A move to non-bank funding will be encouraged in Europe under proposals from the Capital Markets Union (CMU), Steven Maijoor, chair of the European Securities and Markets Authority, told delegates at the National Association of Pension Funds Conference in Edinburgh on Thursday.
It will be part of one of the four building blocks, he said, with the others being increasing efficiencies of the capital markets, strengthening and harmonising supervision, and increasing the attractiveness of the capital markets to European Union investors. All four will be interlinked, he said.
One of the main aims of the drive is to ease capital availability for companies and support economic growth. It is also looking to support investors which are seeking to invest in mid-sized companies. At present, investors still have a strong bias towards companies in their own countries. Thus transactions are not happening that would be beneficial for both the investor and the companies, he explained.
The need for a greater diversity of funding implies a shift from bank funding to non-bank funding, but also maintaining a wide variety of funding channels with banking, he said. The European authorities will seek to use investment funds, initial public offerings, venture capital, securitisation, private equity and crowdfunding to achieve their aims.
On crowdfunding, Maijoor added that part of the remit of the CMU will be to ensure that there is adequate protection for investors, as it is naïve to assume that risks of investing in these platforms are lower than traditional funding channels. Although it will ultimately be up to investors rather than regulators to identify these risks, he continued.
In terms of implementation, those working on a CMU have a five year time-horizon in mind, he said. At present, 28 countries would be included in any regulations created.
Later in the day, Lord Hill of Oareford, European Commissioner for Financial Stability, Financial Services and Capital Markets Union, said that capital markets in Europe remain highly fragmented, largely along national lines, and that is what the group is keen to change.