The European Union’s plan for a unified capital market needs more work to protect investors from losses if it is to provide the economic boost policymakers’ are hoping for, a top British regulator said on Thursday.
Martin Wheatley, chief executive of the Financial Conduct Authority, said the planned Capital Markets Union (CMU) was a laudable aim, but much would hinge on implementation.
Brussels will present an action plan in September on ways to get Europe’s capital markets, which are far less developed in terms of raising money for businesses than in the United States, generating more funds by 2019.
“Success is about unflashy pragmatism, a focus on practical goals,” Wheatley told a conference on CMU organized by Britain’s Financial Reporting Council, which regulates company reporting.
“The first conundrum is to break through natural investor caution,” said Wheatley, who supervises the EU’s biggest financial market.
EU safeguards on financial securities products could be extended to include insurance, lending and credit, he said.
EU plans for an insurance guarantee scheme, to give last resort protection to consumers if an insurer goes bust, could also be revived.
These steps would provide an extra incentive for savers to invest and deepen capital markets, Wheatley added.
But Antony Manchester, a senior adviser to the Swiss Finance Council, set up by Swiss banks to promote open markets, said the CMU would take years as Europe was mainly a continent of savers rather than investors.
Money from outside Europe will be key to kick-starting the CMU and therefore policymakers must not create barriers to non-EU countries, Manchester said.
Critics worry the CMU will be used to unpick new regulation put in place since the financial crisis and which constrain the project’s ambitions, he added.
“There is a danger of unrealistic expectations on the side of industry and policymakers,” said Susannah Haan, secretary general of EuropeanIssuers, which lobbies on behalf of listed companies.
If done well, the CMU is a “massive opportunity” for investors, but a recipe for rigid rules if done badly, said Keith Skeoch, chief executive of Standard Life Investments.
The plans are too light on increasing long-term savings for such a multi-year project and victory must not be declared too soon, Skeoch said.
Britain voting to leave the EU in a referendum due by the end of 2017 would be a disaster for capital markets, at a time when Europe is about to “really embrace an Anglo-American version of shareholder capitalism,” Skeoch said.
(Editing by Mark Potter)
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