Renew Europe supports simple and transparent financial rules to boost post-COVID recovery
Last night, the European Parliament and the Council reached an agreement on the Capital Markets Recovery Package. Renew Europe leading negotiators played a fundamental role in reaching a balanced and sensible deal, putting our capital markets in a better position to support Europe’s recovery from the COVID-19 crisis
The Package consists of three major pieces of legislation: a new EU Recovery Prospectus, targeted measures to ease the use of securitisation, and a quick fix to MiFID II.
A New EU Recovery Prospectus.
The agreement is aimed at helping European companies, particularly small and mid-cap companies, raise capital at a lower cost, by reducing the length of the prospectus from hundreds of pages to just 30, in the case of issuing a prospectus for a secondary issuances of shares.
Renew Europe Rapporteur Ondřej Kovařík, the lead European Parliament negotiator in welcoming the deal, stated: “I am very happy with the agreement on the Recovery Prospectus proposal. It is the final piece of the puzzle of the Capital Markets Recovery Package. The agreed proposal will cut the cost of drawing up prospectus for those eligible by up to 50%. This will help SMEs in particular to get investment to recapitalise and grow back stronger from the pandemic".
The final text will help businesses re-capitalise without putting investment protection and transparency for consumers and investors at risk. The shorter prospectus will be available for companies with a track record in the public market issuing shares and bonds.
The European Commission estimates that the recovery Prospectus proposal would lead to a 50% cost in production cutting the cost from €800,000 for the current secondary issuance prospectus to €400,000 for the new recovery prospectus, which will result in an estimated EUR 200 million cost savings across the EU.
Mr. Kovařík also negotiated additional requirements for issuers to bring greater transparency, so that investors can make well-informed investment decisions such as ensuring the company discloses its working capital statement and declares whether it benefitted from state aid during the period of the pandemic. The changes in the prospectuses will also protect existing and future investments, by setting out how the money raised will be invested by the company and its strategy to recover from the COVID-19 crisis.
Targeted measures to ease the use of securitisation
The agreement will allow for an easier use of securitisations, the tool through which banks can transfer the risk of their loans to specialized investors.
The package agreed consists of two proposals. The first one will extend the framework of simple, transparent and standardised securitisations to synthetic securitisations. Luis Garicano, Vice President of Renew Europe and Coordinator for Renew Europe on the ECON Committee, led the negotiations and declared: “We have delivered on our priority during the negotiation: to make new rules for simple and transparent securitisations while ensuring that this financial instrument serves its true purpose: to truly transfer risks from the bank to investors. Securitisation cannot be a tool for banks to just pretend they have mitigated their risk so they can get lower capital requirements”.
The second proposal aims at reducing and simplifying capital requirements once a real transfer of risk has happened. Mr. Garicano added: “it is only logical that a bank that has completed the securitisation process honestly and effectively is allowed to reduce its capital requirements.”
Quick fix to MIFID II
The agreement will adjust the rules on investment services and distribution of financial products so that they could contribute more actively to the flow of private investments for European businesses and for the post-COVID economic recovery.
Stéphanie Yon-Courtin, Renew Europe leading negotiator in the MIFID II file and Vice President of the Economic affairs committee (ECON) at the European Parliament, declared: “Supporting our SMEs and protecting consumers in Europe: the twin objectives of the MiFID quick fix, and two wins for the Parliament in yesterday's negotiations ! Renew will remain attentive to preserving financial stability in the broader MiFID review next year."
The so-called “MiFID Quix Fix” will lighten administrative burdens on experienced investors, simplify rules on energy commodity derivatives while preserving the crucial position limits on food contracts, and ease joint payments on investment research for SMEs and trading fees.