On 26 September 2024, the Directorate‑General for Financial Stability, Financial Services and Capital Markets Union (DG FISMA) hosted a roundtable aimed at identifying barriers to the integration of EU financial markets and exploring ways to address them. Panellists from the financial industry, regulatory bodies, and consumer associations came together to exchange views on how to reduce fragmentation across various market segments, looking into barriers to the consolidation of trading and post‑trading infrastructures, as well as identifying ways to scale up investment funds in the EU, particularly those financing innovative companies.
The event was part of the European Commission’s broader initiative to pinpoint obstacles to the flow of capital across the EU, with a focus on fostering competitiveness and scaling up of EU capital markets. In her opening remarks, DG FISMA Deputy Director‑General Alexandra Jour‑Schroeder emphasised the importance of an open and integrated capital market for attracting investment that benefits citizens, businesses, and investors across the EU.
During the debate, three key issues were identified as critical areas for action: the importance of harmonised rules to reduce costs for businesses and clients, the need to improve the supervisory architecture, and need to better understand reasons behind and identify effective solutions for fragmentation in trading and, in particular, post‑trading infrastructures.
The importance of harmonised rules
The keynote speech and panel discussions highlighted the need for a more harmonised framework to reduce costs for businesses and clients, simplifying current rules and increasing their coherence. While market participants acknowledged that the EU regulatory framework has significantly been strengthened, some of the rules are perceived as too detailed and sometimes inconsistent, with varying implementation across Member States and national "gold‑plating" issues.
The role of supervision in shaping markets
The role of the supervisory architecture in enabling integration and promoting a more harmonised market was also stressed. Different models were mentioned as possible ways to increase supervisory convergence, ranging from integrated supervision through supervisory colleges to a single supervisor system.
The need to broaden the investor base in order to create deeper and more liquid markets
Panellists stressed the importance of broadening the investor base to enable retail investors to directly support the real economy and allow markets to grow. Several participants highlighted the importance of promoting financial literacy and investor education as well as tax incentives to increase retail investor participation in capital markets.
The value of smaller markets and the importance of proximity
The discussion highlighted the value of smaller markets and local ecosystems and the importance of keeping a local perspective to support local economies and the importance of proximity to local players.
Consolidation of trading and post‑trading infrastructures
The discussion on trading and post‑trading brought together key players from the financial industry, including supervisors and financial market infrastructure operators. The current landscape for trading infrastructures in Europe has been contextualised by the evolution brought about by the rise of electronic trading. Panellists discussed the need for change in EU post‑trade markets to improve efficiency and lower prices. Participants agreed that consolidation is necessary, but it should not come at the expense of competition.
Scaling up investment funds
The discussion on investment funds focused both on the operational side of the investment funds sector, which also touched on the importance of consolidation in market infrastructure, as well as the retail investor angle. Most of the panellists agreed that economies of scale are crucial in the investment funds sector, and that scaling up could ultimately benefit retail investors by reducing costs and fees and thus help link EU savings with the needs of the EU economy.
Financing innovative companies
The discussion on the scaling up of risk capital (venture capital, private equity, ELTIFs) highlighted how the EU is falling behind the USA in this area, with a speaker from the IMF pointing at the existence of smaller and fragmented pools of capital, underdeveloped venture capital markets, and limited exit opportunities in the EU. Panellists identified three types of barriers to scaling up risk capital: perception of investments in startups and scale‑ups as too risky and not sufficiently attractive, structural barriers and risk aversion, and regulatory barriers. Developing a more risk‑taking culture in the EU would encourage more investment in innovative companies such as DeepTechs or BioTechs which are crucial for the EU’s competitiveness.
Way forward
Overall, the discussion highlighted the need for a more coordinated and integrated approach to capital markets, including in the supervision of related infrastructures. The roundtable concluded that addressing the barriers to integration and the scaling up of investment funds in the EU will require a coordinated effort from Member States and from the financial industry.
The Commission will continue its dialogue with stakeholders, from the private and public sector, to identify the best and most efficient ways to address fragmentation in the EU financial market, in order to support the financing needs of our economy. In this context, the Commission has also recently launched a study on “consolidation and reducing fragmentation in trading and post‑trading infrastructures in Europe and on the scaling up of funds investing in innovative and growth firms” that will deliver a report next year. By breaking down barriers and promoting consolidation, we can create a more attractive environment for investment and growth, ultimately benefiting businesses, consumers, and the economy as a whole.
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Details
- Publication date
- 11 October 2024
- Author
- Directorate-General for Financial Stability, Financial Services and Capital Markets Union