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CAPITAL MARKETS UNION The Luxembourg Bankers’ Association perspective Association des Banques et Banquiers, Luxembourg The Luxembourg Bankers’ Association Luxemburger Bankenvereinigung
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Page 1: CAPITAL MARKETS UNION - The Luxembourg Bankers' Association · The Luxembourg financial sector has a track record of attracting third countries investments and funds before channelling

CAPITAL MARKETS UNIONThe Luxembourg Bankers’ Association perspective

Association des Banques et Banquiers, Luxembourg

The Luxembourg Bankers’ Association

Luxemburger Bankenvereinigung

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Table of contents

EXECUTIVE SUMMARY

1 GENERAL COMMENTS FROM A MACRO PERSPECTIVE

1.1 THE QUESTIONS TO BE ANSWERED BY THE CMU

1.1.1 The investor challenge

1.1.2 CMU and the third countries

1.1.3 CMU: a long-term project

2 THE 5 CMU’S PILLARS

2.1 COMPANY LAW AND ISSUANCE OF FINANCIAL PRODUCTS

2.1.1 Harmonisation or convergence of bankruptcy rules

2.1.2 Harmonisation of rules related to mergers and acquisitions

2.1.3 Free choice of issuance of instruments

2.2 ACCESS TO MARKET AND TRADING

2.3 THE FINANCING ECOSYSTEM

2.4 SECURITISATION AND STRUCTURING

2.5 THE 5TH PILLAR: REGULATION AND SUPERVISION

2.6 SIDE FACTORS THAT WILL HELP - THE DIGITAL AGENDA

3 SPECIFIC REMARKS ON THE GREEN PAPER CONSULTATION

PROSPECTUS REVIEW

SECURITISATION OF HIGH QUALITY

PRIVATE PLACEMENT

REDEFINE THE MIFID RETAIL CATEGORY

IFRS FOR SMES

STIMULATING RETAIL INVESTMENT

TECHNOLOGY - DIGITAL FINANCIAL SERVICES

CROWDFUNDING - CROWDINVESTING

GLOSSARY

3

2

6

12

14

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EXECUTIVE SUMMARY

the idea that a diversification of funding sources is necessary, it would however like to stress that banks shall remain central to the financing of the econo-my. Therefore the ABBL is concerned that some regulatory and tax initiatives currently being considered might work against the objective of developing effi-cient market-based financing. Notably the Financial Transaction Tax (FTT) or the MiFIR transparency requirements for non-equity trading should be men-tioned at this point.

The ABBL believes that the consulta-tion launched by the EU Commission is an opportunity to look back at the measures which have been adopted over the past few years with the po-litical aim to ensure stability of the fi-nancial sector and the economy at large and check the proportionality of certain of these measures as well as the cumulative impact these measures had and will have on growth.

We hope the EU Commission will put emphasis on the proper implementa-tion of existing legislations and adopt targeted measures to stimulate growth. We also hope the EU Commission will be prepared to reconsider some pieces of existing legislation in the light of the findings of this consultation exercise.

What is the Capital Markets Union?

Beginning of 2015, we have wit-nessed the start of the political discus-sions on the Capital Markets Union (CMU), marking a shift on the new EU Commission’s political agenda from financial stability to economic growth.

By releasing a Green Paper the EU Commission intends to stimulate the debate on CMU by launching a pro-cess of consultation at European level. It is a call to all stakeholders to help the EU Commission to orientate the appropriate way forward. The process is meant to get ideas, suggestions or proposals to improve the regula-tory framework in order to create ap-propriate conditions for the economy to grow. It is the regulatory leg of the overarching investment plan to stimu-late growth and jobs by supplying the announced EUR 315 billions of funding support.

The EU Commission has issued three documents: a Green Paper, a consul-tation on the Prospectus regulation and a consultation on the creation of a pan-EU framework for securitisation.

