Capital Markets Union

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Capital Markets Union

21 May 2015

Link’n Learn

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Contacts

Aisling Costello

Senior Manager – Investment Management Advisory Deloitte & Touche Ireland

E: [email protected]

T: +353 1 417 2834

Miles Bennett

Associate Director - Audit Deloitte UK

E: [email protected]

T: +44 20 7303 7137

Laura Wadding Senior Manager - ERS Deloitte & Touche Ireland E: [email protected] T: +353 1 417 2901

Christopher Stuart Sinclair Director - Corporate Finance Deloitte Luxembourg E: [email protected]

T: +352 45145 2202

Laura McDonald Senior - Audit

Deloitte & Touche Ireland E: [email protected] T: +353 1 417 2901

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Agenda

Commission’s Green Paper

Deloitte’s response to the Commission’s Green Paper

Food for thought

Capital markets union overview

Upcoming webinars

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Capital Markets Union - overview

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Capital Markets Union (CMU)

− CMU is an umbrella

heading covering a number of existing and new workstreams.

− A single directing and strategic focus to

initiatives.

− At its core sits the free

movement of capital.

An umbrella

heading

− The concept can be traced back to the Treaty of Rome and the 1966 Segre Report. − It has featured in a number of policy agendas since, e.g. the 1999 financial services action plan.

− The CMU is a rebranding of this old idea and the next stage of integration and development of a single market for capital.

− Primary: To enable market-based finance as an engine

for economic growth.

− Secondary: Enhancing

financial stability through

increased private-sector risk sharing, improving end users access to finance, matching investors to risk, and cross border investment.

Not a new idea

What is it?

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Capital Markets Union (CMU)

A Single Market in Capital

The main driver behind the CMU is economic growth, but the aim of the CMU is to build a framework to enhance the free movement of capital enshrined in the treaties. Objectives of the CMU:

− Improve access to finance across the EU;

− Increase and diversify the sources of funding available;

− Ensure effective allocation of capital through markets.

The Green Paper (GP) set out the principles underlying the CMU: 1. Maximizing economic growth; 2. Increasing financial stability; 3. Apply to all 28 Member States

and remove barriers to entry; 4. Ensure effective consumer

protection; and,

5. Attract global investment and enhance competition.

− The Commission will take a pragmatic “bottom–up” approach, identifying and tackling each barrier in turn based on the impact and feasibility of each action;

− Legislative and regulatory change will be undertaken only where necessary; − Greater emphasis will be placed on

“market driven solutions”;

− There will not be a large legislative agenda to deliver the CMU;

− The Commission will revisit previous decisions to ensure the right balance between stability and growth; and, − There will be increased emphasis on

impact assessments. The CMU incorporates three notable

policy shifts of the Juncker Commission:

1. A focus on jobs and economic growth as well as financial stability;

2. A greater emphasis on legislative review and calibration rather than new initiatives; and,

3. A willingness to use alternative techniques to legislation to achieve its aims, e.g. market driven solutions. Principles Policy Shift Approach Barriers 6

The Commission’s Green Paper: Overview

Some barriers to the CMU have already been identified, such as a historical bias towards certain types of finance and

heterogeneous equity cultures. The GP has put emphasis on identifying and understanding unknown barriers before proceeding with an action plan.

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CMU: Comparison with the Banking Union

The Banking Union and CMU differ as a result of the underlying driver behind

the initiatives

Driver

Banking Union

CMU

To further financial markets integration and improve financial stability, including by improving quality and objectivity of supervision and by

breaking the feedback loop between struggling sovereigns and banks.

To increase jobs, economic growth and develop a more resilient financial system. Secondary drivers include the desire to reduce reliance on bank finance.

Objective

The EU banking market is well developed and mature. The Banking Union tackles the supervision and regulation of deposit takers, within the existing market dynamics.

The CMU agenda is seeking to facilitate the growth of what is currently an underdeveloped, or in certain cases a non-existent, market.

Supervision

The Single Supervisory Mechanism, led by the ECB, centralises authorisation and supervision of banks in participating member states.

Supervision is a secondary agenda to developing EU capital markets. Any centralisation of

supervision will likely take place within the existing supervisory architecture.

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CMU: Early Initiatives

Review of the Prospectus Regime SME Information High Quality Securitisation ELTIFs Pan-European Private Placements

The Commission has brought forward the review of the prospectus regime due to take place later in 2015 despite recent and ongoing revisions. The review will focus on requirements for when a prospectus is required including the exemptions, prospectus approval, streamlining the prospectus regime, simplifying the content. The aim of the review is to reduce the administrative burden of the issuing securities.

Noting the issues with the availability of information on SMEs, the Commission is seeking to improve the quality, increase the availability, and standardise SME information to facilitate the provision of finance to SMEs. This can be broadly broken down into three subtopics, (i) standardised and common credit information, (ii) harmonised financial reporting, and (iii) a central database where this information can be accessed by market participants.

Building on consultations by the BCBS/ IOSCO and the ECB/ Bank of England, the intent is to revive the

securitisation market with the aim of allowing efficient and effective transfer of risk and facilitating a broader range of market participants to engage in securitisation. Central to the proposals is the development of qualifying simple, transparent and standardised (STS) securitization which may then benefit from favorable capital treatment.

A key section to the Commission’s investment plan for Europe is encouraging long term financing, particularly to finance infrastructure. With the aim of aligning long-term finance with, predominantly, institutional investors seeking a long-term return on investment, the Commission will seek ways to encourage the uptake of the European Long-Term Investment Fund (ELTIF) vehicle.

France and Germany have had success in developing domestic private placement markets, the Commission intends to use similar means to develop a Pan-European Private Placement Market (PEPP) to deepen the pool of finance available and make it easier and less costly to access. PEPP particularly is an area of CMU where market driven solutions will form a central part, such as the guide and standard PEPP transaction documentation.

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Overview

The GP identified five early initiatives for the CMU. Each of the five early initiatives is an existing workstream of the Commission or another organisation, which has been subsumed into the CMU.

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CMU: Expected Proposals

Early Initiatives Medium-term Initiatives Long-term Initiatives • Pan-European Private Placements • High-quality Securitisation • Review of the Prospectus

Regime

• Improving SME Credit Information

• Encouraging the uptake of ELTIFs

• Covered Bonds • Corporate Bonds • Green Bonds • Mini Bonds

• FinTech (including crowdfunding)

• Venture Capital (including EuVECA) • Private Equity • Leverage Loans • Securities Law • Insolvency Law • Company Law • Tax

• Pensions (products and provision)

• Accounting standards

Indicative view of proposals under the CMU

The GP and previous statements from the Commission have indicated a number workstreams that may form part of the CMU. The below list is a non-exhaustive list of known and likely initiatives.

