Annexes to COM(2013)150 - Green paper long-term financing of the European economy - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2013)150 - Green paper long-term financing of the European economy. |
|---|---|
| document | COM(2013)150  |
| date | March 25, 2013 |
Questions: 24) To what extent can increased integration of financial and non-financial information help provide a clearer overview of a company’s long-term performance, and contribute to better investment decision-making? 25) Is there a need to develop specific long-term benchmarks?
3.4 The ease of SMEs to access bank and non-bank financing
The small and medium-sized companies (SMEs) of today have the potential to underpin the long-term growth of the future. They have historically faced significant difficulties in accessing funding to grow. Given their reliance on bank financing, these difficulties are reinforced given bank deleveraging. In addition, they are now faced with fragmented financial markets in the EU, as access to finance conditions vary considerably from country to country.
The reduced availability of bank finance has already spurred policy action to promote the development of alternative, non-bank channels for SME lending. In 2011, the Commission adopted an action plan to address the financing problems faced by SMEs.[33] Certain initiatives have already been agreed, including new EU frameworks for investment in venture capital and in social entrepreneurship funds. Some policy initiatives are also underway to facilitate SMEs’ access to equity markets. However, other legislative proposals linked to the action plan have yet to be adopted. Proposals have also been presented to allow the operators of multilateral trading platforms to be registered also under the label of "SME growth market"; and, for a proportionate regime that will decrease administration costs and burdens for SME's accessing markets for funding.[34] In parallel, there has been growth in long-standing markets, such as asset finance and supply-chain finance, as well as financial innovations making use of technology and the internet, for example through crowd-funding.
But these measures may not be sufficient to address the difficulties of SMEs to access finance. Further steps could be considered, including:
· Developing venture capital. The venture capital sector suffers from lack of resources and is influenced by bank and insurance prudential regulation. Funds-of-funds could be efficient instruments to increase the volume of venture capital. A fund of guarantees for institutional investors could further reduce the constraints in this market;
· Developing dedicated markets and networks for SMEs. Venture capital funds are also dependant on well-performing SME-oriented stock exchanges to turn their investments into initial public offerings. Measures could include creating a distinct approach for SMEs, going further than the current MiFID II proposal, and include the development of specific accounting rules for listed SMEs and new trading platforms. Dedicated SME markets could help raise their visibility, attract new investors and support the development of new SME securitisation instruments. Developing frameworks for business networks could favour SME pooling, risk sharing, mutualisation and diversification and thus improve their access to finance;
· Developing new securitisation instruments for SMEs. The Commission already has a SME securitisation instrument in place and has proposed to continue offering support for securitisation through the COSME programme. In addition, under EU criteria for SMEs’ industrial investments of European interest, vehicles for structured credits could receive European labels. In view of the wide differences between industrial sectors and between investment cycles, these instruments should be differentiated;
· Developing standards for credit scoring assessments of SMEs could help address the lack of reliable information about SMEs and the related difficulty for potential investors in evaluating their credit worthiness. Developing common minimum quality standards on external evaluation of mid-caps and SMEs could further facilitate their access to finance, including across borders, and deepen market integration; and
· Developing or promoting other "non-traditional" sources of finance, such as leasing; supply chain finance; internet-based sources of funding like crowd-funding, etc. Further reflection is needed about how to ensure these markets grow on a sustainable basis and are properly supported within a regulatory framework.
Questions: 26) What further steps could be envisaged, in terms of EU regulation or other reforms, to facilitate SME access to alternative sources of finance? 27) How could securitisation instruments for SMEs be designed? What are the best ways to use securitisation in order to mobilise financial intermediaries' capital for additional lending/investments to SMEs? 28) Would there be merit in creating a fully separate and distinct approach for SME markets? How and by whom could a market be developed for SMEs, including for securitised products specifically designed for SMEs’ financing needs? 29) Would an EU regulatory framework help or hinder the development of this alternative non-bank sources of finance for SMEs? What reforms could help support their continued growth?
Question: 30) In addition to the analysis and potential measures set out in this Green Paper, what else could contribute to the long-term financing of the European economy?
4. Next steps
On the basis of the outcome of this consultation, the Commission will consider the appropriate actions to pursue further. The responses received will be available on the Commission website unless confidentiality is specifically requested, and the Commission will publish a summary of the results of the consultation.
Stakeholders are invited to send their comments by 25 June 2013 to the following email address: markt-consultation-long-term-financing@ec.europa.eu
[1] See http://ec.europa.eu/europe2020/index_en.htm
[2] See http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2012:0582:FIN:EN:PDF
[3] See http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2010:0546:FIN:EN:PDF
[4] See http://ec.europa.eu/bepa/pdf/cef_brochure.pdf
[5] The Commission Communication “Towards Social investment for Growth and Cohesion” (COM(2013)83) underlines the need for Member States to make more use of innovative approaches to financing in the social area, including by using participation of the private sector.