Key paths for actions

First and foremost the review of regu-lations issued over the last years is essential to ensure that they do not hamper economic development. The aim is to create a true pan EU market for financing the economy, addressing

issues such as securities rights, or-ganisation of markets, enhancing co-ordination between authorities. CMU intends to create a securitisation mar-ket especially aimed at SMEs allow-ing them to access other sources of financing than banks. It also seeks to place banking and finance in the 21st century by developing digital services. And finally it is a change of spirit both at EU Institutions and at EU business level becoming more pragmatic.

Next steps

Starting the 13th May 2015 the EU Commission will analyse the respons-es to the three consultations. It shall propose regulations for the 2 techni-cal files: the Prospectus regulation and Securitisation framework, because these issues are well identified, well known the securitisation has the sup-port of the ECB.

The Green Paper serves as the regu-latory agenda and trendsetter for the EU Commission’s work plan over the next years. It will be translated into a formal White Paper in which the EU Commission will present how to build the financial eco-system that the EU needs. This paper should be publi-cised in fall 2015.

Our opinions on the CMU

The ABBL welcomes this initiative taken by the Junker Commission and is supports the objective to stimulate growth. Although the ABBL believes

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1 GENERAL COMMENTS FROM A MACRO PERSPECTIVE

regarding the US market, we would like to warn regulators against the risk of misinterpreting certain figures, for instance when comparing the US proportions of capital market financing and bank based financing with the EU reality:

n SMEs may not be the same types size, may not be similar, capital structure is different, market reach may also be different), then the con-centration of US financial market and EU financial markets are not the same.

n Compared to the homogeneous and well-developed US capital market, the EU capital market is characterized by a great fragmentation.

The ABBL is of the opinion that the plan at its present shape and scope is ambitious and that it is difficult to foresee if it will be able to meet the political and economic goals.

The ABBL considers the creation of an ecosystem that stimulates growth and development of the economy being the core of the CMU project. The Growth Package and CMU, if astutely combined, will create the conditions for private stakeholders and EU citizens to strive and develop the economy to its full potential.

The ABBL believes that this project comes at an appropriate time to evaluate the recently adopted financial sector legislation with the prisms of both stability and growth. We believe that due to the speed of adoption of already voted legislation and due to parallel work streams on CMU underlying issues, some pieces of legislations are contradictory and fail to assure a level playing field between similar financial products and market participants. Furthermore, the ABBL would like to bring to the attention of the regulators that the implementation of the recently adopted new standards is, even for large organisations, is sometimes creating confusion, requiring a lot of resources and hence generating high costs. ABBL is afraid that these legislations taken in conjunction may hinder many initiatives to develop the economy. As an example we would like to mention that

in the area of prudential risks, banks have to comply with Liquidity coverage ratio (LCR) requirements limiting the their risk taking appetite and at the same time are criticised for not lending enough to the real economy.

The ABBL would also like to stress that this consultation exercise is an excellent opportunity to identify current pieces of legislations that already serve the purpose of the CMU.

As the aim of the CMU is inter alia to create a pan-EU investment vehicle for all investors, we want to stress that to-day there already exists such a pan-EU product – the UCITS – which is under a prescriptive legal regime from infor-mation up to management and risk mitigation. This product may be one of the mainstream vehicles for invest-ing in cross border projects. It could be further leveraged if some barriers were removed like some legal or technical constraints that Member States have introduced, thereby complicating the cross border distribution.

It is interesting to look at how other markets in the world are functioning and identify best practices which could work in Europe as well. However

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1.1.2 CMU and the third countries

One One of the underlying idea of the CMU is to attract 3rd countries investments to the EU. They are important to foster growth in the EU. The Luxembourg financial sector has a track record of attracting third countries investments and funds before channelling them into the EU economy through investment vehicles such as UCITS and (AIF).

Regulators should ensure the EU market remains attractive for third countries investors when drafting new legislations. Not only shall they be pragmatic but their raison d’être shall be assessed in a global context. Indeed, third countries investors are driven away by successive changes in EU legislations on financial services, creating in their opinion either legal uncertainty or creating confusion or doubt on the safety of certain prod-ucts and because other areas of the world present attractive demographic and/or economy dynamics. As a con-crete example, the successive UCITS legislation revisions have introduced a certain dose of scepticism on UCITS funds in Asia.

