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EU Capital Markets Union to include focus on long-term investment and trust



The European Commission has set out the priorities of the Capital Market Union, including a focus on the long-term and rebuilding trust in a Green Paper. However, a campaign group has said the proposals are “underdeveloped” in these areas. 

European commission vice-president Jyrki Katainen explained that the Capital Markets Union is the first structural initiative under the investment plan. It will contribute to ensuring that the investment plan is “more than a one-off push and has a durable positive impact on economic conditions in Europe”, he added.

The purpose of the Green Paper is to consult all interested parties on the Commission’s overall approach to putting in place the building blocks of the Capital Market Union by 2019. The main areas that the Green Paper seeks to address are improving access to financing for business, increasing and diversifying sources of finance, and making the markets work more effectively. Interested parties have until May 13 to submit a response.

The paper notes, “Retail investors will only be attracted to invest in capital markets if they trust them as wall as the financial intermediaries operating in them, and believe they can safely secure a better return on their savings. Restoring the trust of investors is a key responsibility and challenge for the financial sector.”

It also adds that creating a more “stable, transparent and predicable framework” for investors could contribute to building confidence and enhancing the attractiveness of the single market as “a place to invest for the long-term”.

Responsible investment charity ShareAction has argued that the paper needs to focus more on real people and whilst the statements around building trust and moving away from short-termism are welcomed, “proposals are underdeveloped in these areas”.

Chief executive of the organisation, Catherine Howarth said, “The Green Paper acknowledges the need to improve trust in the financial system but these proposals appear to be somewhat naïve when it comes to tackling the deficit of public support across Europe in the investment industry.

“The Kay Review in the UK showed that institutional investors face misaligned incentives and systemic pressures which prevent them from acting in savers’ long-term best interests. We look forward to responding in detail to the Green Paper to set out concrete ways the Commission could address these concerns across Europe.”

The Kay Review urged longer-term thinking in the investment world, the UK government responded in its feedback by outlining plans to act on some of the recommendations made. The review also recommended applying fiduciary duty standards to more people within the supply chain. Following the review, the Law Commission acknowledged that the current law on fiduciary duty was “confusing and inaccessible” but clarified that trustees can take environmental, social and governance (ESG) factors into account.

Photo: hisks by Freeimages

Further reading:

Government response to Kay review outlines plans to modify equity market

Investment trustees should consider ESG factors, concludes Law Commission

ShareAction calls for laws to encourage sustainable investment

UKSIF: current fiduciary laws leave investment trustees ‘confused’

Fiduciary law ‘fit for purpose’ but investor knowledge needs to improve


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