Proposals to create a US-style capital market across Europe to increase firms’ financing options could give European regulators more powers at the expense of the City of London, a European Union document showed.
The plan aims to create a so-called capital markets union by 2019 from Europe’s fragmented bond and stock markets. It outlines possible reforms to allow markets, rather than banks, to become the main source of cash for the region’s companies.
The aim is to build a capital market more on par with the US where public equity markets are almost twice the size of EU markets.
The 23-page ’green paper’, a draft of which was seen by Reuters, is due to be approved by the European Commission on February 18.
“European businesses remain heavily reliant on banks, which makes the economy vulnerable to a tightening of bank lending,” it said. “Building a capital markets union is a long-term project. We will support market-driven solutions where we can and regulatory changes only where they are necessary.”
However, in a step that could anger London, the plan raises the possibility of giving EU watchdogs, such as the European Securities and Markets Authority in Paris, stronger powers.
“In the context of capital markets becoming increasingly integrated, further consideration could be given to the role played by the European supervisory authorities [ESA],” it said.
“To the extent the national supervisory regimes may result in differing investor protection standards... there may be a further role for the ESAs to play in increasing convergence.”
The Bank of England said last week no institutional changes were needed to the existing system of EU markets supervision in a capital markets union.
The plan would also need to overcome the big political hurdle of persuading the 28 EU member states to harmonise their tax and insolvency laws. A pan-European capital market could be created by easing regulatory burdens on smaller firms to make it faster and cheaper to list on the stock market.