The European Union unveiled plans to ease some financial regulation as it grapples with the economic shock of the coronavirus crisis — a move that will likely impact brokerage firms worldwide.
The European Commission, the executive arm of the EU, has proposed three new steps to ensure there's more investment going into the real economy. The institution wants a streamlined prospectus to make it easier to invest; it wants more research analysis of small and medium-sized firms; and it wants to amend the securitization framework to boost bank lending.
The rules will apply to companies operating within the EU, but also to any jurisdiction working with EU-based firms. The U.K. is no longer be a member of the EU, but it might choose to follow the same amendments to the rules.
"Today's targeted amendments will make it easier for our businesses to get the funding they need and to invest in our economy," Valdis Dombrovskis, the executive vice president of the European Commission, said in a statement.
He added that "capital markets are vital to the recovery, because public financing alone will not be enough to get our economies back on track."
The Commission estimated earlier this month that the 27-member bloc will contract 8.3% this year due to the pandemic, and grow by 5.8% in 2021. However, many businesses are not expecting to return to their pre-crisis levels before 2022.
Friday's proposal has yet to be approved by the European Parliament and the 27 governments of the member states.
It argues that a simplified prospectus will be easier to produce, read and be scrutinized by authorities. In turn, this will allow investors to make faster decisions about which companies to support.
The plan also suggests that simplifying the so-called Mifid II (Markets in Financial Instruments Directive) will support smaller businesses too. The regulation, which was implemented in 2007 and then strengthened in 2018, separates trading and research units of brokerage firms and has led to a significant drop in how many analysts cover smaller firms. The Commission's aim is that by easing the rules, more investors will notice and invest in smaller businesses.
As part of easing Mifid II, the Commission stated that under its plans the "disclosure and information requirements for transactions between professionals will be streamlined. Complex requirements that have proven a hindrance to the prompt execution of investment decisions will be simplified (too)."
Mifid II has created some anxiety among financial firms: initially to adapt to the new rules and more recently by creating an uneven research market, with some clients complaining brokers are asking for an unreasonable amount of money for a service that until recently was free.
In terms of securitization — which refers to when a financial product is created — the Commission is aiming to extend an existing framework to small and medium-sized businesses which would hopefully increase bank lending to that sector.