1.1.1 The investor challenge

The ABBL considers that many im-portant questions must be answered first in order to reach the CMU goals. Answers must be found in particular to the following questions:

n Why would an investor prioritise an investment over another? Why should an investor choose to invest in a SME located abroad instead in a local well known company that is listed on a liquid market (e.g. Deutsche Börse) and provides complete information?

n Is there a real financing gap? From empirical evidence we note that good projects are still financed or obtain credits/loans from banks. We rather see a demand problem than a supply problem.

n Is the development of a shadow financing economy or a market based financing creating a true level playing field?

n Is the current regulation not sufficient? Shouldn’t the focus be the on proper implementation enforcement of exist-ing legislation that already contributes to the free movement of capital?

n From a pure economic perspective, it is important to discuss the issue of investors’ appeal to invest in a nearly 0 (or negative) rates environment. What will be the effect for long-term investors (like pension funds) on their long-term funding and their need to take higher if not excessive risks to barely meet their long-term invest-ment goals?

In order to answer some of these questions the ABBL thinks that the ob-jective of long-term investment will be most effective if investors have incen-tives to invest long-term rather than invest in shorter-term gains. Two theo-retical options are to be considered:

1. Increase in decision-making power meaning going for more than one share, one vote if investors remain for a given period.

2. Offer tax incentive the longer these investors remain in a given investment. Although taxation rules are not an area of direct competence of the EU some con-siderations may be given to this thought, at least in a form of a recommendation.

1.1 The questions to be answered by the CMU

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1.1.3 CMU: a long-term project

The ABBL would like to see a signifi-cant part of the debate on CMU fo-cused on how to create a true inte-grated ecosystem to finance SMEs or corporations. The CMU is a long-term project. Therefore on top of the short-term projects such as the revision of the prospectus and the securities leg-islation, we believe that the actors of the EU economy, including the bank-ing sector, need a political vision and an assurance that regulators will place them in a regulatory and political en-vironment giving them the confidence to grow.

A key element in the development of a CMU in Europe will be the impact of existing and future taxes, which may or may not help stimulate the future capital market. In this regards, we view the FTT as one of the most detrimental initiatives under discussion at the mo-ment. Firstly, it will mean taxing trans-actions several times on a very wide range of instruments some with near 0 or below 0 interests rates,.. Concretely as consequence, the FTT will most likely remove opportunities for sec-ondary market intermediaries through a reduction of trading and thus fewer incentives for them to help issue pri-

mary market instruments. Secondly, still talking about interactions, the consequences of this taxation on top of some MiFID II provisions on non-equity market transparency will clearly remove incentives for many market participants to be active in the EU and if there is no market then there is no need to issue instruments, which plays against the objectives of stimulating access to financing.

To conclude we welcome the EU Commission approach to be “big on big things and small on small things” i.e. to only adopt legislation if and when necessary and we would furthermore encourage them to further bear in mind the Global context.

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2.1.3 Free choice of issuance of instruments

Issues at Stake

The ABBL believes that on top of the current freedom offered to issuers of non-equity instruments above EUR 1.000, all issuers shall be free to issue their instruments in any Member State, independently of its location. The in-struments represent a direct or indirect claim on a property right that could be located in a different location from the company. In some cases there is a dis-connection between the functioning of the company and the place where its shares, bonds, etc. are stored. That distinction made between financial instrument and physical place is even truer for issuances through a CSD, es-pecially when a majority of them will be located under the T2S operational fa-cility, which aim is exactly to promote a single place of issuance.

Proposal

We note that both the CSD-R, T2S and MiFID rules are already going into this direction, but there still remain na-tional legal barriers (e.g. the appoint-ment of a local paying agent or tax in-termediary) that need to be removed. Regarding the instrument the law ap-plicable (definition of property) should be the one where the instruments are located as it would force convergence on a reduced number of legal sys-tems, and thus be more manageable for investors.