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CMU Green Paper

1. What further steps around the availability and standardisation of SME credit information could support a deeper market in SME and start-up finance and a wider investor base?

2. Beyond the five priority areas identified for short term action, what other areas should be prioritised? 3. What support can be given to ELTIFs to encourage their take up?

4. Is any action by the EU needed to support the development of private placement markets other than supporting market-led efforts to agree common standards?

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CMU Green Paper

5. What further measures could help to increase access to funding and channelling of funds to those who need them?

6. Should measures be taken to promote greater liquidity in corporate bond markets, such as standardisation? If so, which measures are needed and can these be achieved by the market, or is regulatory action required? 7. Is any action by the EU needed to facilitate the development of standardised, transparent and accountable ESG (Environment, Social and Governance) investment, including green bonds, other than supporting the development of guidelines by the market?

8. Is there value in developing a common EU level accounting standard for small and medium-sized companies listed on MTFs? Should such a standard become a feature of SME Growth Markets? If so, under which conditions?

9. Are there barriers to the development of appropriately regulated crowd-funding or peer to peer platforms including on a cross border basis? If so, how should they be addressed?

Link'n Learn - Capital Markets Union

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CMU Green Paper

10. What policy measures could incentivise institutional investors to raise and invest larger amounts and in a broader range of assets, in particular long-term projects, SMEs and innovative and high growth start-ups? 11. What steps could be taken to reduce the costs to fund managers of setting up and marketing funds across the

EU? What barriers are there to funds benefiting from economies of scale?

12. Should work on the tailored treatment of infrastructure investments target certain clearly identifiable sub-classes of assets? If so, which of these should the Commission prioritise in future reviews of the prudential rules such as CRDIV/CRR and Solvency II?

13. Would the introduction of a standardised product, or removing the existing obstacles to cross-border access, strengthen the single market in pension provision?

14. Would changes to the EuVECA and EuSEF Regulations make it easier for larger EU fund managers to run these types of funds? What other changes if any should be made to increase the number of these types of fund? 15. How can the EU further develop private equity and venture capital as an alternative source of finance for the

economy? In particular, what measures could boost the scale of venture capital funds and enhance the exit opportunities for venture capital investors?

16. Are there impediments to increasing both bank and non-bank direct lending safely to companies that need finance?

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CMU Green Paper

17. How can cross border retail participation in UCITS be increased?

18. How can the ESAs further contribute to ensuring consumer and investor protection?

19. What policy measures could increase retail investment? What else could be done to empower and protect EU citizens accessing capital markets?

20. Are there national best practices in the development of simple and transparent investment products for consumers which can be shared?

21. Are there additional actions in the field of financial services regulation that could be taken ensure that the EU is internationally competitive and an attractive place in which to invest?

22. What measures can be taken to facilitate the access of EU firms to investors and capital markets in third countries?

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CMU Green Paper

23. Are there mechanisms to improve the functioning and efficiency of markets not covered in this paper, particularly in the areas of equity and bond market functioning and liquidity?

24. In your view, are there areas where the single rulebook remains insufficiently developed?

25. Do you think that the powers of the ESAs to ensure consistent supervision are sufficient? What additional measures relating to EU level supervision would materially contribute to developing a capital markets union? 26. Taking into account past experience, are there targeted changes to securities ownership rules that could

contribute to more integrated capital markets within the EU?

27. What measures could be taken to improve the cross-border flow of collateral? Should work be undertaken to improve the legal enforceability of collateral and close-out netting arrangements cross-border?

28. What are the main obstacles to integrated capital markets arising from company law, including corporate governance? Are there targeted measures which could contribute to overcoming them?

29. What specific aspects of insolvency laws would need to be harmonised in order to support the emergence of a pan-European capital market?

30. What barriers are there around taxation that should be looked at as a matter of priority to contribute to more integrated capital markets within the EU and a more robust funding structure at company level and through which instruments?

31. How can the EU best support the development by the market of new technologies and business models, to the benefit of integrated and efficient capital markets?

32. Are there other issues, not identified in this Green Paper, which in your view require action to achieve a Capital Markets Union? If so, what are they and what form could such action take?

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2) What further steps around the availability and standardisation of SME credit information could

support a deeper market in SME and start-up finance and a wider investor base?

• Deloitte supports the idea that measures to standardise credit information, combined with the adoption of common practices that increase the availability, reliability and comparability of this information at a European level, could attract a wider investor base. Making it easier for investors to access credit information on business in the EU could help address SME and start-ups’ financial needs through a range of diversified funding sources, i.e. reducing the dependence on banks or major financial institutions lending and opening up the market to private equity firms, venture capitalists and other private investors. Meanwhile those measures would help non-institutional investors diversify their portfolios, including assets that were not previously easily available to them.

• Currently, obtaining credit information and financial analysis on SMEs is often disproportionately onerous for institutional investors, particularly when compared to the expected gains. Investors still perform their own risk assessment and autonomously check the solvency of smaller companies and in certain cases request substantial guarantees from SMEs. It is standard practice for banks and other financial institutions to perform know-yourcustomer checks and analyse companies’ financial statements, however such information is less easily available to others, in part because of data protection rules.

• With respect to the availability of credit information, in the first instance the Commission could leverage on measures already adopted by individual Member States, performing a specific assessment over the real impact of those practices in facilitating access to diversified funding sources.

• Specific measures could also be taken to increase the availability and quality of independent financial information, in the form of a centralized SME rating database, possibly backed by local governments and/or entrepreneurial associations. In this respect, granting access to the credit data already held by financial institutions could also help populate the database.

• With regard to standardization, in order to enhance the comparability of financial information throughout the EU an agreed set of relevant financial information, ratios and metrics would have to be defined. Ideally the required information can be derived or taken from financial information that is prepared for the annual statements. They could even be included in a financial report as an annex or an additional disclosure requirement. SMEs could also give a brief summary of their own market, market position and view on perspectives for their future development, in order to encourage external investors. Agreeing on key metrics is also relevant taking into account that SMEs usually apply national GAAP in

preparing their financial accounts and, consequently, ratios only based on financial statement data may not be comparable across the EU. More clarity, certainty and confidence may be provided if an independent private organisation were to certify this information, e.g. a rating agency or auditor. Without such a standardised approach within the European Union, cross-border investments will be more difficult.

