On the 20th of June Fintech District will host a workshop about Capital Markets Union organized by EpicSIM in order to assess the state of the art of the Fintech Action Plan of the European Commission, which aims at a more competitive and innovative European financial sector. The event takes the publication “Capital Markets Union in Europe” as a starting point, we interviewed one of the authors to get some insight: Guido Ferrarini, chairman and co-founder of EpicSIM.
How do the works for the Fintech Action Plan proceed?
Since September 2015, the Commission has delivered approximately two thirds of the measures announced in the Capital Markets Union Action Plan. Moreover, recent challenges to financial integration have arisen, which call for a review of the Capital Markets Union agenda. In particular, Brexit makes it necessary to re-assess how the Capital Markets Union can ensure that EU businesses and investors have access to strong capital markets, where risks to financial stability are properly managed.
What are the points of greatest interest for the fintech sector?
In March, the Commission launched a FinTech Action Plan aiming at a more competitive and innovative European financial sector. It is the view of the Commission that Europe’s regulatory and supervisory frameworks should allow firms operating in the EU Single Market to benefit from financial innovation and provide their customers with the most suitable and accessible products. Such frameworks should also ensure a high level of protection for consumers and investors and ensure the resilience and integrity of the financial system.
Drawing on the conclusions from the public consultation on Fintech in March-June 2017 and taking account of the initiatives already presented, the Commission considers that the case for broad legislative or regulatory action or reform at EU level is limited. A number of targeted initiatives for the EU to embrace digitalization of the financial sector are, nonetheless, suggested. Efforts are needed in particular to identify diverging licensing requirements that affect FinTech firms.
The Commission also suggests an assessment of the suitability of the current EU regulatory framework with regard to ICOs and crypto-assets more generally. EU firms, investors and consumers should take advantage of this technical innovation within a fair and transparent framework in order to make Europe a leading player in developing new ways to rapidly fund growing businesses. However, potential financial stability, market integrity, investor and consumer protection, personal data protection and money laundering and terrorist financing-related risks should be appropriately addressed. As crypto-assets are a worldwide phenomenon, international coordination and consistency, for example within the G20, the Financial Stability Board (FSB) and international financial standard setters, will be essential.
Once the plan is implemented, what will be the actual benefits for Fintech Companies and Startups?
It is difficult to predict the impact of the Capital Markets Union Action Plan given its broad scope and the fact that national factors will also contribute to its implementation. The following benefits could derive from the implementation of the various measures already mentioned.
European startup and scale-up firms should receive more risk finance to invest in innovation and growth and the size of EU public equity and debt markets could become more similar to that seen in other economies: accessing public markets is currently costly and complex, especially for small and mid-cap companies. Moreover, capital markets should offer powerful solutions to help banks manage their balance sheets more efficiently and fund their lending to businesses and households.
There will also be benefits for insurance companies and pension funds, that will be able to invest more in risk capital, equity and infrastructure, and for retail investors that should become more engaged with capital markets. More investment into capital markets can help meet the challenges posed by population ageing and low interest rates. This, however, will not happen unless retail investors have access to attractive investment propositions on competitive and transparent terms.
What will change for Banks?
Capital Markets will offer some of the corporate financing that Banks are not in a condition to grant any more, given regulatory and capital constraints. Capital market activities, at the same time, will become more attractive also for Banks, which could increase their offer of investment services and advisory activities and raise funds in the capital markets in the form of both equity and debt. Thanks to Capital Markets Union, Banks will possibly find a regulatory framework which allows them to automate their services to an extent which is not always possible in the present regulatory framework. However, it must also be said that traditional banks will be more exposed to competition from other intermediaries, especially if they cannot adapt their organization and activities to what is required by the new market context.
How will the Italian fintech ecosystem benefit from the Capital Markets Union?
It depends both on the way in which the Capital Markets Union is implemented and on the sector of Fintech activity considered. No doubt, payment institutions will benefit from the PSD 2 implementation and similar measures directed to enhance individual system inter-operability. Similarly, marketplace investing platforms could benefit from new rules making their cross-border activities possible in a harmonized regulatory framework. New Fintech areas such as crypto-assets and ICOs could benefit from the CMU to the extent that the implementing measures will reflect a right balance between their economic functionality and the need to protect investors in the relevant assets.
What are the most critical points in the implementation of the action plan?
The extent to which capital markets will develop in our country depends to a large degree on the tax treatment of financial assets at national level. As seen with respect to recent Italian reforms, the incentives created on tax grounds for investments made in either debt or equity instruments issued by SMEs are very important and often decisive in promoting the relevant securities markets. Moreover, the attitude of national supervisors relative to both capital markets and fintech are also important, given that regulation in this area is mainly delegated to EU authorities, while supervisory activities still belong, to a large degree, to national supervisors.
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