2.1.1 Harmonisation or convergence of bankruptcy rules

Issues at Stake

Everyone will probably agree that har-monisation of bankruptcy rules pre-sents an ideal aim to reach. However in the short and medium term it is prob-ably not a realistic goal, as it would imply changing many national rules on corporate or property laws, although changes may not necessarily be pro-found they may be difficult to accept.

Proposal

A more acceptable approach, would be to introduce the Geneva Convention on securities, which focuses on the organisation of the custody chain rec-ognising book entry system and inter-actions among intermediaries in an en-vironment that is largely independent on the end regime for property.

In addition contrary to common views, we think that bankruptcy rules are a part of the business risk and are ac-cordingly one element of the equation but not the only one upon which rests all commercial relations. This being said there shall be no rules in Member States that prevent the application of the four freedoms of movement of the EU treaties. It must be ensured that the handling of any dossier is similar in every Member States. That would al-ready be a huge step forward.

2.1.2 Harmonisation of rules related to mergers and acquisitions

Issues at Stake

ABBL believes that working on the barri-ers encountered on cross-border merg-ers is necessary. The merger process is never an easy one: not only is there cor-porate law to be complied with but there are also taxation issues linked to various aspects notably in case of benefit in the liquidation of the absorbed companies. Rights of investors may see additional conflicts in case of cross border merger and communication with various groups is more complex. These elements have in some occasions limited UCITS funds merger for instance.

Proposal

We plead for a medium term solution and suggest to apply the law of the Member State of the absorbing com-pany/entity. Such a process may not solve all the obstacles, but would clarify which law is applicable to all investors and companies and hence give legal and business certainty. As the objective is to stimulate the economy, it could be regarded as natural to offer the most dy-namic entity, which is likely to be the one taking the initiative of merging, some incentives.

2.1 Company law and issuance of financial products

2 THE 5 CMU’S PILLARS

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2.2 Access to market and trading

If the EU needs to be a harmonised market easily accessible from any place then MiFID II and MiFIR will play a large role. The text is already significantly harmonised for markets through the MiFIR part of MiFID I & II.

We may regret that the MiFIR does not take enough into account the market structure and forces all types of trading towards the model of the equity markets. We could not underline enough the risks that an inappropriate level of transparency will put on market operators and investors in these non-equity segments.

A practical proposal with direct effect would be to take a gradual approach to the MiFID II (MiFIR) definitions of bonds and non-equity markets for liquidity or transparency criteria.

Prospectus

One of the most problematic beliefs in the recent past has been that prospectuses should reveal all and everything on the issuer which lead to documents more akin to dictionaries than to a useful tool to help the investors (above all the retail ones). A second factor has been the raise of the threshold for issuing without prospectus from EUR 50,000 to 100,000. The main consequence has been to remove a large available base of investors.

To respond to these concerns we consider that prospectus legislation shall allow for a reduction of the threshold for large investors to EUR 50,000 instead of the current 100,000. Under no circumstances should the amount be raised, which would again remove smaller participants from the market (notably wealthy retail investors). On the investors’ side we propose to reduce the scope of the Prospectus Directive taking into account the fact that many information are available through other sources (notably Transparency regulation, but also the website of the issuer) and we propose to split the prospectus in two parts. One would be dedicated to history of company where information will be incorporated by references and which would be primarily based on the issuer website. The second part would be dedicated to facts about the instruments, so that both documents could live both separately and be referenced in case of issuance. We think that this mixed approach will ease the life of SMEs while continuing to present valuable information to investors.

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Until now EU regulation has focused on large corporations with attempts to take into account SMEs by offering either a specific trading platform (the MiFID II SMEs growth market), or reduction of some risk weighting under the CRD/CRR or even derogatory regimes under the Market Abuse legislation. But we consider that there is a lack of EU regulation on “service providers” who support the SMEs helping them financing their development at each step.

The ABBL would support a pan-EU approach of identifying the various stages of financing as well as the type of intermediaries possibly intervening at each of these stages. This would take into account the specificities of different business models and would help make available company profile across the different stages.