• Finally, it is advisable that a certain degree of flexibility be left for the individual Member States to evaluate to what extent the above measure are to be applied, while trying to avoid excessive cost burdens on smaller business that may be only occasionally interested in accessing the capital market.

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3) What support can be given to ELTIFs to encourage their take up?

• We have noted a lot of interest outside Europe for ELTIFs (and also for EuVeca and EuSEF structures). This interest is perhaps at least in part academic, but also reflects an interest in a viable, unitised vehicle investing in infrastructure that may in some way lighten the burden on institutional investors in performing due diligence and selecting appropriate projects. There is also considerable interest around the potential lower “entry ticket” to a portfolio of infrastructure investments rather than the significant amounts that a direct investment in a project might entail, particularly before a reasonable level of diversification may be reached. There also appears to be a trend towards infrastructure investment, for example the Japanese Government Pension Fund is the most commonly quoted institution to have recently extended its eligible asset criteria to include infrastructure.

• The political dimension and the anticipated role that ELTIFs are expected to play in the realisation of the economic growth objectives of the EU also raises potential issues of interpretation and perception with regard to retail access to the product. There is significant concern as to potential “mis-buying” on the part of retail investors. In this context there is the apparent contradiction that the product is designed to benefit from a form of retail passport, and yet as it is mandatorily an AIF, it will fall within the MiFID II definition as complex and therefore unavailable on an execution only basis to retail, even qualifying retail, creating anomalous marketing conditions. This could be resolved by a “carve out” for retail but that in turn would increase the potential for “mis-buying”. Overall, the combination of an institutional and a retail product appears to have as a consequence that institutional investors see unnecessary complexity in arrangements to provide for retail participation and retail distribution will encounter the difficulties described above.

• If the retail option is to be retained, the greatest incentive for ELTIFs is one that was removed from the initial legislative proposal during the legislative process – i.e. that they should benefit from the most favourable available fiscal treatment in the hands of the investor in each jurisdiction. A second incentive would be to review the capital allocation requirements for ELTIFs under regulations such as Solvency II. If ELTIFs have the qualities and characteristics requisite to fulfil the aims of long term investors then capital allocation to them in the hands of insurers and pension funds should be commensurate with that status and not reflect a more conservative approach to risk.

• Some further points that could be examined:

• currently ELTIFs are multi-purpose and while intended for infrastructure may be used for other purposes. Perhaps a specific infrastructure product might be more appropriate; pension funds worldwide and their respective regulatory authorities could be usefully consulted regarding product features that they deem to be essential, rather than the current “catch all” approach;

• one of the potential advantages of infrastructure investing through ELTIFs is that it may avoid some of the burden of evaluating projects and managers. In the interest of creating a specific infrastructure label, it might be beneficial to leverage on the experience of both the EIF and similar entities, and the experience of regulators who have already considered infrastructure funds, to determine if it would be appropriate to define a specific category or status of AIFM to manage infrastructure ELTIFs.

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4) Is any action by the EU needed to support the development of private placement markets, other

than supporting market-led efforts to agree common standards?

• Aside from support for the implementation of common standards, the Commission should address the main barriers that restrict the development of private placement markets by:

• adapting European insurance regulations under Solvency II to foster greater investment from insurers and asset managers in non-listed SME credit (as France did during 2013 by amending its Insurance Law), also by calibrating more favourably the capital charges faced by those institutional investors, while promoting a level playing field across the EU. The EU should also consider revising the regulatory framework of securitization to facilitate capital flows between investors and disintermediated financings;

• promoting the emergence of a reliable European credit rating framework to remedy the lack of comparable information and financial analysis on small and medium-sized companies available to institutional non-bank investors. ;

• fostering the creation of credit funds dedicated to small businesses, which target non-listed companies with debt deal sizes of less than EUR 10 million. This could be achieved through the launch of co-invest vehicles driven and monitored by the European Central Bank (ECB), as has been done in France by the Banque Publique d’Investissement (BPI);.

• removing the existing regulatory prohibitions and hurdles for private placement investors, pension funds and debt funds to invest across different geographies and

• fostering the opportunity for institutional non-bank investors to have access to publicly guaranteed debt instruments issued by SMEs (as has been the case in Italy through the introduction of unlisted company debt instruments known as “mini-bonds” which have a regime that includes the ability to benefit from sureties provided by the “SME Central Fund”, sponsors being authorised to support bond issues, increasing participation in subordinate bonds and favourable tax treatment for both underwriters and issuers).

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5) What further measures could help to increase access to funding and channelling of funds

to those who need them?

• To support the further development of capital markets in the EU, the following policy measures could be considered:

• supporting the development of strong financial centres in the EU to concentrate capital markets specialists into hubs (asset managers, brokers/investment banks, advisors, lawyers, rating agencies and accountants);

• developing a common regulatory and supervisory framework for capital markets to reduce the barriers preventing new investment across national borders;

• promoting knowledge of private placements and capital markets products with mid-market companies and advisors to mid-market companies to raise awareness of capital market alternatives to bank financing;

• also considering suitable financing for SMES, including start-ups, at below the EUR 1 million threshold as, in certain Member States at least, private equity is not available below this amount;

• adopting policies which stimulate the development of a strong EU based investment banking sector. A strong investment banking sector is a key prerequisite for well-functioning capital markets and

• promoting the development of more capital markets products for retail investors, such as the listed Business Development companies in the US.

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6) Should measures be taken to promote greater liquidity in corporate bond markets, such as

standardisation? If so, which measures are needed and can these be achieved by the market, or is

regulatory action required?

• To support greater liquidity in corporate bond markets, the following policy measures could be considered: • improving access for retail investors to corporate bond markets;

• promoting the further development of a strong “sub-par” investor base in Europe;

• creating a robust European credit analysis framework would be helpful for the further development of capital markets. Such a framework would benefit from a specific focus on mid-market companies and

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7) Is any action by the EU needed to facilitate the development of standardised, transparent and

accountable ESG (Environment, Social and Governance) investment, including green bonds, other than

supporting the development of guidelines by the market?

• ESG investments can include many types of investments, amongst which green bonds and other green investments such as renewable energy. ESG investing includes mainstream investments, funding of SMEs and start-ups, private investment when the investment process includes evaluating non-financial factors such as environmental and social performance and governance structure alongside financial analysis. For green bonds, the label is usually reserved for bonds whose proceeds will be used for activities that the issuer deems ‘green’. For funds, ESG investments can exclude certain sectors (like oil and gas), or can be made up of investments that mitigate environmental harm, companies with positive social impacts, or companies that perform well according to the fund manager’s ESG analysis.

