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1 Mail: R e f e r e n c e n u m b e r 15/10.711/PK/HdB S u b j e c t Response to the Green Paper on the European Capital Markets Union T h e H a g u e May 13, 2015 T e l e p h o n e n u m b e r E - m a i l Kempen@vnoncw-mkb.nl Dear Sir, Madam, Introduction VNO-NCW and MKB-Nederland welcome the Green Paper of the Commission to revive and strengthen European capital markets. Europe needs efficient and dynamic capital markets alongside a strong and stable banking sector. This makes sense from both an economic growth as a financial stability perspective. First, the dynamic nature of firm growth asks for innovative ways of finance. European businesses are up to the challenge to invest in modernization of their business models, not least by digitalization. Fast developments require more risk-bearing capital. The digitalization in the retail sector, in industry, and in the market for financial services requires major investments. A dynamic capital markets could potentially provide proper financing solutions for innovative business plans, which do not meet the criteria for bank finance. A well-developed capital market in Europe could enable and unlock new forms of entrepreneurship and foster an environment in which ideas could be transformed into concrete plans. Second, well-developed capital markets together with a fully-fledged banking union could contribute significantly to financial stability, as economic shocks with consequences on banks could potentially be absorbed by capital markets. Furthermore, the European banking union could enhance competition and stimulate new entrants to enter the Dutch market for business finance. Therefore, a genuine banking union should simultaneously be developed, as bank could use cross-border capital. VNO-NCW Postbus AA Den Haag T: F: MKB-Nederland Postbus AA Den Haag T: F:

2 2 For European businesses, it is good that bank finance is complemented with financing through capital markets. Businesses need to diversify their sources of finance. Banks will keep an important role in financing businesses. Next to the funding role, banks also have an important role to play in providing liquidity on capital markets, inter alia via market making and private placements. The relevance of the Capital Markets Union (CMU) is high in the Dutch context, since consumers in our country hold a large share of their pension savings in pension funds and insurers. The level of bank deposits is therefore relatively low compared to the total amount of bank lending. Consequently, households and corporate deposits in the Netherlands do not suffice for the funding of loans provided by Dutch banks. Since the Dutch economy is so dependent on bank lending, this might create vulnerabilities for the Dutch economy. The CMU and a well-developed banking union could address this problem by paving the way for alternative sources of finance for corporates and consumers and strengthening ways of funding by banks.. The Netherlands has a fully developed financial infrastructure with sizable pension funds and insurers along with international banks. A well-integrated CMU could enhance the channelling of funds to the most efficient and profitable places across Europe. The CMU could potentially boost investments in Europe. Fully integrated markets for capital in Europa could potentially boost economic growth and job growth by attracting capital from institutional investor like insurance companies and pension funds. VNO-NCW and MKB-Nederland thus welcome the plan for an capital markets union in Europe since it fosters good opportunities to enhance economic growth in Europa. VNO-NCW and MKB-Nederland welcome the market-led approach by the European Commission. This paper will elaborate on both the demand and supply side of capital in Europa as well as some other aspects. The demand side Credit information The availability of high quality information of the creditworthiness of companies could potentially bring down the costs of transaction and risk assessment. In the Netherlands, Standard Business Reporting (SBR) has been developed as an electronic standard to exchange financial data in a reliable way. Dutch banks have developed an new digital portal SBR Banks to collect and exchange data on credit demand and existing financing. In the future, other financiers should be given the possibility to access these data, therefore creating a more attractive environment to step into business financing, especially for SMEs. By rating or scoring SME companies the information gap on the creditworthiness of companies could be bridged. Ratings could also be used to make packages of loans

