Huw Jones

LONDON (Reuters) – The European Union has moved a step closer to its vision of creating a single capital market across the bloc, a slow moving process but one that is chipping further away at Britain’s status as Europe’s investment banker.

The bloc first began an ambitious – but tortuous – process of ultimately creating a single EU securities market in 2015.

Companies should be able to issue shares and bonds more easily by creating a single market.

On Thursday, the EU set out proposals to introduce a single ‘consolidated’ set of prices for stocks and bonds listed across the EU and a single portal for corporate information – akin to Wall Street’s Edgar system – analysts say the vision will gain more traction.

These two are crucial to setting up CMU (capital market union), and once that is in place, you’ll see an actual push to advance it. Mairead McGuinness is the EU’s chief financial services officer.

McGuinness’ British predecessor Jonathan Hill laid the foundations for a capital markets Union in 2015. The plans were much praised and promised that the building blocs will be in place by 2019.

Although expectations rose two years later with follow-up steps, an EU official said that CMU still remains an unattainable goal.

“Perhaps the mistake of the original version of capital markets union was that it gave the impression that CMU was a legislative project that could be ‘completed’ by passing lots of new regulations,” said William Wright, head of New Financial, a London-based think tank that does research on European capital markets.

Wright stated that while the current version might seem less ambitious, it is more pragmatic and concrete.

New Financial data shows that the EU capital market has a fraction of the depth as that in the United States. However, it is more than twice as deep and the United Kingdom’s less.

Sander Schol is a former banker and heads EU public affairs at Hanbury Strategy. He said that the more controversial CMU actions have been approved before. The latest Brussels proposals address harder issues while rules on other crucial issues such as harmonizing insolvency laws are missing.

This round, the EU executive, The European Commission, proposed more complicated steps to connect national markets. They created an EU tape (or record) of stock- and bond trades. By 2024. Step exchanges will work hard to weaken this step.

Also proposed is a single EU point for accessing information regarding listed companies that mirrors the ‘Edgar’ filings system of Wall Street.

Schol said that there will be more difficult reforms, such as harmonising settlement, tax on investments, and accounting, to make the EU a seamless securities market, like it is in the United States.

Schol explained that while market participants requested harmonisation in settlement and insolvency law, member states do not want to modify insolvency regulations. This is because, “if you start to mess with those then it would have to change each country’s legal foundations.”

STRATEGIC AUTONOMY

The recovery from COVID-19, Brexit and massive investment to combat climate change has given CMU a new urgency that it was lacking six years ago. As Brussels seeks “strategic autonomy”, in financial sectors such as finance, this is reflected in the EU’s desire to create “strategic autonomy”.

Brussels has seen that Britain’s departure shows them how the bloc’s markets are able to largely stand alone after daily trading in shares, interest rates swaps and EU emission allowances, which left London for Amsterdam with no market disruption.

Although London remains the largest financial center in Europe, Amsterdam has become Europe’s most important share trading hub. Amsterdam also has attracted 22 private placements, public floats, and other investors this year. This brings in 10.7 Billion euros (or 11.99 Billion).

There were 108 floats at the London Stock Exchange, which brought in 16.1 Billion Pounds ($21.47 Billillion). London was aware that it is trailing New York’s $128.4 billion.

London will likely remain Europe’s most important financial center in the coming years. The EU relies still on London to clear interest rate swap transactions worth trillions of euro. However, Brussels has made it a point to decrease this dependence over time.

“One way to think about CMU is as a multi-decade process of laying the important foundations over five to 10 years and then building on them over the next 10 to 20 years: the United States has a 150-year head start and still doesn’t have a full ‘CMU’,” Wright said.

McGuinness stated that CMU didn’t happen overnight. It is still a work in process. McGuinness already indicated her next series of actions for next year. These include simplifying listing rules, making crossborder payments more efficient and trying to harmonize aspects of insolvency legislation.

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