EU capital markets initiative would relax VC regulations

The European Commission has placed venture capital at the heart of its Capital Markets Union (CMU) proposals to free up cross-border capital flows and unlock trillions of euros of financing for Europe’s economy.

The “CMU Action Plan,” released by financial services commissioner Jonathan Hill today, introduces possible improvements to existing venture capital regulation and the process of creating pan-European, venture-focused fund of funds.

The Commission has launched a public consultation period, asking for feedback by mid-January 2016 on whether changes to the European venture capital and social entrepreneurship fund regulations are necessary to boost investment. More specifically, it is seeking input on restrictions around who can manage funds, the €100,000 minimum investment for investors and whether non-EU managers should be able to offer venture capital or social entrepreneurship funds.

The action plan was met with a wave of industry support from the European Private Equity and Venture Capital Association (EVCA) and the European Fund and Asset Management Association (EFAMA).

“Venture capital finances innovation. It is the engine driving the growth of companies such as Spotify, Delivery Hero and Farfetch,” EVCA chief executive Dörte Höppner said in a statement. “To deliver more of these successes in Europe, the European Commission is right to place VC funding high on its Capital Markets Union priority list.”

The action plan also touches on long-term financing for infrastructure projects, promising to address the current risk-weighting requirements within Solvency II for insurance company investments in infrastructure, and to review their application to the private equity asset class.

“We applaud the Commission’s plans to assess the impact of previous regulatory reforms. This should also serve the purpose of addressing, sooner rather than later, we hope, the current overlapping requirements that are either not fully consistent with each other, or which inadvertently create an unlevel playing field among financial sectors,” EFAMA president Alexander Schindler said in a statement.

More generally, the Commission also launched a “call for evidence” on the cumulative impact of current financial legislation, to “identify possible inconsistencies, incoherence and gaps in financial rules, as well as unnecessary regulatory burdens and factors negatively affecting long-term investment and growth.”

In February, the Commission published a green paper outlining Hill’s vision for more effective capital markets across Europe, specifically naming private equity and venture capital as important sources of direct financing. The CMU is part of the European Commission’s strategy to generate jobs and economic growth by stimulating investments and mobilizing capital across Europe.