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The EU currently manages access by non-EU/-EEA states to the EU financial market through its ‘third country’ rules, which typically require that the financial governance regime of the state in question is ‘equivalent’ to the EU regime. However, the UK's departure from the EU by 31 March 2019 has raised questions about how UK, as a ‘third country,’ ensures access to the EU financial market, and how a related Free Trade Agreement (FTA) might be configured. This chapter first considers the current regulatory requirements governing third country access to the EU capital market and their implications for the Capital Markets Union. It then examines the evolution of third country/equivalence-related techniques internationally for capital markets and how they might be relevant for the EU. It also speculates as to how the EU's equivalence arrangements for third countries are likely to develop, including in the context of an EU/UK FTA.

This chapter offers a critical overview of the issues that the European Union 27 (EU-27) will face in the context of making proper use of financial innovation to further market integration and risk sharing in the internal financial market, both key objectives of the drive to build a Capital Markets Union. Among these is the paradigm shift signalled by a technological revolution in the realm of finance and payments, which combines advanced data analytics and cloud computing (so-called FinTech). The chapter begins with a critical analysis of financial innovation and FinTech. It then traces the EU market integration efforts and explains the restrictive path of recent developments. It considers FinTech's potential to aid EU market integration and debates the merits of regulation dealing with financial innovation in the context of building a capital markets union in EU-27.

This chapter looks at recent initiatives in the context of the European Commission's flagship plans for a Capital Markets Union (CMU) designed to encourage a pan-European private placement market. In reality, private placements are mainly available as a funding tool for medium-sized and larger companies. Nonetheless, private placements are regarded by CMU's policymakers as an alternative source of long-term funding, which is simple enough for smaller corporates and small and medium-sized enterprises (SME), and with benefits that they might find attractive. The Commission's initial intention in the design of a CMU was to enable a greater use by SMEs of private placements.

The integration of capital markets in the EU is a long-term and complex task that is far from being completed. A comparative analysis with capital markets integration and development in the United States can offer insights on how the EU can develop its policy framework to achieve a single market for capital. This chapter begins with a brief review of the history of European financial integration policies since its inception in 1957. It then illustrates how capital markets can provide significant risk absorption against exogenous shocks. Finally, it presents a brief overview of the United States' economic history between 1860s and 1930s. Analogies can be found with the European financial integration process, as well as benchmarks to identify areas where European policies can do more to promote a Single Market for capital.

With the temperament of an insurgent, Walter Wriston used his position as head of CitiBank to bypass many of the Depression era regulations, helping free bankers in the US and around the world. IN addition, using the Eurodollar market, Wriston also showed how banks could internationalise their operations. Finally, lobbied to remove Bretton Woods’ rules, which had inhibited the free movement of capital. After Wriston left banking in 1984, he continued his campaign through writing an influential book called The Twilight of Sovereignty. This book was important to neoliberals because it argued that free markets regulate themselves and provide a launching pad for continued economic growth. The contributions Wriston made to deregulate the financial sector and to free global capital markets allowed global banks to grow to the point that they were too-big-to-fail and bankers became too-important-to-jail. In addition, through well-funded lobbying, banks became too-powerful-to-regulate. The result is a fragile economic system that has avoided significant reform since the global financial crisis of 2007/8, keeping Wriston’s legacies safe.

Securitisation represents a significant worldwide source of capital market financing. European investors commonly invest in asset-backed securities issued in U.S. securitisation transactions, and vice versa One of the key goals of the European Commission's proposed Capital Markets Union (CMU) is to further facilitate securitisation as a source of capital market financing as a viable alternative to bank-based finance for companies operating in the EU. To that end, this chapter explains securitisation and attempts to put its rise, its decline after the global financial crisis, and its recent CMU-inspired revival into a global perspective. It examines not only securitisation's relationship to the financial crisis but also post-crisis comparative regulatory approaches in the EU and the United States.

Firms’ access to capital markets among Eurozone countries is a challenging issue for the EU Capital Markets Union (CMU) agenda. We contribute to the current debate on the CMU by identifying the characteristics of firms that can be deemed ‘suitable’ for market-based finance. Using survey-based research, we show which firm-specific attributes and country-specific features foster a firm’s likelihood of accessing non-bank sources of finance. Our results reveal that a few Eurozone countries appear to have achieved high access to capital market financing, but there is substantial unexploited potential among firms fit for market-based finance. Our research also indicates that the macro business environment and conditions—such as GDP growth, the degree of development of domestic financial markets, and the quality of the legal and judicial enforcement system—significantly impact firms’ market suitability. Our results therefore can be linked to a number of goals of the CMU Action Plan.

This chapter proposes a system for EU centralization of scrutiny and approval of public offers of securities or of listing of companies mature enough to conduct an IPO or those that seek a listing following a secondary offer. It first discusses the European Securities and Markets Authority's unique presence in the EU regulatory edifice and the true ambit and interpretation of its powers. It then sets out the preferred architecture and ambit for a possible European Listing Authority and Capital Markets Union–Securities and Exchange Commission (CMU–SEC), and the advantages their establishment could bring to the CMU project. Next, it discusses the legality of a possible CMU–SEC and brings the different strands of the present analysis into a comprehensive solution.

