3. Long-term financing and Capital Markets Union

aba responds to Consultation on Capital Markets Union

The aba submitted responses both in English and German to the Commission’s Green Paper consultation “Building a Capital Markets Union”. As the specialist association for all questions regarding occupational pensions, we very much welcome the drive towards a capital markets union initiated by the European Commission. The current low interest rate environment is politically motivated and particularly difficult to deal with for Institutions of Occupational Retirement Provision (IORPs). Not only on this backdrop it is important to broaden the investment universe to avoid jeopardising the Commission’s objective to improve funded retirement provision across the EU.  

In recent years IORPs have been subject to many regulatory activities, sometimes intentionally, sometimes as a consequence of regulation of other institutions. Often this has had significant consequences for IORPs, most importantly increasing the workload and the related costs. It is important to consider whether the intended regulatory objectives are met, e.g. regarding the regulation on derivatives EMIR or the requirement to conduct internal credit ratings as stipulated by the CRA III Regulation.

We are very concerned by EIOPA’s work – fully on its own initiative – on the Holistic Balance Sheet approach (HBS approach). The goal of this approach is to copy the Solvency II framework to IORPs, while inadequately taking into account isolated characteristics of occupational pensions. The introduction of Solvency-II-style capital requirements would hamper sensible and desirable long-term investment by IORPs, rather than supporting it.

The aba supports the further development of occupational pensions and is very much against the introduction of a standardised savings product. The framework for occupational pensions should be improved and developed further, so that in the future more EU citizens will have the opportunity to build up pension rights which will secure their standard of living in old age.

PensionsEurope has also responded to the consultation.


EU Commission publishes Green Paper „Building a Capital Markets Union“

The European Commission published the Green Paper Building a Capital Markets Union on 18 February 2015. The Green Paper contains 32 questions. Stakeholders are asked to respond to the consultation until 13 May 2015. The consultation is accompanied by the working paper “Initial reflections on the obstacles to the development of deep and integrated EU capital markets”. In addition, the Commission published a second consultation (with the same time frame) regarding the Review of the Prospect Directive and securitisation.

As in any Green Paper, the Commission poses a set of questions, which are intended to both inform the Commission but also to encourage a public debate of the topic at hand. The issues the Capital Markets Union Green Paper addresses partially overlap with those in the Green Paper on Long-term Financing of the European Economy from spring 2013 (see below), but focuses more on facilitating the access of small and medium sized enterprises to the capital markets. Regarding supplementary pensions, the European Commission is still toying with the idea of introducing a standardised savings product for the EU.

A Green Paper is normally followed by a White Paper, in which the European Commission sets out the planned initiatives. It will only become clearer at that stage what the repercussion of the planned capital markets union will be for institutional investors.


European Commission publishes Communication on long-term financing of the European economy

Following the Green Paper from 2013 (see below), the European Commission has published a Communication on long-term financing of the European economy on 27 March 2014. The Commission intends to strengthen long-term investment in the areas of infrastructure, new technologies and innovation, R&D and human capital. The Communication contains several specific measures to foster long-term investment; two of these measures have been presented by Commissioner Barnier on the same day:

  • Proposal for the Review of the Directive on the Activities and supervision of institutions for occupational retirement provision (IORPs) – 2003/41/EC – also known as the IORP Directive
  • Communication on crowd funding as an alternative source of finance for SMEs.

The whole package includes actions in the following areas:

(i)         Mobilising private sources of long term financing

(ii)        Making better use of public funding

(iii)       Developing European capital markets

(iv)       Improving SMEs' access to financing

(v)        Attracting private finance to infrastructure to deliver
            on Europe 2020

(vi)       Enhancing the wider framework for sustainable finance


ECON Committee adopts Report on ELTIF Regulation

On 10 March 2014 the ECON Committee has adopted the Report on the proposal for a regulation on European Long-term Investment Funds (33 votes in favour, 2 against and 5 abstentions).