Concretely, we support the creation of an EU status for seed financing (licencing agents), business angels

and venture capital funding. At a later stage would come the process of bank financing (which is already well regulated) and the market based financing for large or more mature companies. The idea is that these entities/persons shall obtain a licence (“passportable”) that will require minimal qualifications, identification and rules on conflict of interests management, etc. That would facilitate SMEs access to these intermediaries and foster a new EU culture of financing. This would improve the communication between the different actors of the financing chain and allow them to know each other better across the different steps.

2.3 The Financing ecosystem

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2.4 Securitisation and structuring

The ABBL thinks that attention shall be brought as well to the securitisation market in order to help SMEs (and oth-ers) to gain access to a wider set of financing options.

A dynamic EU market needs the crea-tion of an elevator between the local level and the EU level, ensuring the transition between what is happen-ing in remote areas of the EU and the prime light of investors. There are many hurdles: how would an SME have the mean to go from a pure local level to the EU level when it already has difficulties gaining access to finance lo-cally? We propose to build a common template for issuance of credit with:

n Standardisation of internal rating by banks on SME credit.

n Creation of a credit market for SMEs in the form of an MTF.

n Guarantees provided (through banks’ credit analysis) similar to the public EU/EIB guarantee scheme.

Concretely, each SME will be assigned a grade (as is already the case), its credit will be proposed in tranches of EUR 100 or 1,000 and banks will have in exchange of the analysis the right to a fee that will cover the potential loss. The underlying idea is that at the local branch the SME or the bank will have a choice of financing, either via traditional credit or via a market based system (equity or bonds). Any financing proposal will be routed via

a bank (or entity that has performed the credit analysis) to a MTF where investors, be they retail or institutional, may buy slices of issues listed by key attributes: market segment, maturity, size of underlying, guarantee etc. Hence creating a pan European pool of underlying investments for securitisation operators that may be packaged, and sold in form of securitised debt or be bought directly. It would look like a crowdfunding platform where projects will have passed a mandatory creditworthiness test and have some guarantees.

From an investor perspective depend-ing on the size of issues, one may imagine that digital/mobile investing solutions may be proposed so that via an app for example an investor may al-locate quickly and easily some funds to a project he or she would like to support.

How it will work in practice?

When a bank is facing an opportunity to finance a project, it could, based on our proposal, proceed according to two scenarios:

1. A classical credit against its balance sheet,

2. Based on a standardised template it will assess risks, opportunities and define time horizon for maturity, location of borrowers, field of activity, credit history etc.

Instead of directly lending the bank will propose, via a MTF X units of credit, to investors to be financed. In practice:

a. The task of the bank will be to offer both an analysis of credit risk and a guarantee with a fee (or partial interest margin) for the length of the operation,

b. That guarantee would be defined on a given percentage of the money to be borrowed (up to 50%, 70%, 100%).

Projects would have to be financed in units of EUR 100 or 1,000 to offer an appropriate degree of granular-ity. These units may then on a pan-EU MTF be bought, packaged and sold on a daily basis. The same MTF may propose securitised debt (pack-aged units). In essence, this would become a standardised open loan market. The control of the MTF will be under a National Competent Authority (NCA). The positive side of the idea is that some metrics of the projects will be standardised, known and acces-sible for financing across the EU by any participant big or small with the comfort of a total or partial guarantee. On the bank side the project would trigger from a capital perspective the cost of an engagement but not a full exposure, which shall receive a lower capital weighting.

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A dual structure based on common rules, but EU-wide coordinated local supervision, (licences are done by NCAs but reported to ESMA) must be put into place. This dual approach will ensure quick access to investment intermediaries by regulated entities such as banks, PFS and funds either to create products or to be licenced. Through the ESMA reporting from NCAs, cohesion and transparency at EU level should be ensured.

