CAPITAL MARKETS UNION IN EUROPE OXFORD EU FINANCIAL REGULATION SERIES The Oxford EU Financial Regulation Series provides rigorous analysis of all aspects of EU Financial Regulation and covers the regulation of banks, capital markets, insurance undertakings, asset managers, payment institutions and financial infrastructures. The series considers Brexit and third country relations. The aim of the series is to provide high-quality dissection of and comment on EU Regulations and Directives, and the EU financial regulation framework as a whole. Titles in the series consider the elements of both theory and practice necessary for proper understanding, analysing the legal framework in the context of its practical, political and economic background, and offering a sound basis for interpretation. Series Editors: DANNY BUSCH Professor of Financial Law and Director of the Institute for Financial Law, Radboud University Nijmegen; Visiting Professor at Università Cattolica del Sacro Cuore di Milano; Visiting Professor at Università degli Studi di Genova; Member of the Dutch Banking Disciplinary Committee (Tuchtcommissie Banken); Member of the Appeal Committee of the Dutch Complaint Institute Financial Services (Klachteninstituut voor de financiële dienstverlening or Kifid). GUIDO FERRARINI Emeritus Professor of Business Law, Università degli Studi di Genova; Professor of Governance of Financial Institutions, Radboud University Nijmegen; Founder and fellow of the European Corporate Governance Institute (ECGI), Brussels; Former member of the Board of Trustees, International Accounting Standards Committee (IASC), London. CAPITAL MARKETS UNION IN EUROPE Edited by D B ANNY USCH E A MILIOS VGOULEAS G F UIDO ERRARINI Great Clarendon Street, Oxford, OX2 6DP, United Kingdom Oxford University Press is a department of the University of Oxford. It furthers the University’s objective of excellence in research, scholarship, and education by publishing worldwide. Oxford is a registered trade mark of Oxford University Press in the UK and in certain other countries © The editors and several contributors 2018 Figure 11.1 © European Union 1998–2017 Figures 18.1, 18.2, 18.3, 18.4a, 18.4b, and Tables 18.1 and 18.2 © European Commission 2016 The moral rights of the authors have been asserted First Edition published in 2018 Impression: 1 All rights reserved. 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Enquiries concerning reproduction outside the scope of the above should be sent to the Rights Department, Oxford University Press, at the address above You must not circulate this work in any other form and you must impose this same condition on any acquirer Crown copyright material is reproduced under Class Licence Number C01P0000148 with the permission of OPSI and the Queen’s Printer for Scotland Published in the United States of America by Oxford University Press 198 Madison Avenue, New York, NY 10016, United States of America British Library Cataloguing in Publication Data Data available Library of Congress Control Number: 2017960262 ISBN 978–0–19–881339–2 eISBN 978–0–19–254331–8 Links to third party websites are provided by Oxford in good faith and for information only. Oxford disclaims any responsibility for the materials contained in any third party website referenced in this work. PREFACE The European Commission wishes to create fully integrated European capital markets. The Commission’s Capital Markets Union (CMU) Action Plan is intended to make it easier for providers and receivers of funds to come into contact with one another within Europe, especially across borders. This is regardless of whether it is arranged through the intermediary of a bank, through the capital markets, or through alternative channels such as crowdfunding. In addition, more non-bank funding will help to lessen dependence on the traditional banking industry and enhance the ability to cope with economic shocks. But will the CMU Action Plan be sufficient to achieve a truly integrated European capital market? And is the CMU Action Plan still realistic if London, Europe’s financial heart, no longer participates as a result of Brexit? Moreover, what impact will the Trump administration and the victory of Emmanuel Macron have on the CMU project? These are questions which cannot be answered with any certainty at present. Whether the recent political developments will pose an existential threat to the EU or will instead spark a new wave of European integration and reform within the EU27 remains to be seen. In the meantime, the Commission’s stance is clear. It sees no reason for taking its foot off the accelerator in introducing the CMU. Indeed, it believes that the CMU measures must be accelerated. In this book, various aspects of the CMU will be analysed and discussed from a legal and/or economic perspective. The book chapters are grouped in a thematic way, covering the following areas: (i) general aspects, (ii) Brexit, (iii) financing innovation, (iv) raising capital on the capital markets, (v) fostering retail and institutional investment, (vi) leveraging banking capacity to support the wider economy, and (vii) facilitating cross-border investing. Part I considers some general aspects of the CMU. It contains a general introduction to the volume, followed by a treatment