• The EU should continue to support the development of guidelines, but for SMEs and other equity investments the EU should consider providing guidance that focuses on what non-financial information is disclosed, in order to allow investors to best apply their own ESG approaches when making investment decisions. The EU should also consider whether these disclosures should be independently assured which would assist in driving consistency and rigour in disclosures. Support will be required from the EU:

• since there are already many different guidelines and frameworks that attempt to label investments based on ESG issues, there will only be continuing investor confusion if the EU simply supports the continued introduction and development of these guidelines and does not set its own parameters or rules;

• for equities and SMEs, simply labelling an investment as ESG-friendly or green may not be beneficial. Instead, focusing on the required disclosure of non-financial information by large companies and SMEs would be a more valuable approach. The EU Accounting Directive already mandates large public interest entities to report as from FY17 on policies and results around environment, human rights, diversity and other nonfinancial

categories. This Directive allows investors to analyse the non-financial performance of companies according to their own investment strategies and does not label investments based on any pre-existing guideline; and

• consistent non-financial disclosure for SMEs would allow investors to apply their own ESG-specific approaches even if the SMEs do not have information or policies for all the non-financial categories.

• For all ESG-focused investments, the EU cannot only support market-driven guidelines and should consider the benefits of being proactive in bringing necessary transparency and accountability to these types of investments. By both mandating non-financial disclosures and ensuring that investments are independently - rather than self labelled, the EU can ensure that its Capital Markets Union is the standard for ESG-focused investing.

• There is no “one size fits all” solution that can be applied to all asset classes; the EU should consider whether any action is too onerous and would therefore slow the Capital Markets Union’s goal of increasing access to funding and channelling funds to those who need it.

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8) Is there value in developing a common EU level accounting standard for small and medium-sized

companies listed on MTFs? Should such a standard become a feature of SME Growth Markets? If so,

under which conditions?

• Similarly to larger companies listed on regulated capital markets in Europe, which are required to use IFRS for the preparation of their consolidated accounts under the IAS regulation, there would also be benefits to using a common set of accounting standards for small and medium-sized companies (SMEs) listed on MTFs. A common set of accounting standards would help to create comparability and an accounting level playing field among EU SMEs listed on MTFs. The aim of a common standard could also be to improve the transparency, understandability and quality of the financial statements of such companies, which in our view would contribute to the development of EU capital markets. • However, there are limitations or constraints that we recommend the Commission considers before moving forward:

• as of today, there are currently many interactions in many EU jurisdictions between the publication of separate entities’ annual accounts (as opposed to the preparation of consolidated accounts for group companies) and local taxation and legal requirements. Establishing a common EU basis of accounting for SMEs listed on MTFs may affect the compliance of such companies with their local requirements. Should these companies need to establish two sets of financial statements (one for EU accounting and one for local purposes) significant costs would be incurred. Alternatively, should the new set of EU standards be accepted by the local authorities as meeting the national legal and tax

requirements, this may have an effect on the amount of tax that companies would pay and/or their ability to distribute dividends or meet the local legal capital requirements.

• Of note, the solution that was found in the IAS Regulation to mitigate that problem, by distinguishing the requirements for the financial

statements of separate entities versus those of groups, would not necessarily help in these circumstances as many SMEs are single entities and not groups and so do not prepare consolidated accounts;

• the development of a common set of accounting standards for EU SMEs listed on MTFs only would decrease the comparability with other companies in each EU jurisdiction. This is because it is expected that the latter would either be required or permitted to continue to apply their local GAAP or IFRS (if their Member State has authorised or required the use of IFRS for such entities);

• there would also be a lack of comparability with SMEs outside the EU. Even if the comparison would be limited to only one set of accounting standards, as opposed to multiple accounting frameworks as the situation is today in the EU, global investors would still have to make efforts to understand what this specific EU accounting framework would be compared to what they see being applied outside Europe; and

• it has proved complicated and challenging in the past to agree at an EU level to the development of accounting standards. In addition, there do not currently exist structures in the EU such as a European accounting standard-setter that would be able to undertake such a task initially and also going forward, as there would be a need to ensure that the set of standards would be maintained in the future. The governance, as well as the costs and funding associated with such a project, would need to be carefully assessed.

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8) Is there value in developing a common EU level accounting standard for small and medium-sized

companies listed on MTFs? Should such a standard become a feature of SME Growth Markets? If so,

under which conditions?

• The cost/benefit analysis of developing a common EU level accounting standard for SMEs listed on MTFs also depends on the set of common accounting standards that would be developed or adopted:

• IFRS (as endorsed in the EU): The information produced under IFRS is generally recognised as being of high quality. However, as of today, we are not convinced that it would be appropriate to extend the scope of the

• IAS Regulation to require SMEs listed on MTFs to use IFRS in their current version. In our view, the IAS Regulation appropriately focuses on public companies that access regulated capital markets (albeit we continue to support Member States having an option to extend the use of IFRS to other entities, should they consider it appropriate in their jurisdiction).

• If adoption of IFRS has created a level playing field inside and outside the EU and most likely allowed an easier access to capital markets, the cost-benefit equation works out differently for different companies and for different users. There may well be cases where IFRS adoption has involved net costs especially for small companies. For example, while for some large companies benefits probably exceed costs as the

financial reporting processes that had to be adapted are applied to a large number of entities within a group, this type of economy of scale does not necessarily exist at the level of small companies. It is also difficult to quantify the benefits for these companies such as better capital allocation decisions by investors and better access to capital by preparers.

• In addition, in some cases, the application of IFRS could increase complexity for users and preparers and lead to a disclosure overload that contributes to the complexity of IFRS for non-experts.

• Despite the above comments, because of the benefits of IFRS, it would be appropriate to consider how this basis could be used. One solution could be that the Commission approaches the IASB to investigate the ability for the IASB to consider how to respond better to the needs of SMEs listed on MTFs. The IASB has expressed on 18 February 2015 in a “Statement in response to the EC’s Green Paper on a Capital Market Union” willingness to cooperate with the Commission on its project for a Capital Markets Union. We recommend that the

Commission takes this opportunity to express its needs. One of the possible outcomes sought may consist in making the current IFRS requirements evolve to better meet the needs of the population considered and/or working on the scalability of disclosures. If so, the resulting outcome would/could also be applied in other parts of the world if need be, thus following the same objectives as those of the IAS Regulation, including the use of a truly global standard if adopted in the EU.