Klinz-Report on long-term financing of the European eocnomy adopted

The Plenary of the European Parliament adopted on 26 February 2014 the Report on long-term financing of the European economy. The leading ECON committee had adopted the Klinz-Report on 22 January 2014 (22 votes in favour, 2 against, 17 abstentions). The Green Paper published by the Commission (consultation between March and June 2013 – for aba response see below) preceeded the discussions in the European Parliament. Based on our response, we assess the adopted report as follows:

  • Financial transaction tax: We are disappointed that the adopted report does not take a position against the financial transaction tax.
  • Double taxation: The report takes a stance against double taxation, but does not argue for harmonisation of national fiscal policies – we welcome both positions.
  • Mark-to-market: The report cautions that mark-to-market might have pro-cyclical effects. However, the report does not – as suggested by the aba – reject this method.
  • Solvency requirements: The report stresses that new solvency requirements should not lead to a situation where long-term financing becomes less attractive. New regulatory proposals should in general be examined for this kind of effect. The report argues for a careful calibration of solvency requirements (in particular Solvency II, but unfortunately no direct mention of IORPs) to avoid barriers to long-term financing. However, this should not be understood as a call for "deregulation". In addition the report calls for an exploration of a "harmonised approach to the long-term valuation of projects of general interest".
  • Risk management for LTI: The report calls for a good risk management for LTI, but does not refer to potential costs or proportionality of these requirements.
  • European Investment Bank: The important role of the European Investment Bank (EIB) for the long-term financing of the European economy is recognised. However, it is not clarified how the EIB could support institutional investors to invest more in this area (the aba had made concrete suggestions here).
  • Investors: The report emphasises the importance of "financial education and investor understanding" for LTI. This should be supported by appropriate regulation. A suggestion by the EMPL Committee which has unfortunately not been included in the adopted version stressed that different types of investors (professional, semi-professionals and retail investors) each need a specific framework.


aba position paper on the amendments regarding the EP draft report on long-term financing of the European economy

The aba has published a position paper on the Amendments published on 5 December 2013 to the Draft Report by Wolf Klinz on the long-term financing of the European economy (published 5 November 2013). The main points discussed in the positions paper (in German) are:

  • Tax issues: more transparency and no financial transaction tax for occupational pensions
  • Accounting: only lasting changes should trigger a new valuation
  • Avoiding a negative impact of solvency requirements on long-term financing also for IORPs
  • Demanding requirements in the area of risk management need to be designed in a way as not to exclude smaller IORPs and insurance companies
  • Potential support by the EIB or other public institutions
  • Long-term investments made by institutional investors need to be separated from long-term investment decisions by households.

The vote in the leading ECON Committee is scheduled for 22 January 2014. The EP Plenary will vote on 24 February 2014 on the draft report.


Draft Regulation on European long-term investment funds

The Amendments regarding the Draft Report on the proposal for a regulation on European Long-term Investment Funds (ELTIFs) by Rodi Kratsa Tsagaropoulou were published on 05 December 2013. PensionsEurope, our umbrella organisation on the European level, has also put out a position paper. The vote in the leading ECON Committee took place on 23 January 2014, the vote in the Plenary is expected to follow on 15 April 2014.

In June 2013 the European Commission proposed a new investment fund framework designed for investors who want to put money into companies and projects for the long term. ELTIFs are intended to facilitate access to long-term capital so that long-term projects for example in infrastructure or energy can be realised. ELTIFs invest in illiquid values and should ensure the companies who seek investment that the investors do not call back their capital but rather it with them for the duration of the project. In return the investors can expect regular income and potentially profit from an illiquidity premium.


aba calls for a framework which recognises the long-term character of IORPs and facilitates long-term investment

In response to the EU Greenpaper “Long-term financing of the European economy” the aba emphasises that because of their long-term liabilities, IORPs are predestined to invest in long-term projects. To make the most of this potential, prudential regulation and accountancy rules need to recognise this long-term character of IORPs; in addition, a clear tax framework can further facilitate long-term investment.

aba response (German)

aba response (English)

PensionsEurope has also submitted a response.


EU Commission publishes Green Paper on long-term financing of the European economy

Long-term investments in areas such as energy, transport and communication infrastructures, industrial and service facilities, housing and climate change and eco-innovation technologies are crucial for the European economy because they create employment and growth. In contrast to the US, the Member States of the European Union are characterised by debt financing via banks, which was harmed during the financial crisis. 

Currently mainly large companies have access to long-term financing via bonds, while smaller companies do not have access to this type of financing. The Commission therefore has decided to step in to foster long-term financing, intending to put the EU back on the path of smart, sustainable and inclusive growth. The Greenpaper was published on 25 March 2013 and aimed to start a debate around: 

  • how to foster the supply of long-term financing and
  • how to improve and diversify the system of financial intermediation for long-term investment in Europe. 

The consultation process ran between March and June 2013.

German version

English version

Together with the Greenpaper the Commission published a
Commission Staff Working Paper laying out background data and analysis.






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