of the CMU from an economic perspective. It also addresses two topics that are crucial to achieving more supervisory convergence in the EU27: a more pan-European decision-making structure within the ESAs and more direct supervisory powers to the ESAs, particularly (but not exclusively) to ESMA. A separate chapter is devoted to the future of ESMA as a single listing authority and securities regulator for the CMU. Part II examines the impact of Brexit on the EU financial markets. Special attention is devoted to the impact of Brexit on OTC derivatives clearing. Part III analyses the role of financial innovation in EU market integration and the CMU, followed by a critical discussion on the role of venture capital with respect to Europe’s innovation challenge. It also considers the role of FinTech and alternative finance in the CMU. Part IV offers a treatment of the new Prospectus Regulation, followed by a chapter on SME growth markets. It also contains chapters on initial public offerings in the CMU from a US perspective, on private placements in the CMU, and on damages actions by investors on the back of market disclosure requirements. Part V maps out the multitude of new rules with respect to investor protection. It also considers the possibilities for a policy framework for European personal pensions, followed by an economic chapter on institutional investors and the development of Europe’s capital markets. This part concludes with a chapter on the cross-border distribution of collective investment products in the EU. Part VI analyses and discusses the relief from prudential requirements to support the CMU and critically assesses the CMU securitization proposal, also from a global perspective. Part VII contains discussion on shareholder activism in the CMU, followed by an overview of the efforts to strengthen the clearing and settlement framework of the CMU. It also addresses the EU legislative proposal on preventive restructuring frameworks. This part concludes with a chapter on cross-border tax barriers. The book was preceded by a meeting on 26 and 27 January 2017 of the International Working Group on CMU, established as a joint initiative of the Institute for Financial Law within the Business & Law Research Centre of Radboud University Nijmegen, the Netherlands, the Edinburgh Centre for Commercial Law, University of Edinburgh, United Kingdom, and the Genoa Centre for Law and Finance, University of Genoa, Italy. We thank the Business & Law Research Centre of Radboud University Nijmegen for its sponsorship. We also thank Clifford Chance Amsterdam for hosting the meeting. We are grateful to the distinguished members of the Working Group for their dedication to the project and, in particular, for their contributions to this book as authors. We also thank the invitees to the meeting for providing the members of the Working Group with invaluable comments on their draft chapters. Last but not least, we acknowledge our gratitude to the editorial team at Oxford University Press, who successfully brought a lengthy and complex project to completion. The manuscript was completed on 1 August 2017. No account could be taken of developments since that date. Danny Busch Nijmegen, the Netherlands Emilios Avgouleas Edinburgh, United Kingdom Guido Ferrarini Genoa, Italy CONTENTS Table of Cases Table of Legislation List of Contributors List of Abbreviations PART I GENERAL ASPECTS 1. Capital Markets Union after Brexit Danny Busch, Emilios Avgouleas, and Guido Ferrarini I. Introduction II. CMU Objectives III. EBU–CMU Relationship IV. Regulatory Burden V. Better Regulation and Call for Evidence VI. Final Remarks 2. CMU and the Deepening of Financial Integration Diego Valiante I. Introduction II. Brief History of EU Financial Integration Policies III. CMU as a Risk Absorber IV. The Greatest Capital Market Integration: A Glimpse into the Economic History of the United States V. Conclusions 3. A Stronger Role for the European Supervisory Authorities in the EU27 Danny Busch I. Introduction II. Pan-European Governance of the ESAs III. Direct ESA Supervision IV. Direct ESMA Supervision of CCPs V. Concluding Remarks 4. A Single Listing Authority and Securities Regulator for the CMU and the Future of ESMA: Costs, Benefits, and Legal Impediments Emilios Avgouleas and Guido Ferrarini I. Introduction II. Nature and Reach of ESMA Powers III. The Proposed EULA System IV. A Possible CMU-SEC and Configuration of Powers V. The Constitutionality of a Euro-SEC and EULA VI. Conclusion PART II BREXIT 5. Some Aspects of the Impact of Brexit in the Field of Financial Services Eddy Wymeersch I. Introduction II. Access III. The Equivalence of Third Country Regulations or Standards IV. Euro Derivatives Clearing V. Brexit and the EBA 6. Capital Markets Union, Third Countries, and Equivalence: Law, Markets, and Brexit Niamh Moloney I. Capital Markets Union, Regulation, and Equivalence II. CMU and its Investment Banker III. Third Country Rules, the UK, and CMU: Access and Export Implications IV. Managing Access and Export: The International Context V. Building a New Model: The EU Perspective and a Proposal VI. Conclusion 7. OTC Derivatives Clearing, Brexit, and the CMU Guido Ferrarini and Davide Trasciatti I. Introduction II. Central Clearing of OTC Derivatives