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8) Is there value in developing a common EU level accounting standard for small and medium-sized

companies listed on MTFs? Should such a standard become a feature of SME Growth Markets? If so,

under which conditions?

• IFRS for SMEs: This Standard published by the IASB - and not endorsed in the EU so far - has been designed to meet the needs and capabilities of SMEs. However, the IASB restricts its use to non-listed companies.

• Further investigation would need to be performed in order to assess whether the information provided under such a Standard meets the expectations of users of financial statements of SMEs listed on MTFs. If this solution were to be considered to address the needs of SMEs listed on MTFs, it would achieve the same objectives as those of the IAS Regulation including the use of truly global standards. However, we do not hear much enthusiasm for investigating this route in the EU, as it would be considered to add another layer of accounting frameworks in Europe whereas the idea is to increase the overall comparability between entities, and not just amongst SMEs listed on MTFs. Also, it would not particularly ease the burden of SMEs whose listing would evolve from a MTF to a regulated market (whereas the recommendation we express in (a) above would be considered to be a relevant intermediary step forward).

• a Standard specifically designed by the EU: Whilst such an alternative would meet the EU MTF listed SMEs needs a priori, we refer you to the limitations and constraints highlighted previously, amongst which the need for the creation and functioning of a European accounting standard-setter and the fact that comparability will not be achieved at a global level, thereby potentially affecting the attractiveness of EU MTFs listed SMEs in the eyes of international investors.

• status quo maintained: Specific standards development could be left to Member States, within the requirements of the EU accounting directives, as per the status quo. In certain jurisdictions, SMEs listed on MTFs raise financing using their local GAAP and are satisfied with this situation. However, under this alternative, the improvements in comparability and level-playing field would only occur at the Member State - instead of at the European -level. Moreover, if the new set is not widely recognised as a common one, there is again a risk that investors would increase the risk premium associated with EU companies listed on MTFs. The benefits achieved might not be at the level sought by the Commission.

• Based on our analysis, we express a preference for investigating the solutions proposed in (a) above. However, we are aware that issuers may not necessarily be convinced that a common set of standards for SMEs listed on MTF would help attract investors and increase their ability to raise funds compared to the situation today. They might consider that the implementation costs of such standards would be an obstacle to accessing MTFs. We would therefore recommend that the Commission perform a careful assessment of the costs and benefits of moving towards a common accounting standard for SMEs listed on MTFs, particularly if this were to become the sole accounting framework on those markets. Care should be taken not to impose regulations that would affect the functioning of some current MTFs that have already demonstrated their role in providing SMEs with an access to capital markets, by in the future discouraging companies from raising capital through such markets if they consider that they are no longer an effective means of raising funds at an acceptable price.

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9) Are there barriers to the development of appropriately regulated crowdfunding or peer to peer

platforms including on a cross border basis? If so, how should they be addressed?

• Before we consider barriers, it is worth considering first why crowd sourced funding models appear to be thriving. In our opinion there are two main reasons:

• The widespread adoption of internet and associated technologies is allowing innovators and investors to unlock the potential of a connected world. Crowd-based sourcing models such as “Crowdfunding” and “Peer to Peer (P2P) Lending” are driving new sets of behaviours, where sharing and collaboration are fast becoming the norm and peers are preferred over corporates. Trust is underpinning this shift in behaviour and is key to understanding the future evolution of crowd based sourcing models. EU regulators need to consider what they can do to maintain and preserve the “trust” quotient which is extremely important for this industry to thrive.

• Access to scale and diversity of portfolio is another important driver. In a country like the U.S., the market offers both scale in terms of retail investors and diversity in terms of types of businesses that are accessing these models. On the other hand, for smaller countries the lack of scale and diversity will eventually catch up with the platforms. This is recognised by the industry players and in the Nordic countries for instance the main players have formed an Alliance, which is also lobbying the governments for harmonization in regulation and tax policies to allow for cross-border lending and funding. The other way players are getting scale cross-border is through acquisitions – note the recent example of Trustbuddy’s acquisition of Geldvoorelkaar and Prestiamoci to offer services in Sweden, Netherlands and Italy. • One of the reasons why the industry has thrived is because it has been lightly regulated and easy to get a licence to operate. However, the

rapid development of new products in these sectors adds to the complexities and this means both the regulatory requirements and the cost of compliance would increase. A simple example would be the cost of educating investors on the foreign exchange risks while funding and lending between the UK and many European countries that have different currencies. Also, for dispute resolutions, the country-specific legislation means additional costs for pursuing claims before local courts.

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9) Are there barriers to the development of appropriately regulated crowdfunding or peer to peer

platforms including on a cross border basis? If so, how should they be addressed?

• There are ways to demonstrate the risk issues, without undue increases to cost of regulatory compliance. In the UK for instance during the early days the P2P platforms lobbied hard using survey data to show that retail investors do understand the risks to a reasonable extent and this allowed the regulators to take a positive stance, in turn allowing the industry to thrive. EU regulators could consider approaches that both satisfy their concerns but, at the same time, do not significantly increase the cost of compliance - for instance by requiring the platforms to display high levels of transparency in the performance of loan books and investments, which could in turn help retail investors become better educated and more effective decision makers. In doing so there is a need to balance the needs of the market against appropriate investor protection.

• The other major challenge is credit scoring, which is at present only available at a local level. In countries with mature financial services such as the U.S. and the UK, there is plenty of data available to develop high quality credit scoring, however in many countries within Europe data is not as rich (due to the concentration of lending with a handful of financial institutions). There are ways around this, for instance some start-ups are offering consumer credit score based on social media profiles. The open data initiative that has been embraced by many EU governments and policy makers could also help make up for the lack of traditional credit data.

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10) What policy measures could incentivise institutional investors to raise and invest larger amounts

and in a broader range of assets, in particular long-term projects, SMEs and innovative and high growth

startups?

• From the insurance industry’s point of view, the “investment of larger amounts and in a broader range of assets, in particular long-term projects, SMEs and innovative and high growth start-ups” should be considered in light of the liabilities they have underwritten and the need to match them with an adequate asset mix. Risk management and expected returns are key in the investment decision making.

• As a result, measures that would incentivize insurers to invest larger amounts in the desired assets need to:

• Bridge the gap between the expected return and the required risk capital – seen as a proxy for the level of risk for the asset concerned. This will be dependent on the industry’s targets for return on risk capital over the coming years; and

• Ensure that the vehicles to invest in the desired assets can meet the criteria of the various mechanisms designed to foster long-term investment under Solvency II.