[6] See http://www.g20.org/news/20130216/781212902.html
[7] See McKinsey Global Institute (2012).
[8] Based on a survey of changes in cash and cash equivalents of 170 large European non-financial corporates rated by Fitch.
[9] See McKinsey Global Institute (2011).
[10] These features include the characteristics of the investor, the nature of the asset, the type of financial intermediation, and the valuation and pricing of the asset. For further details, see the Staff Working Paper accompanying this Green Paper.
[11] For example, the ECB bank lending survey October 2012 reports that net tightening of credit standards by euro area banks for loans or credit lines to enterprises increased 15% in net terms, compared to 10% in the second quarter of 2012. Equally, the volume of new long-term loans declined markedly in the first half of 2012 and their stock shows a significant downward trend at the very short end.
[12] See http://ec.europa.eu/internal_market/bank/regcapital/new_proposals_en.htm.
[13] For example, ‘bridging products’ are instruments that can ease investors’ or financial institutions' risk aversion. They can include first-loss credit or mezzanine credit enhancement; vehicles specializing in early-stage and large-scale demonstration projects with public sector financing alongside private sector
[14] For example, through the Long-Term Investors Club. See http://www.ltic.org/.
[15] Equity or risk-capital, guarantees or other risk-sharing instruments supported by the central EU budget or the Structural Funds budget. For further details see the Commission Communication “A framework for the next generation of innovative financial instruments - the EU equity and debt platforms” (COM(2011)662).
[16] For example, the Project Bond Initiative and instruments using resources from Structural and Investment Funds providing debt, mezzanine and equity financing to SMEs, municipalities and infrastructure projects. In 2011 the Commission proposed an infrastructure package, composed of a new budgetary instrument, the Connecting Europe Facility, as well as revised guidelines for transport, energy and ICT and a Programme for the Competitiveness of Enterprises and SMEs (COSME). The Commission and the EIB have developed two risk-sharing finance facilities, including the Risk-Sharing Finance Facility (RSFF) for research intensive and innovative companies and the Loan Guarantee Instrument for TEN-Transport (LGTT) for transport projects. Under the Structural Funds for the period 2007-2013, at least €10.7bn of EU money has been invested so far in financial engineering instruments, mainly by the ERDF for SME access to finance. This money will be re invested in the long term for the benefit of the European economy.
[17] See Fitch 2011 and EFAMA (2012).
[18] See http://ec.europa.eu/internal_market/insurance/solvency/future/index_en.htm.
[19] See http://ec.europa.eu/internal_market/pensions/directive/index_en.htm.
[20] Existing examples include the proposed Pension Infrastructure Platform in the UK and the ideas for a common private equity and infrastructure fund between some regionally-based pension funds.
[21] For example, a finance roundtable has been established to identify opportunities to develop adapted finance and innovative financial instruments for supporting resource-efficiency actions
[22] See http://ec.europa.eu/internal_market/smact/index_en.htm.
[23] For example, aggregate outstanding amounts of debt securities issued by non-financial corporations in the euro area totalled €940bn in July 2012, having risen from about €652bn at the beginning of 2008 (Source: ECB).
[24] See http://ec.europa.eu/internal_market/securities/isd/mifid_en.htm.
[25] Covered Bonds are bonds backed by pools of mortgages that remain on the issuer’s balance sheet, as opposed to mortgage-backed securities, where the assets are taken off the balance sheet.
[26] Project bonds are private debt issued by a project company to finance a specific off-balance-sheet project.
[27] This could include: a) standardisation and labelling of project bonds issued by project companies in the EU; b) whether a specific regulatory framework is needed; and c) analysing the need and merit for working on the development of a project bonds market (e.g. through a trading platform). Similarly, Project Bonds could be extended to Green Bonds and dedicated industrial Demonstration Project Bonds, including for first-of-a-kind, commercial-scale industrial demonstration projects.
[28] For example, the Livret A in France; the libretti postali in Italy; and the Bausparvertrag (contractual savings for housing finance) in Germany.
[29] See http://ec.europa.eu/internal_market/investment/ucits_directive_en.htm and http://ec.europa.eu/internal_market/investment/alternative_investments_en.htm.
[30] See http://ec.europa.eu/internal_market/company/docs/modern/121212_company-law-corporate-governance-action-plan_en.pdf.
[31] See http://ec.europa.eu/internal_market/securities/docs/transparency/modifying-proposal/20111025-provisional-proposal_en.pdf.
[32] See http://ec.europa.eu/internal_market/securities/agencies/index_en.htm.
[33] See http://ec.europa.eu/enterprise/policies/finance/files/com-2011-870_en.pdf.
[34] See http://ec.europa.eu/internal_market/securities/prospectus/index_en.htm.