Finance chiefs say EU urgently needs to bolster capital markets

[BRUSSELS] Europe needs to quickly deregulate its capital markets to encourage people to buy more stocks, according a panel of top industry executives.

With massive amounts of debt being sold to counter the coronavirus recession and the European Union (EU) losing its financial hub in Brexit, the group said companies need greater access to equity investment now more than ever - and soon.

The sense of urgency to create a "capital-markets union" echoes policy makers' willingness to break new ground to keep their economies functioning after months of lockdown.

"Since we now face the biggest economic crisis in peacetime in 90 years, it is now vital and extremely urgent to accomplish it," the group said in the report. "The reality today, is that the fragmented and underdeveloped capital markets in the EU and inadequate equity financing will weaken and slow down the EU recovery and put the EU at a disadvantage."

The 28-member panel was led by Thomas Wieser, a former top European policy maker, and included Lorenzo Bini Smaghi, chairman of Societe Generale, Vittorio Grilli, chairman of JPMorgan Chase & Co's corporate and investment bank in the region and Stephane Boujnah, chief executive officer of Euronext. Other firms represented include HSBC Holdings, BlackRock and Nasdaq.

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In the 129-page report, policy makers were urged to break down national barriers, bolster retail investing, reduce companies' reliance on banks, discourage upstart firms from leaving the region and break down national differences that have fragmented trading across the 27 member states.

The group also recommended that the European Commission, the EU's executive arm, exempt investment research on small and midcap companies from MiFID II rules that force investors to pay for research separately from trading fees. Also suggested were tax incentives for investments in small firms and revisions to capital rules to help European banks' market-making desks be more competitive.

Investment disclosures require an overhaul after the panel concluded that "consumers do not engage with disclosure documents, and do not consider the information disclosed in their investment decisions". A consolidated EU-wide and free database of company information would help investors make decisions, the group said.

While the panel called for fast action, it acknowledged some of the policies could take years to become law and take effect in markets.

BLOOMBERG