• Regarding the first point:

• Reconsidering the risk charge. An EIOPA paper published in 2013 provided a first analysis, concluding that, in most cases, there was no evidence to review the calibration at the time. EIOPA’s review encompassed private equity, venture and SME investments, social businesses, socially responsible investments, infrastructure investments, and securitization (see:

• https://eiopa.europa.eu/Publications/Reports/EIOPA_Technical_Report_on_Standard_Formula_Design_ and_Calibration_for_certain_Long-Term_Investments__2_.pdf).

• Providing arrangements in order to improve the prospect of return, and make it more attractive compared to the required capital. Many elements influence the prospect of return, from the availability of reliable forecast data to financing conditions and political stability.

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10) What policy measures could incentivise institutional investors to raise and invest larger amounts

and in a broader range of assets, in particular long-term projects, SMEs and innovative and high growth

startups?

• It should be noted that the features of long-term insurance products vary across European markets, hence there may not be a “one size fits all” approach to fostering investments in long term assets by all insurers

• Regarding the second point, the key mechanism to observe should be the matching adjustment. The criteria that assets need to meet in order to qualify for the matching adjustment (per Article 77b, Solvency II Directive) are:

• “a) the insurance or reinsurance undertaking has assigned a portfolio of assets, consisting of bonds and other assets with similar cash-flow characteristics, to cover the best estimate of the portfolio of insurance or reinsurance obligations and maintains that assignment over the lifetime of the obligations, except for the purpose of maintaining the replication of expected cash flows between assets and liabilities where the cash flows have materially changed”

• “c) the expected cash flows of the assigned portfolio of assets replicate each of the expected cash flows of the portfolio of insurance or reinsurance obligations in the same currency and any mismatch does not give rise to risks which are material in relation to the risks inherent in the insurance or reinsurance business to which the matching adjustment is applied”

• “h) the cash flows of the assigned portfolio of assets are fixed and cannot be changed by the issuers of the assets or any third parties”.

• In order to incentivize insurers to use the matching adjustment on their long-term savings books to invest in long term assets, the investment vehicles will have to demonstrate their ability to fulfil the above criteria. In addition, these criteria should be revisited to accommodate the evolution of the investment vehicles that the European Union decides to promote to create the virtuous circle between the demand for long-term yield from the life insurance and pension sectors and the supply of securities which receive a fair treatment within the Solvency II regulations.

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11) What steps could be taken to reduce the costs to fund managers of setting up and marketing funds

across the EU? What barriers are there to funds benefiting from economies of scale?

• Costs associated with setting and marketing funds across Europe are a factor in restricting cross border growth of fund sales and therefore achieving economies of scale. In our view the barriers are not so much around setting-up funds across the EU but rather relate to marketing. • The current UCITS regulation provide for the key investor information document (“KIID”) but leave matters of premarketing, marketing

documentation and literature, local representation etc. to the national legislator and regulator. In addition, the processes around cross border registration and activation of the UCITS passport, differ, understandably from those under AIFMD. At the same time, interaction with host regulators is different for UCITS and AIFs, especially for maintenance of an existing registration. The costs of registration vary significantly from country to country (and can vary by a factor of 10 or more). Furthermore, the Investor Protection clauses of MiFID II – especially with regard to suitability, and appropriateness, in addition to any national gold-plating of inducements rules, makes compliance in cross border marketing increasingly onerous. The net effect is that in recent years we are seeing a trend reversal to a certain extent, and the internal market is

becoming de facto more fragmented as national specifics come to the fore.

• One solution would be to extend the idea that is behind the EuVECA and EuSEF into this area by creating an official UCITS label. Once the label is attributed and the KIID is available, under whatever additional caveats that may be worked out between regulator and industry, then a UCITS should be marketable without the possibility for Host States to gold plate requirements, except in matters of language.

• Progress in this regard will assist cross border distribution and marketing but will not in itself necessarily achieve larger funds overall, or concentration into fewer funds with higher assets under management (opening the way for significant economies of scale). For that, work needs to be done on fund dynamics and what constitutes a successful fund.

• Increased transparency (improving levels of disclosure with regards to costs, risks, investment strategies etc. for investment funds) should allow investors to make informed decisions about competing products although a lack of a level playing field between sectors remains with different criteria and even a different regulatory approach applying to insurance, banking and asset management products. However, whilst access to this information on a fund level is mandatory, the investor is not provided with any information as to what the available choice might be across the spectrum of competing funds within a given market, asset class or strategy. It is possible to imagine that work similar to that done on GIPS (global investment performance standards) in the past in the reporting of performance across composites, to allow more accurate assessment of the overall performance of an asset manager, could be extended to cover asset classes or markets to give investors at least a view of comparative performance.

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12) Should work on the tailored treatment of infrastructure investments target certain clearly

identifiable sub-classes of assets? If so, which of these should the Commission prioritise in future

reviews of the prudential rules such as CRDIV/CRR and Solvency II?

• Should prudential rules be reviewed to favour a particular sub-class of investment, this would rely on political more than technical considerations. Solvency II has been presented as a "technical" approach to the real cost of risk, for a given asset class. This has been the source of much debate as the appreciation of risk was not shared by all stakeholders. Regarding infrastructure investment, EIOPA was asked a similar question in 2013:

• should the calibration of certain investments – including infrastructure – be changed to better reflect their risk? EIOPA’s conclusion was that, based on available data, there was no reason to reconsider the proposed calibrations.

• For future reviews of Solvency II calibrations, new data will be critical to better understand the risk of investing in infrastructure, and justify a potential reduction of some risk calibration. The consequence is that the first step in that direction is to enrich the data pool about the sub-classes of assets most needed from an economic point of view, to be in a position to better assess risks and rewards that insurers can expect.

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14) Would changes to the EuVECA and EuSEF Regulations make it easier for larger EU fund managers to

run these types of funds? What other changes if any should be made to increase the number of these

types of fund?

• Within its current inclusion in the scope of AIFMD, EuVECA is almost by definition a niche opportunity and it will have difficulty growing beyond that. We would support also allowing fund managers with portfolios that exceed the €500 million threshold of the AIFMD to set up and operate EuVECA and EuSEF funds, though it is still to be seen if they will be interested in running these types of funds.

• EVCA (“European Private Equity & Venture Capital Association”) also commented that if the final implementing measures are unduly

restrictive, the EuVECA Regulation together with the tightening seen across Europe of the so-called private placement regimes risks further limiting access to equity financing for SMEs.

