EU’s Capital Market Integration Package: A Misguided Approach to Financing Innovation that only boosts financial power

Myriam Vander Stichele, TNI Associate, gives her assessment on the European Commission’s capital market integration package.  

On 4 December, the European Commission unveiled its Capital Market Integration Package, the centre-piece of its Savings and Investment Union (SIU) policy. Framed as regulatory “simplification” to boost EU competitiveness, the reforms aim to mobilise private capital for innovation, technology start-ups, “competitive decarbonisation,” and defence. The salient – but deceptive - narrative driving this initiative is that public finances alone cannot meet Europe’s investment needs—estimated at €750–800 billion annually by 2030—so private finance is the panacea to fill the gap. 

What’s different in the proposals is to bring down regulatory barriers to create bigger pools of money circulating through ever larger cross border investment funds, asset managers, and supportive service providers in the belief that the EU capitals market will be cheaper and more attractive investment proposition.   

The key highlights of the proposals are: 

• The European Securities and Markets Authority (ESMA) will have more centralised supervisory powers to cover, among other things, large asset managers – although the majority of member states will need to support the proposed measures.  

• National supervisors are prohibited from having their own discretionary supervisory practices and standards. 

• There is no proposal to integrate competition policy considerations to prevent anti-competitive behaviour of large players in the market, such as barriers to entry by too large players, or indirect cartel-like behaviour for instance related to fees to retail investors – even though the proposals will favour  dominant players. 

• None of the proposed  amended laws orients the additionally raised capital to provide more and cheaper funding to EU companies through investments in their (new) shares and bonds. Instead, increasing influence in the market from non-EU asset managers dominated by BlackRock and Vanguard who are  integrating less EU company shares in their funds to  buy more US shares.  

In conclusion, these new proposals could increase the dominance of US asset managers and investment funds without any rules to limit their growing power in the EU capital market.