EU Unveils Steps to Bolster Capital Markets and Investment After Brexit

By Julia-Ambra Verlaine Features Dow Jones Newswires

The European Union on Thursday unveiled further measures to bolster capital markets and support investment on the continent as it prepares to lose its financial capital because of Brexit.

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London -- Europe's financial hub -- has been the heart of funding for businesses seeking alternatives to bank lending through capital markets.

Companies on the continent now stand to lose that source of cash at a time when European banks are lending less because of stricter capital requirements put in place after the financial crisis.

"As we face the departure of the largest EU financial center, we are committed to stepping up our efforts to further strengthen and integrate the EU capital markets," said Valdis Dombrovskis, the EU's financial-services chief.

The EU's executive arm, the European Commission, presented nine steps it plans to take by 2019 as Brexit unfolds. They include supercharging the bloc's securities regulator, softening rules for small investment firms and supporting markets to unload sour loans plaguing bank balance sheets.

The announcement comes the same day as Britain goes to the polls for a national election that will likely determine the country's strategy for exiting the EU.

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The commission has been working since 2015 on a plan to energize the bloc's economy by boosting capital markets and reducing Europe's dependence on bank lending. Traditional loans account for some 75% to 80% of total economic funding in Europe, a far higher share than in the U.S.

But since September the commission said it was accelerating and amplifying the project because of Brexit.

Critics say the original capital markets union project wasn't ambitious enough, in part because it was crafted with an eye toward avoiding objections to excessive EU intervention in national affairs from the U.K., which is set to leave the bloc by March 2019.

Markus Ferber, a German member of the European Parliament, said Thursday's measures were nothing new. "The commission once again presents old wine in new skins and wants everyone to applaud," Mr. Ferber said.

EU commission Vice President Jyrki Katainen acknowledged at a press conference Thursday that building a capital markets union would take time -- perhaps up to 10 years.

The commission said it plans to put forward proposals that would strengthen the European Securities and Markets Authority by late 2017. Paris-based ESMA is likely to acquire supervision powers over EU markets. The regulator is currently only directly responsible for supervision in two areas -- trade repositories and credit-rating firms.

In addition to bolstering capital markets, the EU is focused on promoting the nascent fintech sector rather than regulating it given London is one of the bloc's leading fintech hubs.

The commission said it was considering an EU-wide passport that would allow fintech firms -- companies ranging from digital banks and payment-services providers -- to operate without having to obtain licenses in each EU country. Divergent regulation is currently obstacle to such businesses since national authorities each have different capacities, experiences and attitudes toward the industry.

Lastly, the commission is working on legislation that would break down barriers to entry for investors interested in the bloc's nonperforming loan market. Other initiatives would seek to harmonize insolvency laws that vary across nations to recuperate collateral in a timely manner.

Nonperforming loans amount to over EUR1 trillion (about $1.12 trillion) across Europe.

Write to Julia-Ambra Verlaine at julia.verlaine@wsj.com

(END) Dow Jones Newswires

June 08, 2017 12:10 ET (16:10 GMT)