3 3 more attractive to institutional investors. We do see a market-based approach as prevalent and promising in overcoming the credit information gap. Prospectus directive We welcome a review of the prospectus directive. It should strike the right balance between increasing access to capital markets for companies and preserving a proper level of investor protection. A new prospectus directive should aim at delivering a true level playing field, since different implementation of the existing prospectus directive did not lead to a true level playing field. We do support the simplified prospectus regime for secondary offerings and listings, since these companies are already subject to obligations of information disclosure. Documents which are already filed under the transparency directive should no longer need to be subject to incorporation by reference in the prospectus. This would increase flexibility and lower issuer costs. Accounting standards for SMEs Harmonization of accounting standards for SMEs increases the transparency of creditworthiness of SMEs for banks and other potential investors. However, we do not favour the introduction of a European wide accounting standards for SMEs since this poses SMEs to large costs which do not balance the benefits drawn from it. Accounting standards for SMEs should be enhanced, but on a voluntary basis. Corporate bond markets Corporate bond markets need to be more liquid, as it is a potential powerful instrument for midcap+ companies to attract finance. However, complete standardisation is in our view not the ideal way to revive the liquidity of European corporate bonds markets. Borrowers need the flexibility to state their own particular financing needs. Notwithstanding that standardisation of certain elements of prospectuses could bring down transaction costs. The supply side With a large institutional investors and a well-developed financial environment with pension funds, insurance companies and international banks, parties in the Netherlands could greatly contribute to the supply of finance in the European economy. With the European Fund for Strategic investments (EFSI), a good boost has been made in connecting the financing needs finance to the wide supply of finance. Bringing together the supply of finance and the demand for it (projects) and at the same time bringing down (policy)hurdles are key for success. In the Netherlands, institutional investors raised the Netherlands Investment Institute in order to match financing needs to the supply of finance. This Dutch initiative could greatly benefit from the cross-border initiative taken by the European Commission. Role of institutional investors Long-term investments Institutional investments could deliver long-term investment into the structural earning capacity of the European Union. However, this should be complemented by member

4 4 state action in delivering a stable and attractive investment climate. Therefore, the focus on structural reforms on product-, services- and labor markets should be continuously on the priority list of member states. Long-term finance could not fully deliver in a suboptimal business environment. In order to incentivize insurance companies to invest in growth and jobs, the Solvency II framework should incentivize long term finance. This means that the Solvency framework should take better account of the specific risk profile of investment in infrastructure and other long term investment. Furthermore, investments in SME loans and securitisations should be properly assessed by the framework of Solvency II in order to enhance growth-enhancing investments of insurance companies into the real economy. The same logic applies to pension funds, which need the regulatory framework to be supportive of long-term investments. Cumulative impact of financial market regulation on pension funds need to be re-considered in the light of delivering growth and jobs. We therefore urge the Dutch Central Bank to make it more attractive to invest in domestic projects, such as (energy)infrastructure, schools and SMEs. Alternative sources of finance Alternative forms of finance such as peer-to-peer lending and crowdfunding become more and more a full-grown alternative to bank finance next to more well-established alternatives like private equity and venture capital. The market for alternative financing has grown to over 3 billion euro in Europa and still has a lot of unproven potential. VNO-NCW and MKB-Nederland support a diverse market for business finance, but also call for a regulatory framework that supports the tapping of this potential. Now too often certain alternative finance forms find themselves confronted with either an unsuitable or unavailable regulatory framework, for instance cross-border SME private equity. CMU is to deliver an expansion of access to capital markets for larger SMEs and midsized companies. Smaller companies will still tend to rely on bank lending. Additional Issues Securitisations We welcome the plans of the commission for reviving the market for high quality and transparent securitisations. Securitisations could play an important role in financing the European economy s growth. Capital requirements should be aligned to the need of the revival of securitisations. We strongly support a fast determination of the criteria for simple, transparent and standardised securitisations and the associated better calibrated regulations which should create a more attractive playing field for ABS en RMBS securitizations. It makes sense to apply the criteria to transactions and not just senior tranches, and to limit the inclusion of credit risk criteria. The criteria should namely not substitute for a proper credit analysis by investors.

5 5 Market-based approach As stated, VNO-NCW and MKB-Nederland do support an approach in which the market is in the lead in reviving capital markets in Europe. Greater transparency and market initiatives as the Pan European Corporate Private Placement Market Guide could be publicly supported and disclosed as important agreements in these markets. A public role should be in research on identifying hurdles to cross-border investments. We would like to raise the example of Enternext, an initiative by Euronext, as a marketled initiative to provide smaller companies access to the capital markets, making use of cross-border differences. Withholding taxes Also, the practice of withholding taxes on dividends on cross-border portfolio investments constitutes one of the main obstacles to an integrated capital market in the EU. This is especially so for institutional investors who in most cases cannot qualify for withholding tax relief as they pay little or no tax themselves against which to claim the relief. We note that the recently adopted general anti-avoidance rule (GAAR) in the Parent/Subsidiary Directive as well as the proposed GAAR in the Interest & Royalty Directive lack examples of when a transaction or holding activity is considered genuine and therefore, in their current broad wording, unnecessarily hinder the freedom of capital within the EU. Long-term measures The Commission does rightly point out that harmonization of financial law, bankruptcy law and taxation is a long-term goal. We do understand and support the two-speed approach of the European Commission. However, harmonization of financial law, a single rulebook and bankruptcy law could greatly enhance cross-border investment, since differences in national laws are important obstacles to investments nowadays. A specific and targeted approach based on the chance of success could in our view be promising.