June 10, 2020 / 8:10 AM / a month ago

Pandemic and Brexit make deeper EU capital market urgent, report says

LONDON (Reuters) - Deepening the European Union’s capital market has become a priority to help the economy recover from COVID-19 and reduce reliance on the City of London, a report for the EU said on Wednesday.

FILE PHOTO: European Union flags flutter outside the European Commission headquarters in Brussels, Belgium, June 5, 2020. REUTERS/Yves Herman

The EU has long sought to encourage companies to issue stocks and bonds to grow, as in the United States. But they still rely on banks for funding after efforts to build a capital markets union (CMU) failed to make significant headway.

A “high level forum” of experts set out 17 recommendations on Wednesday to accelerate the CMU project, with an emphasis on coaxing more retail investors on board.

It recommended giving modest extra authority for the EU’s securities regulator after disagreement over creating a powerful single EU watchdog like the U.S. Securities and Exchange Commission, a politically sensitive issue in the bloc’s capitals.

“The EU capital market post-Brexit will be located in many different cities,” said Sean Berrigan, head of the European Commission’s financial services unit

The report recommended streamlining tax and insolvency rules, also politically sensitive areas that have been stumbling blocks in the past.

Britain, Europe’s largest capital market, has left the EU, making the bloc’s economy dependent on a jurisdiction where rules may start to diverge, it said.

Berrigan said he will propose changes in the autumn based on the recommendations. “They won’t be ready in time to meet the immediate effect of COVID,” he said.

It is the second CMU reboot attempt since its launch in 2015, and Berrigan said complexity in EU rule-making made it harder to adapt to rapid, technology-driven changes in markets.

“We will probably always have to come back,” he said.

Upfront commitment from EU leaders will be key to avoiding another reboot failure, the report’s chair, Thomas Wieser, said. “Otherwise we will remain at the level of support for CMU of ‘strong prayers on Sunday, but on Monday in the office, forget it’.”

Reporting by Huw Jones, editing by Larry King

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