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Renewing EU securitisation is first step for CMU

New rules for the EU securitisation market could generate up to €150bn in additional funding for the European economy, according to the European Commission. The Commission yesterday announced its Capital Markets Union (CMU) Action Plan, which aims to build a single market for capital across the 28 EU member states.

One of the first steps for the CMU will be to introduce new rules on securitisation. It is proposing a regulatory framework for securitisation that lays down “simple, transparent and standardised regulations” that are subject to “adequate supervisory control”. The Commission estimates that if EU securitisation issuance was built up again to pre-crisis levels, it would generate between €100-150bn in additional funding for the economy.

On Wednesday 30 September, Finance Commissioner Jonathan Hill told journalists that the EU securitisation market has been much stronger than the US market since and during the 2008 financial crisis. He said that market has been “stigmatised” because of what happened in the US, adding: “We are following the advice we have been given based on the work done by the ECB, the Bank of England, as well as others such as Basel [Committee] and IOSCO.” The advice, he added, comes from detailed analysis by highly conservative, regulation-minded organisations. “This gives me a lot of confidence that we are acting in a proportionate and sensible way. I feel confident we have a good basis to work on.”

The CMU is a key part of the EC's Investment Plan, which seeks to increase and diversify funding sources for EU businesses and projects. Relaunching the securitisation markets is one of the pillars of the CMU. Following an initial consultation on the CMU, which began in February 2015 and received about 700 responses from business, governments, individuals and the financial sector, the feedback showed that a single market for capital would help support more cross-border risk-sharing, create deeper and more liquid markets and diversify the sources of funding in the economy.

CTMFile Take: This is undoubtedly good news for business across the EU and should open up additional funding avenues, particularly for SMEs and start-ups. The prospect of this funding source opening up is very timely, considering the growing difficulties corporates are having in accessing credit lines from banks.  

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