Considering the amount of instru-ments or operators concerned and the need to be reactive, we consider that supervision would be best done at the local (MS) level. As a trade off against MS going their own way, we plead for a reinforcement of the passport concept for more products and more services together with a effective sanc-tion regime against MS infringing the principles of free movement of capital. In order to achieve this, a common database organised at ESMA level is

conceivable, referring notably licenced entities, products etc. Member States will have to report areas where they have introduced gold-plating rules. This tool would be used as a central information database as well as a safe-guard against the laxity with which MS derogate to principles in the name of investor protection.

Finally, we recommend to review the EU approach to reporting and ensure that only useful information is collect-ed. The cost of production of reporting is high and this exercise should only be done when useful.

2.5 The 5th pillar: regulation and supervision

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2.6 Side factors that will help - the digital agenda

Although the Internet is intrinsically linked to the daily life of most EU citizen, much legal information still needs to be produced on paper. We plead for a recognition of the possibilities to access, share and analyse information online. We truly believe having a primary web based source of information (at NCA or better at issuer level) both in human and machine-readable format will improve SME access to markets.

Information presented in machine-readable format and being accurate right from their origins through the use of modern standards, would allow investment houses, law firms or service providers to process information otherwise hardly accessible and scrutinise more easily information on

companies that they follow. On the SME or corporate side the reduction of costs, such as printing and sharing information with users as well as updating or maintaining it, would be substantial.

Investment firms have been subject to strict and prescriptive rules to guarantee safety. However today with the help of web based solutions, these institutions may be overridden by more agile companies that do not apply or do not have to apply the same rules such as peer-to-peer financing or crowdfunding.

To conclude this first part we would like to stress with a picture what is the financing situation in Luxembourg where bank loans are in the end only a

fraction of the total means of financing economic operators, and thus largely compliant to CMU benchmarks.

Financing the international economy in Luxembourg 2013

n Bank loans (fin+private)

n Funds

n Listing (out of funds) figures for 2012

54 %39 %

7 %

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Prospectus review

Addressing the prospectus regulation is a good idea: we suggest to lower the requirements and the cost of creat-ing prospectus. We are of the view that no differences shall be made between issuers size, but that overall there may be a need to lessen the information, and present it differently. The trend which consists in forcing, issuers and their representatives to put increasingly more in their documents, is not always desirable and certainly not proportion-ate: investors have many sources of information, and too much information will dilute the relevant information what is not desirable.

Securitisation of high quality

The concept of creating a pan-EU market for securitisation is a positive concept. However there may be some underlying factors creating either side effects or limit its use. In terms of side effects, these high quality securitisation would definitely create a multi-tier market, quality issues will be well traded, but what about second or third tiers, concerning many SMEs? Will that imply that firms will have a reduced access to securitisation or that pricing will be high? Then if securitisation is addressed there is a strong need to review the CRD/CRR rules, so that it becomes less a burden for credit institutions to operate.

Private placement

We may see the need to have a fast track procedure for raising funds for particular situations, but prefer to opt for a lighter approach than the p rospectus regulation so that there is the benefit of a passport rather than create a new regime that would not necessarily well fit into the MS legal framework. We would instead consider that either there is a limited number of investors or that the tranches are above a qualifying minimum of several thousands of euros. Clearly in these scenarios a reduced disclosure shall help, the underlying approach shall be that the investors has enough and a reasonable level of information to make a decision, not that it receives an exhaustive list of information. A PRIPS like document may in many cases be enough, mainly because the target of such financing can ask questions and have means to seek complementary information if needed.

Redefine the MiFID retail category

We believe that the Retail category of MiFID shall be split into 2 categories, one for “sophisticated” retail investors that would cover knowledgeable wealthy individuals (private banking clients) and the other one for classical retail. That would have the advantage to create a category of investors

3 SPECIFIC REMARKS ON THE GREEN PAPER CONSULTATION

to whom certain financial products could be targeted with a reduced procedural burden. That would also allow investment firms to produce tailor made solutions for these clients and, viewed from the client side that would ease the access to funding some SMEs, venture capital of which they may be CEO.

