FIN-FSA Conference on EU Regulation and Supervision 2015: Diversification of funding channels also important in Finland
The purpose of the EU initiative for a Capital Markets Union (CMU) is to open up alternative channels and sources of finance to companies. Corporate funding in Europe has traditionally been highly concentrated on banks. The financial crisis highlighted the downsides to this concentration, especially in financially distressed countries, where the banking sector’s lending capacity collapsed.
–The Finnish banking sector is highly concentrated and plays a key role in financial intermediation. Diversification of funding channels is most commendable in Finland, too, says Director General Anneli Tuominen at the FIN-FSA annual conference on financial regulation and supervision. – Corporate lending has expanded steadily in Finland. However, the SMEs' and especially high growth start-ups’ access to loans is impaired by a scarcity of acceptable collateral and a shortage of alternative funding channels, such as equity financing, Director General Tuominen continues.
– The capital acquisition of small and growing companies should be facilitated by, for instance, lightening the prospectus requirements, Anneli Tuominen points out. – Better availability of investor information should also be ensured by, for example, building electronic data sources and promoting access to credit scoring and financial research. From the investor's perspective, the Capital Markets Union boosts competition between service providers and broadens the range of options for investors.
– In order for the Capital Markets Union to be fully effective, confidence in the financial sector is necessary. Service providers should, through their own behaviour and actions, promote the restoration of confidence, points out Anneli Tuominen. In turn, confidence in cross-border operations calls for closer cooperation between supervisory authorities.
– Sufficient transparency should be ensured in the design of alternative channels of funding. We do not want to contribute to the build-up of new risk concentrations outside of the banking system, notes Director General Tuominen.
Requests for interviews
- For interviews with Anneli Tuominen, Director General, please contact Terhi Lambert-Karjalainen, Head of Communications, tel. +358 50 351 9574
A Capital Markets Union?
In July 2014, the President of the EU Commission, Jean-Claude Juncker, launched the idea of a Capital Markets Union (CMU) aimed at promoting the general functioning of capital markets and diversifying the market-based sources of funding available to companies. This could be achieved for example through harmonisation of market rules and practices, which would be reflected in reduced capital costs and European companies’ reduced dependence on bank funding.
Private investors have a higher threshold for investing in foreign shares and debt instruments. Harmonisation of investor protection would contribute to making cross-border investments more attractive. If realised, the CMU would increase the supply of investment products and enhance competition in the provision of investment services.
The consultation period for the Commission Green Paper closed on 13 May. The Commission arranged a public hearing in Brussels on 8 June.
The CMU is part of the EU investment plan designed to channel at least EUR 135 billion of public and private investment into the real economy in 2015–2017.