• However, cross-border marketing by sub-threshold funds has, post-AIFMD, become increasingly difficult due to the tightening of the so-called national “private placement” rules. With the exception of a few Member States where rules have remained unchanged, sub-threshold funds are encountering obstacles in many jurisdictions where they want to register for marketing. For many sub-threshold funds, the EuVECA (and/or EuSEF) label(s) are (becoming) the only way they can market themselves across EU Member States. But many EU-based venture capital funds are already excluded from the EuVECA Regulation/label as it imposes a number of restrictions on, for example, what constitutes a qualifying investment (types of financial instrument that can be used and participation acquired) and what constitutes a qualifying portfolio company into which such qualifying investment is to be made (e.g. only SMEs as per the EU state aid definition – a maximum of 250

employees and either a turnover of maximum EUR 50 million or a balance sheet of maximum EUR 43 million).

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14) Would changes to the EuVECA and EuSEF Regulations make it easier for larger EU fund managers to

run these types of funds? What other changes if any should be made to increase the number of these

types of fund?

• A more fruitful approach might be to envisage an appropriate regulation for private equity in general, as it seems that many of the provisions of AIFMD were designed with hedge funds in mind and not private equity or real estate funds. We would see the evolution of the EuVECA best placed within this wider reflection on PE and all its attendant aspects, including touch points for institutional investors such as Solvency II.

• EuSEFs have a particular appeal, and it has been noted that insurers amongst others see them as filling a need for socially responsible

investments for a certain segment of investors. Given however that the growth of that sector is more dependent on behavioural finance than on macro-economic trends or market movements, growth will be driven by demand rather than supply. As investor appetite and

requirements grow, so will demand and so will the interest of asset managers to enter the field with a meaningful offering.

• EuSEF funds may only invest in organisations whose main objective is ‘to have a social impact rather than to make a profit for its owners or shareholders’ (“social undertakings”). As the funds are designed as “not for profit funds”, this may restrict the interest of investors. • The EuSEF Regulation is designed to underpin the EU single market by: a) making cross-border fundraising both quicker and easier, b)

eliminating current bureaucratic barriers to international social investment and c) increasing the flow of investment capital between Member States. We hope that the regulation will also make it easier to increase EU public capital with private investment in order to help scarce public funding go further, to enable private investment to complement grant funding and help safeguard grant funding for those activities for which it is the only suitable source of funding.

• To stimulate interest in these vehicles, a more fundamental approach may be required such as a defined contribution scheme based on fund investment requiring individuals to select from a given category of funds. It is interesting that one of the countries where there is most interest for the formula is Sweden which has implemented such a State-organised direct contribution scheme.

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15) How can the EU further develop private equity and venture capital as an alternative source of

finance for the economy? In particular, what measures could boost the scale of venture capital funds

and enhance the exit opportunities for venture capital investors?

• As this question addresses both private equity (PE) and venture capital, our response is structured to include general

remarks as well as comments on private equity (focusing on growth capital and buy outs) and venture capital (focusing on

seed and early stage investments) specifically.

• 1. General Remarks

• The AIFM Directive (AIFMD) and the acts implementing it in the various EU countries have significantly increased the complexity and costs of setting up and managing a PE fund. We believe that this will set a trend towards larger market players, eliminating mid-size players (just above the EUR 500 Million threshold) due to cost and administrative issues. Returns on investment for investors will be lower. Any EU initiative which intends to counterbalance this development would be welcomed.

• While the PE industry must (and surely can) cope with this new situation, it is unfortunate that the regulatory regime makes it possible for EU countries to impose even stricter rules (or interpretation of such rules) on the market players. The means by which the AIFMD has been translated into local law differ, which consequently results in an un-unified regulatory framework across borders. The resulting ‘treaty shopping’ of AIF managers is inefficient and costly. Also it encourages Member States not to allow free flow of capital cross border due to other countries not meeting their standards. We recommend therefore that the EU takes a stricter approach and does not allow for “gold plating” in this area. It should not allow Member States to impose additional requirements or (equally important) to fill locally perceived “regulatory gaps” in AIFMD with restrictive provisions or practices. Clear ESMA guidelines might be a way to achieve this.

• Likewise, the AIFMD does not encourage easy cross border fundraising for sub level AIF (Art. 3 (2) AIFMD). PE faces difficulties in raising capital in this context.

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15) How can the EU further develop private equity and venture capital as an alternative source of

finance for the economy? In particular, what measures could boost the scale of venture capital funds

and enhance the exit opportunities for venture capital investors?

• A further case in point is the investment of “retail investors” in PE. Due to the fact that this has not been addressed by AIFMD, the Member States take different views on this thereby effectively restricting this large group of investors from investing in PE. If restrictive regulation is imposed on such retail investors, managers of private equity funds cannot be expected to try to raise capital from this source. This is

particularly true due to the fact that it becomes unrealistic to have retail and professional investors in one fund vehicle or investing in parallel. We would therefore recommend to revisit the policy as to retail investors and to consider a more liberal approach – for instance by redefining the investment threshold by means of which an investor is deemed to be a professional investor.

• PE and Venture Capital investments tend to be characterized by significant risks of loss and significant profit opportunities. At the same time, the investment periods of private equity as closed ended funds is up to 10 years. Having said this, it could encourage investors if there were to be a stable, unified taxation and regulation regime in the EU. Constant changes, be it at an EU or national level, deter investors who depend on assessing their (long term) investment decision without the danger of repeated changes. This is particularly true as regards taxes, as taxes tend to reduce the potential net profit of an investor (thereby reducing opportunities) while the risk inherent in the investment remains the same.

• 2. Private Equity

• We view PE as a source of financing for established enterprises, predominantly to allow for further growth or to allow for a change of ownership of family or privately owned businesses. PE on average generates solid returns at a medium risk profile.

• For the enterprises and their owners it tends to be important to stay outside the public domain and to raise financing without being forced to disclose information to the public or to a large group of stakeholders (which cannot be monitored or are not bound to respect

confidentiality). Taking this view, PE financing used to be very different from the financing through bonds or the public equity markets. Hence, it will remain an important factor that the EU limits the public disclosure requirements involved (only) with PE investments. If private

individuals as investors cause complexity, legal restrictions or extra costs for a fund, they will not be sought after as investors.

• If, for example, retail investors in private equity funds trigger additional disclosure obligations, such investors are unlikely to be considered suitable. This is particularly true if such retail investors taint the fund structure in which otherwise professional investors are invested.

