Mr. Aidan Carrigan:

I thank the committee for the invitation to be here today to discuss the European Commission’s Green Paper on capital markets union, which was published in February. The Green Paper is only the first phase in a process that will run for a number of years. Therefore the benefits of capital markets union, such as they may be, will only become apparent over time. However, the Commission has set out clear high-level objectives for capital markets union. They are to improve access to financing for all businesses across Europe, particularly small and medium enterprises, and improve investment projects such as infrastructure; increase and diversify sources of funding from investors in the European Union and all over the world; and make markets work more effectively and efficiently, linking investors to those who need funding at lower cost, both within member states and across borders. Nobody can argue with the desirability of these high-level objectives, which are underpinned by the key principle that capital markets should benefit the economy, jobs and growth.

The Department submitted an information note on the Green Paper earlier in the month. In this note we set out a short summary of the Green Paper and its objectives. We indicated that we support the capital markets union initiative but advised that it was still at a very early phase and that we would need to consult further before developing clear policy positions across the various strands of capital markets union. We further advised that we were considering organising a workshop and launching a public consultation. I can confirm that the Department, in conjunction with the European Commission, organised a workshop that took place this morning, with a key speaker from the European Commission and attendance from across financial services. We used the opportunity to launch our public consultation document, which was uploaded to our website today. We expect these events will help inform the development of our policies on an initiative that is still at an early phase.

At the outset it might be useful to set out in some detail our current understanding of the key elements of capital markets union. This initiative is not occurring in a vacuum, and in many respects it is a reaction to the dominant role of banks in funding the European economy and their continued difficulty in effectively fulfilling their primary functions of lending to the "real economy". A stated objective of capital markets union is to move closer to US levels of capital markets financing. It is argued that even if a relatively modest movement in the direction of the US levels can be achieved, EU financial markets will be more efficient and, importantly, more resilient to shocks.

The general idea of a capital markets union is not new. The EU has implemented policies to develop and integrate its capital markets for decades, such as through the financial services action plan in the 1990s. However, EU capital markets today are still characterised by fragmentation, where much trading and securities ownership takes places within national borders. This is considered to significantly limit the potential of the capital markets to contribute to Europe's high-level objectives of jobs and growth. From this perspective, capital markets union can be seen as a wide range of initiatives and legislative proposals in different fields, which when taken together aim at ending the fragmentation of European capital markets, as well as providing alternative sources of finance for businesses.

As we see it, there are two core elements of capital markets union that will need to be addressed, the market segment element and the horizontal integration element. The market segment approach is concerned with how to advance different types of capital markets, such as individual measures on securitisation, private placement, funds and crowdfunding, etc.

In contrast, the horizontal integration approach is concerned with how to address issues which impede the development of cross-border capital markets generally. Potentially this could involve greater harmonisation of accountancy, insolvency and tax laws to capital markets and greater supervisory convergence across the EU. Essentially it would be seeking to remove the barriers of the free movement of capital across borders.

For the purposes of today’s debate I would like to elaborate on what we see as two of the most important thematic areas from the Green Paper, the funding of SMEs and developing the securitisations markets.