On 24 September 2020, the European Commission (the Commission) relaunched its Capital Markets Union project with the publication of its ambitious new initiative, “A Capital Markets Union for people and businesses – new action plan” (the Action Plan). The purpose of the Action Plan is to reduce the current fragmented approach in financial markets and to tackle some of the remaining barriers to a single European capital market. The Action Plan links the development of a fully integrated single capital market with other key Commission priorities including the post-COVID-19 economic recovery, the European Green Deal and the transition to a digital economy.
The Action Plan proposes a total of 16 legislative and non-legislative measures designed to achieve the Commission’s objectives. We have briefly highlighted a number of these targeted measures of particular interest to the Irish insurance industry below:
1. Incentives for long-term investment
The Action Plan aims to remove the regulatory obstacles for insurance companies to invest by encouraging more long-term and equity financing from institutional investors. In particular, the Commission is seeking to encourage investment by insurers in longer-term infrastructure projects with a view to addressing a perceived investment gap in EU infrastructure. The ongoing review of Solvency II represents a key opportunity to achieve the Commission’s objective of enhancing the role of the long-term investor by eliminating the unnecessary regulatory hindrances.
The Action Plan targets the introduction of a proposed measure to improve the predictability of insolvency proceedings by either legislative or non-legislative means. The Commission regards the stark divergence between national insolvency regimes as a long-standing structural barrier to cross-border investment. By mid-2022, the Commission’s aim is to bring forward an initiative for the minimum harmonisation or increased convergence of non-bank insolvency law. In addition, the possibility of enhancing data reporting will be explored in order to allow for a regular assessment of the effectiveness of national loan enforcement regimes.
3. Shareholder engagement
The Commission recognises the importance of facilitating shareholder engagement, particularly in a cross-border context, by making voting easier for all investors and corporate actions more efficient. In particular, the management of complex and divergent corporate action processes such as organising companies’ general meetings or sending information between issuers and investors, is seen as unnecessarily difficult and expensive. The Action Plan proposes to introduce an EU definition of ‘shareholder’ as well as introducing targeted legislative changes to clarify and harmonise the rules governing the interaction between investors, intermediaries and issuers. The use of new digital technologies will also be examined by the Commission.
4. Enhanced single rulebook
The Action Plan sets out the Commission’s continued aim to promote an enhanced single rulebook in order facilitate effective supervision that is critical to preventing regulatory arbitrage forum shopping i.e. “a race to the supervisory bottom”. The Commission acknowledges this will be particularly important post-Brexit and that if achieved, it would be particularly beneficial to cross-border insurance activities. It is hoped that the ongoing Solvency II review will be a catalyst for further regulatory and supervisory integration.
Many of the Action Plan proposals, if implemented, will likely have a significant and positive impact on the insurance industry. We will continue to monitor developments on this topic as progress on the targeted measures is made.
If you would like to know more about the services we offer or have any queries in relation to the Action Plan, please contact our partners listed here or your usual contact at William Fry.
Contributed by Shannon O’Neill
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