IFRS for SMEs

In theory this is a good idea, however it is likely to trigger resistance from Member States, as it would mean changing most MS accounting practices. In this respect we have concerns on the creation of a two tiers accounting system for large corporates and a different system for SMEs (pushing down the road the split between IFRS and GAAPS to even smaller entities). Conceptually we think it is a wrong idea to lower the quality of information from SMEs. It is true that it may be cost effective, but on the other hand from an investor perspective the question of why invest in a non-transparent entity would always be haunting. Probably on this front a recommendation would be a more appropriate.

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Crowdfunding - Crowdinvesting

Until now crowd funding has mostly been a nice tool to finance mostly culture-oriented projects, where return on investment has not necessarily been the priority of investors. This may change, crowd funding and more specifically the crowd investing may be a powerful tool to finance companies, even very large projects, this transition already occurring will also mean that investors will seek a return on investment and that the beneficiaries of the fund will also need some legal framework. Currently the field is totally uneven both among crowd funding investors and vis-à-vis other financial intermediaries like banks. We plead for a “same business, same risks, same rules” approach, at the very least when it concerns “investing like” crowd funding, notably with regards to prudential rules (capital), anti-money laundering legislation (AML), transparency, prospectus, investor advice and information.

Technology - digital financial services

We noticed that in the financial sector there was and still is a lack of focus on technological evolution and the opportunities to improve the business it provides. In some ways it seems as if “.pdf” files did not exist or clients have no email addresses. We think that many if not all communications shall be digitized by the many technological solutions and services available today such as emails, web portals or any other type of tool. In times when one can buy a car or other expensive goods on Internet, it may be opportune to have regulations taking that into account. It is true that not all clients have an easy web access, but then information may be available in bank branches or via traditional channels.

Stimulating retail investment

When considering retail investment, we would concentrate on the regular retail investor, not the sophisticated investor, nor the retail investor under the MiFID definition, which may also include companies. We think that regulation in recent years has put most burdens of responsibilities onto financial intermediaries and submerged retail investors with information. This might is some case be counterproductive as the average investor fears going into a bank or to a financial intermediary in the first place notably because of the perceived complexity of the products and procedures. We plead for simpler approaches to products or service offerings, bundled services or products as well as approaches based on retrocessions for financing the intermediaries may from a practical point of view a way to facilitate clients’ life provided they remain transparent of course. We would foresee for example general advisory contracts, a lighter procedure for portfolio management, but with access to detailed information on an ad hoc basis and on the website of the investment firm. Simpler procedures avoiding tons of paper and signatures would help. This being said investing always bears a risk, markets may fluctuate and no regulation may prevent investor losses, but that shall be part of the risk profile definition in the first place.

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GLOSSARY

AIF Alternative Investment Funds

AML Anti-Money Laundering

CSD Central Securities Depository

CSD-R Central Securities Depository Regulation

ESMA European Securities and Markets Authority

GAAP Generally Accepted Accounting Principles

IFRS International Financial Reporting Standards

MIFID Markets in Financial Instruments Directive

MIFIR Markets in Financial Instruments Regulation

MS Member States

MTF Multilateral Trading Facility

NCA National Competent Authority

PRIPS Packaged Retail Investment Products Regulation

SME Small and Medium-sized Enterprises

T2S TARGET2-Securities

UCITS Undertakings for the Collective Investment in Transferable Securities

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Marc Hemmerling

Member of the ABBL Management Board

Benoît Sauvage

ABBL Senior Adviser – Financial Market Regulation

Aurélie Cassou

ABBL Senior Adviser – European Affairs

Contact persons:

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Page 20: CAPITAL MARKETS UNION - The Luxembourg Bankers' Association · The Luxembourg financial sector has a track record of attracting third countries investments and funds before channelling

For more information, visit our website at:

www.abbl.luand follow the ABBL on:

ABBL12, rue Erasme | L-1468 LuxembourgP.O. Box 13 | L-2010 LuxembourgTel.: (+352) 46 36 60-1Fax: (+352) 46 09 21Email: [email protected]


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