). For the most part, the measures had already been announced in the Commission’s action plan last year. The Capital Markets Union is an important step towards a more stable monetary union in which risks are shared across borders. More information on the contents of the various proposals can be found at the bottom of this email.
German MEP Sven Giegold, financial and economic policy spokesperson of the Greens/EFA group in the European Parliament commented,“The European Commission’s Capital Markets Package is not a major step forward. The plans do not do justice to a real Capital Markets Union. Capital market transparency alone does not make for a Capital Markets Union. For a true European Capital Markets Union, there needs to be a significant harmonisation in various areas of law between the member states. Tax, corporate, insolvency, supervisory and consumer protection laws should be harmonised across the EU. With its new proposals, the EU Commission continues to pick only the low-hanging fruit along the way. This will hardly bring us any closer to the goal of a Capital Markets Union. At least the European Commission wants to present a proposal for a mini-harmonisation in certain areas of insolvency law next year. But that alone is not enough. The European Commission must urgently revise its unambitious action plan for the Capital Markets Union and put the crucial harmonisation projects at the top of the agenda. The incoming German government has announced that it will support the European Commission in this.
"Without more transparency and better data, the Capital Markets Union cannot succeed. The creation of a European single access point for company data at ESMA is an important step. In addition, it is overdue that the European Commission finally wants to get its act together on the consolidated tape. A common European ticker tape strengthens competition and can help both professionals and retail investors to navigate the jungle of European capital markets. It is crucial that there is fair and cheap access to the data for all. It should be noted, though, that the European Commission is putting old wine in new bottles: After all, already MiFID II should have delivered the consolidated tape. Today’s overdue initiative mainly makes up for mistakes of the past.
"With the planned complete ban on payment for order flow, the European Commission is doing consumers a disservice. The proposed ban is a gift for all conventional providers who want to get rid of the annoying fintech competitors. Retail investors would then have to rely on conventional providers again, which often charge overpriced fees and are not very customer-friendly. There has been a clear market failure in equity trading for retail investors for a long time. As long as the European Commission has not remedied this market failure, it should not ban the business models of innovative challengers outright. The European Commission should ensure fair competitive conditions between fintechs and conventional providers. This includes minimising conflicts of interest and placing great emphasis on investor protection. It is telling that the Commission sees market transparency endangered primarily by the neobrokers. While the European Commission wants to force all retail investors onto the hitherto expensive stock exchanges, it continues to allow financial firms to trade on a large scale in dark pools and on other non-transparent platforms. This does not fit together. Little thieves are hanged, but great ones escape.
"A Capital Markets Union can only co-exist with an Investor Protection Union with uniform high standards. ELTIFs can be a sensible long-term investment for retail investors. But the EU Commission’s plans for ELTIFs are unbalanced. The planned expansion of the investment spectrum means that ELTIFs are losing their profile. This will make it even more difficult for retail investors to assess the complex, high-risk and often expensive products. Independent financial advice could prevent bad investments. But as long as MiFID II continues to allow commission-based financial advice with its inherent wrong incentives, independent financial advice will remain a niche phenomenon in large parts of Europe. With the planned opening of ELTIFs also for retail investors with little investment capital, the European Commission is taking the second step before the first. Before the Commission weakens existing consumer protection rules, it must first end the market failure in financial advice for retail investors. I expect the European Commission to tackle the structurally wrong incentives in financial advice to retail investors next year as part of its retail investor strategy, " concluded the MEP.
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