LMA Joins Debate on European Capital Markets Union

The Loan Market Association (LMA) has responded to the European Commission’s (EC) green paper on building a single market for capital, via a capital markets union for all 28 member states.

The LMA added that it offered its views from both a private placement and loan market perspective.

Key points include:

• Private placements, from a pure product perspective, do not require regulatory intervention, although challenges arising from a tax and Solvency II perspective warrant further investigation.
• The EC should revisit the current regulatory treatment of collateralised loan obligations (CLOs) under recent proposals relating to ‘simple, transparent and standardised’ (STS) securitisations. “CLOs should not be disadvantaged in comparison to other securitisations because they are actively managed,” adds the LMA.
• Financial services regulation should be revised to reduce barriers to corporate lending for non-bank investors. The LMA notes that both bilateral and syndicated lending are a vital source of capital for corporate borrowers.
• The main barrier to investment from a taxation perspective is the imposition of withholding taxes on interest paid between European Union (EU) member states, which act as a bar to efficient cross-border financing of companies between certain jurisdictions.

“While the LMA would support any EC initiative to boost investment and develop liquidity in the EU financial markets, our members continue to indicate that regulation remains one of the greatest barriers,” said LMA director Nicholas Voisey.

“Unless regulation is proper, proportionate and appropriately targeted to both the asset and the investor, there is a real risk of it becoming a drag on the provision of credit and an impediment to economic recovery and growth.

“While it is encouraging to see the European Commission attempting to unlock investment for companies by encouraging greater participation by non-bank lenders, we believe much could still be done to broaden this valuable investor base and give it a meaningful diversity.”

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