A new report from three leading market associations outlines an ambitious roadmap to improve the competitiveness of capital markets in Europe through a combination of retail investment, financial incentives, tax breaks and education.
The joint project, co-developed by the European Banking Federation (EBF), the European Fund and Asset Management Association (EFAMA), and the Federation of European Securities Exchanges (FESE) with insight from 37 senior market stakeholders, outlines progress made towards the Capital Markets Union (CMU) and offers a roadmap for policymakers, regulators, and industry stakeholders to move forward.
“Deliberate demand-side and supply-side steps taken over the next five years can set the conditions that will build more momentum, attract more investors, and create more investment opportunities for the decades ahead,” said the report, which was authored by Oliver Wyman.
“Europe needs deep and liquid capital markets to finance its companies and deliver attractive valuations. Cutting red tape and getting citizens to put their investments into capital markets are key to unlock the flywheel,” added FESE director general Rainer Riess.
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European capital markets are currently facing a decline in competitiveness, particularly when compared to the United States. This poses a significant threat to Europe’s economic growth and its ability to finance innovation, support green and digital transformation, and address the needs of an aging population. The report highlights the importance of leveraging Europe’s capital markets infrastructure to its full potential, increasing overall capital pools, and enhancing investor outcomes. It emphasises the need to activate the demand side of capital markets by improving retail investors’ access to attractive products, enhancing financial literacy, incentivising retirement savings, and creating tax structures conducive to long-term investments.
It echoes the list of policy recommendations released by EFAMA earlier this year to improve fragmented capital markets in Europe. These included a primary focus on competitiveness – urging that all new EU regulations should be subject to a competitiveness check, with unnecessary reporting requirements reduced and anti-competitive behaviour in areas like market data urgently addressed.
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Retirement savings were another focus: including affordable and quality financial advice, regular financial health-checks, improved financial literacy, reform of occupational pension systems (through the implementation of auto-enrolment mechanisms) and tax incentives (for instance, by establishing tax-exempt investment plans for individual retail investors). Sustainable finance was another pillar, with EFAMA recommending simpler, user-friendly investment disclosures, access to reliable ESG data for asset managers, and the streamlining of existing regulations.
Finally, the recommendations stressed the importance of efficient, stable and integrated European capital markets, supported by digital innovation. Improving market transparency by delivering an effective, useful and reasonably priced consolidated tape and removing remaining tax barriers to cross-border investment were key points.
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“The Capital Markets Union is something policymakers have been working on for many years,” said Tanguy van de Werve, director general at EFAMA, speaking this week.
“However, we will never reach the desired end point without the necessary political will. Now is the time for decisive action and leadership if we want to see the EU remain economically competitive on the global stage. This will require ‘top-down’ regulatory initiatives at the EU level, as well as ‘bottom-up’ measures at national level, to make our goals a reality.”
“Developing vibrant and competitive European capital markets is crucial to harness the necessary financing power to usher in true economic transformation in the EU,” said Wim Mijs, European Banking Federation CEO. “This report marks a significant milestone in outlining the path towards game-changing reforms.”
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