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The European Commission is planning to hold an EU-wide discussion on capital markets union issues, which will take place against the background of the capital markets union’s objectives, as well as the urgent regional problems in competitiveness and preservation of financial stability. The discussions will bring together market participants across the entire spectrum: e.g. investors and issuers, brokers and dealers, owners of digital platforms and post-trade infrastructure operators.
Infringement procedures
The capital markets union, CMU is becoming a focal point of the EU-wide discussions recently; the discussions will go on alongside the Commission’s efforts to control the legislative means’ transposition in the member states.
For example, the commercial paper and certificates of deposit are fundamental tools to help EU companies meet their short‑term funding needs and finance their daily operations. The functioning of these markets have recently, notably in post-pandemic period, been subject to strengthened focus, in the EU and globally.
Below are some Commission’s notifications concerning some states’ deficiencies in reaching a EU-wide CMU.
= Prudential treatment in banks
The European Commission decided to open an infringement procedure by sending letters of formal notice to Bulgaria, Spain, Italy, Cyprus, Lithuania, Austria, Poland, Portugal and Slovakia for failing to transpose completely the amendments to the Bank Recovery and Resolution Directive (Directive 2014/59/, ‘BRRD’) introduced by Regulation 2022/2036, which concern the prudential treatment of global systemically important institutions and the loss absorbing and recapitalization capacity of banking groups.
The changes brought about by Regulation 2022/2036 to BRRD are important for ensuring full alignment in the EU with the Financial Stability Board’s standards on Total Loss Absorbing Capacity, TLAC for global systemically important institutions, so-called G-SIIs.
In particular, the changes are necessary for properly reflecting the exposure of EU G-SIIs to their subsidiaries located in third countries and for further improving the ability of the largest EU banking groups to withstand financial shocks. In addition, the changes should achieve full harmonisation of the prudential treatment of internal resources for loss absorption and recapitalization of intermediate entities in a banking group, which is important for the resolvability of banks.
In the absence of transposition of these technical but important measures, it will not be possible to achieve the necessary level of harmonisation in the EU’s unified framework for the banking sector. The mentioned states (Bulgaria, Spain, Italy, Cyprus, Lithuania, Austria, Poland, Portugal and Slovakia) are now having two months to respond and address the shortcomings raised by the Commission; in the absence of a satisfactory response, the Commission may decide to issue a reasoned opinion.
= Correctly transposing the transparency directive
The Commission calls on Sweden to empower the Swedish Financial Supervisory Authority to prohibit trading on a regulated market in case of breaches of the Transparency Directive. The European Commission decided to open an infringement procedure by sending a letter of formal notice to Sweden for failing to correctly transpose the Transparency Directive (Directive 2004/109/) as it does not empower the Swedish Financial Supervisory Authority to prohibit trading on a regulated market if it finds or if it has reasonable grounds for suspecting that the provisions of the Transparency Directive, or of national law adopted in accordance with it, have been infringed.
The Transparency Directive sets out rules for the disclosure of periodic and ongoing information by companies listed on the EU regulated markets. The EU member states are required to designate a central competent administrative authority responsible for ensuring that the provisions adopted under the Directive are applied. The dir3ective also requires each national competent authority to have all the powers necessary for the performance of its functions.
The Commission is therefore sending a letter of formal notice to Sweden, which now has two months to respond and address the shortcomings raised by the Commission. In the absence of a satisfactory response, the Commission may decide to issue a reasoned opinion.
= Reporting sustainability information
The Commission also calls on Sweden to correctly transpose the new rules for the reporting of sustainability information by companies introduced by the Corporate Sustainability Reporting Directive. The European Commission decided to open an infringement procedure by sending a letter of formal notice to Sweden for failing to bring its legislation in line with the Accounting Directive, the Transparency Directive and the Audit Directive, as amended by the Corporate Sustainability Reporting Directive (CSRD).
The CSRD introduces new rules for the reporting of sustainability information by companies. These rules apply from financial years beginning on or after 1 January 2024, depending on the company size. The national transposing measures adopted by Sweden require companies to start reporting information for financial years beginning on or after 1 July 2024. This is not in line with the Corporate Sustainability Reporting Directive as Sweden delays the application of sustainability reporting requirements by half a year. By introducing this delay, Sweden risks creating an unlevel playing field between EU companies in different EU member states.
The Commission is therefore sending a letter of formal notice to Sweden, which now has two months to respond and address the shortcomings raised by the Commission. In the absence of a satisfactory response, the Commission may decide to issue a reasoned opinion.
= National levy reduction scheme to foreign investment funds
The European Commission decided to open an infringement procedure by sending a letter of formal notice to the Netherlands for failing to extend the Dutch tax levy reduction scheme to foreign investment funds, which are comparable to domestic investment funds.
Dutch law provides for a reduction of the dividend tax paid by investment funds on dividends they receive from companies in which they hold shares by offsetting the tax paid by the Dutch company distributing the dividends; that reduction is granted on account of the due dividend tax and/or similar foreign taxes.
Unlike Dutch investment funds, foreign investment funds cannot offset the dividend tax paid by Dutch companies on dividends they distribute and which the foreign investment funds subsequently redistribute to their own investors.
Therefore, the Dutch tax levy reduction scheme makes it less attractive for foreign investment funds to provide their services to Dutch investors and to invest in shares of Dutch resident companies. The Commission therefore considers that the scheme restricts the free movement of capital which is in principle prohibited by the EU Treaty (art. 63 TFEU and art. 40 of the Agreement on the European Economic Area) because the Dutch scheme creates a difference in treatment to the detriment of investment funds of other EU member states and the EEA states. The Commission is therefore sending a letter of formal notice to the Netherlands, which now has two months to respond and address the shortcomings raised by the Commission; in the absence of a satisfactory response, the Commission may decide to issue a reasoned opinion.
= Designating competent digital authorities
The European Commission decided to open infringement proceedings by sending a letter of formal notice to Belgium, Spain, Croatia, Luxembourg, Netherlands and Sweden. Those EU member states either did not designate the competent authorities, the so-called Digital Services Coordinators (to implement the Digital Services Act), or did not empower these authorities to perform the tasks required by the Act, or both.
The Digital Services Act, DSA aims to make the online space safer; hence, the EU member states have had until 17 February 2024 to designate these authorities under the Digital Services Act. Digital Services Coordinators supervise online intermediaries (like online platforms) established on their territories and are the first point of contact for people and businesses to resolve complaints related to those.
The mentioned EU member states have now two months to respond and address the shortcomings raised by the Commission. In the absence of satisfactory responses, the Commission may decide to issue reasoned opinions.
More on DSA in e.g.: https://www.integrin.dk/2024/01/09/online-platforms-in-the-eu-digital-service-act-in-action/
General reference: https://ec.europa.eu/commission/presscorner/detail/en/inf_24_3228 ? 25/ July 2024