Strengthening Europe's economy and stimulating investment to create jobs is one of the Commission's key priorities. The development of capital markets as an alternative source of financing to bank lending, on which European businesses and SMEs in particular have traditionally relied, is intended to underpin this priority. Through the CMU, the Commission aims to:

The CMU is not a single legislative proposal, but a framework under which a number of initiatives will be launched with a view to building a true single market for capital. Accordingly, the action plan sets out a four-year roadmap with 33 concrete actions to be taken under six priority areas (see box "Capital markets union priorities").

Given the breadth of actions announced by the Commission, market participants should prepare for new legislation as well as updates to existing key legislation (such as the Prospectus Directive (2003/71/EC), Solvency II Directive (2009/138/EC) and the Capital Requirements Regulation (575/2013/EU)) ranging across capital markets, banking, insolvency, tax, insurance, pensions and other areas of law.

On 30 September 2015, along with the publication of the action plan, the Commission published its first documents in relation to five so-called early actions announced in the action plan.

Securitisation. As part of its efforts to revive securitisation, the Commission has published a draft regulation on securitisation. This is intended to promote the issuing of securitisation instruments, encourage a wider pool of investors and free bank balance sheets to lend. The first part of the draft regulation sets out a single securitisation regime with general application across the EU, and is intended to replace the regulation that is currently found in separate legislation applying to individual categories of regulated investor, such as banks, fund managers and insurers. The new regime is similar to the present system, with a few changes, of which the most important is the imposition of a direct risk retention requirement on the original lender, originator or sponsor of the securitisation.

The second part of the draft regulation introduces the concept of simple, transparent and standardised (STS) securitisations, which meet a defined set of criteria and which are expected to benefit from preferential regulatory treatment. There appears to be no place in this regime for commercial mortgage-backed securities, managed collateralised loan obligations or synthetics at this stage, but asset-backed commercial paper has its own set of criteria and so may fall within this concept. The special purpose company that issues the securitisation instruments, the originator and the sponsor, will have to notify the European Securities and Markets Authority if they want the STS designation to apply to a securitisation and they will be jointly responsible for any notification made in error.

A draft regulation to amend the Capital Requirements Regulation by lowering bank regulatory capital risk weights for STS securitisations was also published and equivalent changes are expected in respect of insurance companies under the Solvency II Directive.

The securitisation proposals are being sent to the European Parliament and the Council of the EU for negotiation and adoption under the ordinary legislative procedure, which is expected to take at least one year.

Insurance sector. In order to provide insurance companies with incentives to invest for the long term in infrastructure and European long-term investment funds (ELTIFs), the Commission has proposed that amendments be made to the Solvency II Delegated Regulation (2015/35/EU).

In relation to infrastructure, those incentives will operate by reducing the amount of capital that an insurer must hold against the debt and equity of certain infrastructure projects. A distinct category of "qualifying infrastructure investments" will be created, which is intended to represent investments in safer infrastructure projects. Subject to meeting certain criteria, such as in relation to a project's ability to generate predictable cash-flows and withstand stressed conditions, these investments will benefit from a lower risk calibration than that which would otherwise apply, resulting in a lower capital charge. Investments in ELTIFs will also be granted lower capital charges, allowing them to benefit from the same capital charges as equities traded on regulated markets, which are lower than those for other equities.

The European Parliament and the Council of the EU have until the end of December 2015 to object to the proposals, and the option to extend this period for a further three months.

A trio of consultations. The Commission also published three consultations that are open for responses until 6 January 2016:

The responses will provide guidance for future CMU initiatives in these areas.

Following the consultation on the review of the Prospectus Directive launched in February 2015, the Commission is expected to publish its proposal for a new prospectus regime in the fourth quarter of 2015 (see News brief "EU capital markets union: prospectus regime under review").

In the action plan, the Commission reconfirmed its intention to modernise the Prospectus Directive to make it less costly for businesses to raise funds publicly, to review regulatory barriers to small firms listing on capital markets and to support the listing activities of small firms through European advisory structures.

Although no official texts are available, we understand that the Commission is undertaking a root and branch review of the existing prospectus regime, looking at areas such as which exemptions should apply, what the prospectus content should be (and whether different requirements should apply in different circumstances) and whether the prospectus approval process can be improved.

The Commission has included an indicative timeline in its action plan listing the actions that it will take under the CMU framework until 2018. The most notable are:

The action plan is available at http://ec.europa.eu/finance/capital-markets-union/index_en.htm.