The European Commission recommendations for a Capital Markets Union (CMU) is a credit positive for the region’s asset managers who have been unable to match the scale and profitability of their US peers partly due to the fragmented nature of Europe’s capital markets, according to analysis from Moody’s Investor Services.
Last week the Commission issued 17 recommendations from the so-called High Level Forum (HLF) in a report entitled “A New Vision of Europe’s Capital Markets Union”. Although there is no guarantee that their proposals will be implemented in their current form, the Commission is urging “rapid and bold measures” to be adopted to stop Europe falling behind as it emerges from the economic crisis triggered by Covid-19.
Moody’s notes those that would help boost the fortunes of the asset management community include overhauling existing EU financial regulation such as MiFID II, which have been criticised by financial groups for their unintended consequences. Others on the list are increased cross border investments, greater pension reforms, improved advisory services and products, and better financial education for private investors.
In general, the financial services industry is seen benefitting from a consolidated tape which has been a source of contention. While the HLF acknowledges the disagreements on the feasibility or design of the tape, it agrees that a consolidated tape would require comprehensive coverage, improved quality and standardisation of data in order to aggregate data in a meaningful manner.
Establishing a single capital market in the EU started in 2015 but has had limited progress. However, the Covid-19 pandemic could be a turning point.
Moody’s research points out that although Europe and the US have similar sized economies, the latter has much broader, deeper and more liquid capital markets. This has, it says, held back European asset managers’ investment in new products and technology and hindered their profitability.
The compound annual growth rate of assets under management for US asset managers was 5.1% between 2009 and 2019 compared to the 3.9% for their European peers, according to Moody’s.