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Law360, London (October 21, 2020, 5:48 PM BST) —
Member state governments agreed to measures Wednesday to amend the European Union‘s capital markets rules in a bid to restart the economy after the fallout from the coronavirus crisis by helping the bloc’s businesses raise cash.
The Council of the EU said it has agreed to the so-called capital markets recovery package. The measures amend the bloc’s capital market rules to help companies raise money on public markets and support banks to lend more in order to boost investment in the economy.
The package, which the European Commission presented at the end of July, is being taken forward by the council as a priority, it said. The amendments will revamp key financial services rules, including the Markets in Financial Instruments Directive, or MiFID II, the Prospectus Regulation and the Securitization Regulation.
“Capital markets have a key role to play in supporting Europe’s recovery from the COVID-19 crisis,” Olaf Scholz, federal minister of finance for Germany, which currently holds the council presidency, said Wednesday. “We need to facilitate the recapitalization of companies, investment in the economy and bank lending to small and medium-sized enterprises. The targeted amendments to the capital markets rules will do this while maintaining high levels of investor protection.”
The European Parliament must now adopt its position on the rules before the council begins negotiations with it.
Under the proposals, the MiFID II rules will be amended to reduce the amount of information that investment companies must provide to professional investors and some retail investors.
The rules will also exempt noncomplex bonds, known as “plain vanilla” bonds, from information requirements that ensure the products are appropriate for investors.
The council said it is also changing MiFID II rules to support the bloc’s derivatives market.
The package will also make changes to the EU’s prospectus rules. Businesses disclose these documents to investors when they issue shares and bonds.
Companies that have a “track record” in the market will only be required to produce shortened prospectuses in order to make it easier and quicker for them to raise cash, the council said.
The COVID-19 recovery deal also proposes changes to the Securitization Regulation. Securitization allows banks to gather up loans and turn them into securities that can be traded on capital markets, which frees up capital that banks can lend.
The council said the amendments to the rules will allow banks to bundle nonperforming loans into their securitizations. This will help banks to offload nonperforming loans, which a borrower fails to pay installments or interest on after more than 90 days.
If the package is adopted, the amendments to the prospectus regulation and securitization framework will be directly applicable to member states. But changes to MiFID will first need to be transposed into national laws.
–Additional reporting by Irene Madongo. Editing by Marygrace Murphy.
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