Europe News

Europe is about to unveil changes to its financial regulations due to the coronavirus crisis

Key Points
  • The Commission believes that the regulation is preventing much-needed investment into the real economy at a time when the region is reacting to a significant crisis.
  • The U.K. is expected to be totally out of the EU by the time the new amendments are adopted, but it can choose to keep following these rules as it has been the case until its departure from the bloc. 
  • Speaking to CNBC, Dombrovskis said the Commission will "soon" make detailed proposals for new taxes.
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Strict financial regulations in Europe, known as Mifid II, have been in place for over two years — but change is just around the corner.

The European Commission, the executive arm of the EU, will announce adjustments Friday to its Markets in Financial Instruments Directive (Mifid), which was first introduced in 2007 and then updated in 2018.

The regulation led to a separation of the trading and research arms of brokerage firms. The aim was to make their stock recommendations totally independent from their trading operations. However, the rules have led many brokers to stop publishing research on smaller firms as a way to reduce costs.

In this context, the Commission believes that the regulation is preventing much-needed investment into the real economy at a time when the region is reacting to a significant crisis.

"What we will be presenting tomorrow is a targeted package of measures to facilitate the financing of European companies through capital markets, so it is going to be targeted amendments to Mifid," European Commission Executive Vice President Valdis Dombrovskis told CNBC Thursday.

The proposal will outline a new "simplified recovery prospectus to allow companies to go to financial markets to raise capital, there will be some simplifications on securitization and also we will be looking at this issue of research unbundling and how it is affecting especially small and medium companies and how we can address it," Dombrovskis added.

Mifid is set by the EU and covers all 27 nations, and affects trades in other jurisdictions too — such as when an American lender is looking to sell financial instruments to an EU-based client. The U.K. is expected to be totally out of the EU by the time the new amendments are adopted, but it can choose to keep following these rules.

The revision comes just days after the EU reached a breakthrough deal that will allow the Commission to tap the markets and raise up to 750 billion euros ($869 billion) — something that has never been done by the 27-member bloc before.

French President Emmanuel Macron (L) takes photos with his smartphone from a document held by German Chancellor Angela Merkel (R) during an EU summit in Brussels on July 20, 2020.
JOHN THYS | AFP | Getty Images

The so-called recovery fund will be distributed in the form of grants and loans over the coming years. It was hailed as a victory by all European nations after one of the longest ever EU summits over the weekend. It has been warmly welcomed by market participants too.

However, member states have yet to figure out how they will repay this new debt. They will have to either apply new taxes at the EU level or increase their own contributions to the common EU budget.

Speaking to CNBC, Dombrovskis said the Commission will "soon" make detailed proposals for new taxes.

The issue is particularly sensitive for two reasons: there is no consensus among the 27 EU governments as of now on implementing new levies; and there are some fears of potential retaliation from the United States, mainly if the EU approves a common digital tax.

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