EU Tweaks Financial Rules Adopted To Aid Recovery

By Irene Madongo
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Law360, London (July 27, 2020, 4:33 PM BST) -- The European Union's executive wing has approved some amendments to capital market regulations aimed at helping business recover from the financial mayhem caused by COVID-19.

The European Commission has adopted a capital markets recovery package, which includes targeted adjustments to the bloc's Prospectus Regulation, the Markets in Financial Instruments Directive — better known as MiFID II — and rules governing securitization.

"Capital markets are vital to the recovery, because public financing alone will not be enough to get our economies back on track," Valdis Dombrovskis, executive vice president at the commission, said in an announcement on Friday.

Changes to the Prospectus Regulation, which is designed to help investors make better-informed decisions, include proposals for creating a so-called EU recovery prospectus. Prospectuses are documents that businesses disclose to investors when they issue stocks and bonds.

The proposed prospectus would be temporary and "easy to produce for companies, easy to read for investors and easy to scrutinize for national competent authorities," the commission said. The plans would also mean that prospectuses are whittled down from hundreds of pages to just 30.

Meanwhile, the commission's plans for MiFID include simplifying what it said were "complex requirements" that have hindered the "prompt execution of investment decisions." Disclosure requirements for transactions between would also be streamlined, or made more effective.

MiFID II is an EU directive drawn up to improve competitiveness in the bloc's financial markets as well as ensuring a high level of investor protection.

"The proposed changes to MiFID II will contribute to Europe's recovery by facilitating investments in the real economy and freeing up resources for both firms and investors," the commission said.

The COVID-19 recovery deal also proposes changes to the regulation of securitization, a tool for banks to gather up loans and turn them into securities, before selling them onto capital markets. The proposals are geared toward encouraging greater use of securitization by supporting banks in their efforts to increase lending, the commission said.

"The current economic downturn in all member states caused by the coronavirus crisis is expected to result in a considerable amount of bank loans becoming non-performing, as borrowers struggle to keep up with their payments," the organization said.

Banks could be prevented from "lending in sufficient quantities to underpin the economic recovery," the commission added.

The European Parliament and Council will next have to agree on the legislative texts.

When the package is adopted and enforced, the amendments to the prospectus regulation and securitization framework will be directly applicable to member states, the commission said. Meanwhile changes to MiFID will first need to be transposed into national laws.

Like other governments around the world, the EU is considering ways to salvage businesses from economies that have been hit hard by the virus and get people buying again. The European Banking Authority said last week that it wants to help banks cut compliance costs by as much as 20%, especially for smaller institutions.

--Editing by Ed Harris.

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