This chapter analyzes the current regulatory framework for cross-border distribution of investment funds and submits some proposals to improve it. The chapter is organized as follows. Section 2 provides a schematic description of the legal taxonomy for collective investment schemes. Section 3 addresses the EU disclosure regimes that apply to the distribution of various types of investment funds. Sections 4 and 5 consider conduct-of-business rules and, respectively, the legal framework for the allocation of supervisory powers on product regulation when fund units are distributed in more than one country. Section 6 provides some data that help assess the performance of the current framework for cross-border distribution. It then analyzes some of the residual legal rules and supervisory practices that still make cross-border distributions of funds more burdensome than purely national distributions, whether these restrictions are set forth in the country where investors are domiciled (Section 7) or in the fund's home country (Section 8).

This chapter contributes to the debate on the future of European over-the-counter (OTC) clearing and relevant infrastructures in light of the Capital Markets Union and its re-configuration after Brexit. It begins by introducing some basic notions about clearing dynamics. It then analyses the available divorce options between the EU and the UK once Article 50 has been triggered, and their impact on clearing particularly in light of the European Market Infrastructure Regulation's equivalence regime. Next, it examines the worst-case scenario that would materialize if UK central counterparties (CCPs) were excluded from the single market, and considers possible network strategies that CCPs could adopt to remedy the consequences of Brexit.

This chapter begins by considering the especially severe information-asymmetry problem that plagues primary offerings of truly new securities. It then examines market-based solutions for these problems, the shortcomings of exclusive reliance on such solutions, and the rationale for having a government-designed affirmative-disclosure regime, whereby an issuer making an offering is required to answer certain questions. It also addresses the question of whether this regime should be imposed on all issuers making such offerings or only those that volunteer to be subjected to it. The remainder of the chapter considers the rationale for mandating the imposition of liability on issuers, issuer directors and officers, underwriters, dealers, and experts such as accountants or rating agencies when there have been material misstatements or material omissions of what was required to be disclosed. The final section briefly applies the preceding discussion to the efforts, as part of the Capital Markets Union, to increase the opportunities for European SMEs raise funds through public offerings.

Recent years have witnessed a tidal wave of new EU financial regulation in general and investor protection legislation in particular. The Capital Markets Union project has added a number of further initiatives. This chapter attempts to bring some order in the multitude of rules, by sorting them into three main building blocks: information, service quality requirements (conduct of business rules), and product regulation. A general trend among the three building blocks is a more cross-sectoral approach to investor protection, levelling the playing field between banking, investment, insurance, and personal pension products and services. This trend towards a more horizontal approach, although not perfect, is laudable. A challenge for EU financial regulation is to decide how far this trend should go.

This chapter investigates the role of institutional investment in developing capital markets. It also examines the role of institutional investment in risk sharing. The contribution of institutional investment to risk sharing depends on: the size of institutional investment; the degree of geographical diversification of portfolios, and the composition of assets (equities vs bonds) held. The chapter investigates these three aspects of financial integration in the EU's Capital Markets Union and assesses the prospects for increased risk sharing in the EU. The main hypothesis is that the larger the assets managed by institutional investors, the smaller the home bias and thereby the larger the scope for risk sharing, ceteris paribus. The analysis will focus on portfolio equity home bias.

On 30 May 2017, the European Parliament, Council, and Commission reached a political agreement on the package of regulatory reforms of the European securitisation market. The package is aimed at facilitating the development of a securitisation market in Europe. The package represents the latest development of a negotiation process that started back in September 2015. The application date is expected to be 1 January 2019. Meanwhile, market participants have expressed uncertainties as to its effectiveness. This chapter considers the risk that the package will have a negative effect on the European securitisation market, resulting in further contraction. The primary focus of the chapter is on the rules on long-term securitisations as opposed to the short-term securitisations (asset-backed commercial paper).

The Capital Markets Union (CMU) aims to strengthen capital markets and investments in the EU. The rationale behind such a union is that it is necessary to provide businesses, particularly start-up companies, with a greater choice of funding at lower cost. More generally, it is assumed that, in the long-term, greater choice increases access to finance and fosters economic growth. This chapter argues that although the CMU may be a necessary step, it has to be situated in a much broader discussion about how to create successful innovation ecosystems. Such an approach highlights the sector-specific needs of start-ups (and scale-ups) and the importance of mobilizing other players, particularly established corporations.

This chapter focuses on FinTech, which offers firms and individuals new ways for accessing alternative sources of finance. It first examines the main types of alternative finance which technology has helped to develop and could further complement the traditional markets, focusing on marketplace investing and its perspectives in Europe. It then analyzes financial return crowdfunding as an application of marketplace investing; its main business models, such as investment-based and loan-based crowdfunding; and the risks and benefits deriving from them. Next, it compares the different regulatory models applicable to crowdfunding at EU and member states' levels, distinguishing between the traditional approach, which extends existing banking or financial regulation to these new sectors, and the ‘innovative’ approach contemplating ad hoc regimes for crowdfunding. The final section suggests a tailored policy approach to marketplace investing in the Capital Markets Union.

This chapter discusses the EU's efforts to strengthen the European clearing and settlement framework for securities and derivatives transactions. That exercise is pa should promote access and therefore competitrt of the EU's plans to establish an integrated European Capital Markets Union. Important steps have already been undertaken, and more legislation is now under construction, designed to lead to a comprehensive robust market infrastructure in the EU. These include the EU Commission's proposals to update the segregation provisions in the European Market Infrastructure Regulation and the proposed regulation dealing with the recovery and resolution of central counterparties. The chapter shows that although the advances made are significant, there is quite a long way to go before a fully integrated and risk-averse environment for clearing and settlement is achieved.