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15) How can the EU further develop private equity and venture capital as an alternative source of

finance for the economy? In particular, what measures could boost the scale of venture capital funds

and enhance the exit opportunities for venture capital investors?

• 3. Venture Capital

• It appears that the performance of such funds in the EU differs significantly. Generally speaking it is quite difficult to generate appropriate rates of return. It seems fair to assume that finding appropriate target enterprises (in particular outside the digital economy) and bringing them to a substantial level of success is rather difficult. Consequently, the rates of return are low or moderate. It is our perception that raising substantial venture capital funds is therefore difficult.

• Having said this, the EU should encourage the Member States to set the stage for start-up enterprises in a better way. In countries where businesses can easily be set up, where an entrepreneurial attitude is encouraged, where high tech clusters exist (for example, near and/or in co-operation with Universities) and which offer tax regimes which favour capital expenditure intensive businesses, venture capital does flourish.

• As to the tax regime it would be helpful if the EU could ensure that the tax loss carry forward which is typical for a start-up or venture business (due to high capex and low revenue) can be used in the (profitable) future and will not fall away due to a change in ownership or indeed further equity investment in the venture company.

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17) How can cross border retail participation in UCITS be increased?

• Various measures can be imagined (including simplification of some of the tenets of MiFID II and other onerous investor protection measures where an equal effect may be obtained by other means) that will facilitate or enhance cross border retail UCITS take-up. However, these will in all likelihood contribute to the on-going organic progression of UCITS, and will not materially change the relatively low level of direct retail investment. That level remains significantly below that of comparable foreign markets for the reasons briefly discussed above.

• To effect a “step-change” in this regard would require the implementation of an ambitious and similar scheme with all the associated benefits that a move, however small, towards more effectively funded retirement provision would have on the overall funding of the European

economy. Left to national schemes, retirement provision if indeed implemented, is likely to have a divisive effect on the fund elements of capital markets, further exacerbating issues of proliferation and sub scale products. Introduced within an internal market and united market context the impact could be considerable.

• Detailed work would of course be required around retail investor attitudes to direct investments in the different European countries, to see how to increase the percentage of direct retail investments made as a proportion of savings levels and potential market size, but as an

indication if we take the current size of the UCITS market in Europe, domestic and cross border combined, we are talking of a market in excess of EUR 8 trillion. If that is adjusted for the non-European holdings on the export oriented UCITS centres such as Luxembourg we still have a base in excess of EUR 7 trillion invested in UCITS. Coupled with direct retail take up, an increase of only 10 to 15% would produce an increase of over EUR 1 trillion. This figure itself is already only a fraction of the estimated dormant savings in continental Europe. To put additional context around this number it should be noted that equivalent schemes in the United States and Australia yield participation and ownership rates in excess of 30%, then the potential reward at both the individual and the collective level is evident.

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17) How can cross border retail participation in UCITS be increased? (PART 2)

• Various measures can be imagined (including simplification of some of the tenets of MiFID II and other onerous investor protection measures where an equal effect may be obtained by other means) that will facilitate or enhance cross border retail UCITS take-up. However, these will in all likelihood contribute to the on-going organic progression of UCITS, and will not materially change the relatively low level of direct retail investment. That level remains significantly below that of comparable foreign markets for the reasons briefly discussed above.

• To effect a “step-change” in this regard would require the implementation of an ambitious and similar scheme with all the associated benefits that a move, however small, towards more effectively funded retirement provision would have on the overall funding of the European

economy. Left to national schemes, retirement provision if indeed implemented, is likely to have a divisive effect on the fund elements of capital markets, further exacerbating issues of proliferation and sub scale products. Introduced within an internal market and united market context the impact could be considerable.

• Detailed work would of course be required around retail investor attitudes to direct investments in the different European countries, to see how to increase the percentage of direct retail investments made as a proportion of savings levels and potential market size, but as an

indication if we take the current size of the UCITS market in Europe, domestic and cross border combined, we are talking of a market in excess of EUR 8 trillion. If that is adjusted for the non-European holdings on the export oriented UCITS centres such as Luxembourg we still have a base in excess of EUR 7 trillion invested in UCITS. Coupled with direct retail take up, an increase of only 10 to 15% would produce an increase of over EUR 1 trillion. This figure itself is already only a fraction of the estimated dormant savings in continental Europe. To put additional context around this number it should be noted that equivalent schemes in the United States and Australia yield participation and ownership rates in excess of 30%, then the potential reward at both the individual and the collective level is evident.

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18) How can the ESAs further contribute to ensuring consumer and investor protection?

• Consumer (and investor) protection is a core part of each ESA’s mandate. For understandable reasons, until recently the emphasis of

regulatory reform, particularly in banking, has been on financial stability and prudential issues. To date, the ESAs’ consumer protection work has been run as part of the single rule book and convergence work streams, and through issuance of warnings. To restore and strengthen confidence in financial markets, ESAs now need to turn to their consumer and investor protection deliverables, echoing recent moves to increase the priority of these issues globally. In response to the Commission’s review of the ESFS, all ESAs have already announced that from 2015 they will be focusing more on these issues, not least because the MiFID II/MiFIR and PRIIPs packages will need to be finalised. At the same time, the work of the ESAs needs to take account of Commission initiatives to foster growth, for example through work on the Capital Markets Union.

• Going forward and in the light of the CMU plans, ESAs will take a greater role in promoting transparency, simplicity and fairness for consumers and investors. First of all, there will be more technical advice, technical standards and guidelines for ESAs to deliver, in part as a result of expansion of the single rulebook to account for the CMU framework (see also question 24). Second, there will be more work on monitoring of consistent implementation and application of the rules across the EU. These rules and their application need to be consistent not only

between Member States but also between sectors, so that similar products receive similar treatment, regardless of which ESA is responsible. Third, cross-border colleges of supervisors and crisis management groups help ensure consistent application of policies across the various parts of the financial sector and across the EU; and ESAs will need to commit to more work in improving the quality and consistency of supervision. Fourth, consumer and investor protection may be treated as a separate work stream, delivered not only as a by-product of the single rulebook and convergence work, but also through more prominent deliverables around culture and conduct. Here more clarity in the allocation of mandates between the ESAs and the Joint Committee might be required. Fifthly, thought needs to be given to the consumer and investor protection regime applied to products and services provided from outside the regulated sector; does the regulatory perimeter require revision? Finally, additional work of this type is not without cost, and ESA budgets need to reflect the additional workload, not least if new powers and mandates are granted (see also question 25).