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Another step towards a common capital market

In March 2018, the European Commission prepared a set of legislative proposals aiming to promote alternative sources of financing and remove barriers to cross-border investments. The EU thus continues its efforts to create a Capital Markets Union, one of the priorities the present Commission aims to achieve by 2019.

The Capital Markets Union is an EU initiative to integrate capital markets of all member states. Current legislative proposals are mostly aiming to facilitate the cross-border distribution of investment funds, promote a market for covered bonds, and ensure greater legal certainty in cross-border transactions in securities and claims.

Investment funds are important players in the capital market. The cross-border distribution of investment funds is currently hampered by numerous regulatory obstacles that the new directive and regulation should remove. The proposal unifies the rules of distribution for collective investment funds and qualifying investor funds. For the sake of transparency, member states will be obliged to publish applicable national regulations on the investment funds’ offerings, including an English-language summary, and the amount of fees connected with cross-border offerings on the internet.

The package also contains proposals on covered bonds, unifying the fragmented and partial regulation of covered bonds by EU law. The extent to which covered bonds are used in individual states differs significantly. With the new regulation, the EU aims to enhance the use of covered bonds as a stable and cost-effective source of funding for credit institutions. Subject to meeting stipulated conditions, together with the specific national name, issuers will also be allowed to use the ‘European Covered Bond’ label.

The final part of the regulation is aimed at cross-border transactions in securities and claims. The proposed regulation stipulates the law applicable in disputes involving the cross-border assignment of claims. According to the general rule, the law of the country where assignors have their habitual residence would apply, regardless of which member state’s courts or authorities examine the case. With its recommendations, the Commission also endeavours to eliminate any uncertainties as to what national law applies when determining who owns a claim. According to the Commission, the proposals should significantly promote factoring and securitisation.

In the legislative process, it is now the European Parliament’s and the Council’s turn. Both have been asked by the Commission to swiftly adopt the proposals as a step towards a Capital Markets Union.