The Capital Markets Union (CMU) is about making the European Union (EU) more competitive by providing companies with a greater choice of funding options and offering EU investors and savers new investment opportunities tailored to their different needs. While the overall objectives and benefits of the CMU are clear, the core question remains - How do we attract more EU savers to capital markets?
The EU’s efforts to create a single market for capital across Member States aim to stimulate socio-economic growth, innovation and progress in the EU. The overarching goal of the CMU is to allow investments and savings to flow seamlessly across the EU to the benefit of consumers, investors and companies, no matter where they are located. A strong and well-integrated capital market is essential to make the EU more competitive abroad, while supporting a sustainable economic growth across the region and addressing market fragmentation. A recent report from the AFME reveals that there is still significant room for improvement to boost the EU capital markets’ competitiveness, although the CMU has proven stable and resilient.
If we are to channel private savings towards long-term investments that support growth and job creation in the EU, we need to transform Europe’s well-established savings culture into an investment culture. Market players and private and public institutions alike can help foster awareness of the objectives of the CMU among potential investors and highlight that the CMU is about creating an economy that benefits people, and which has a real and tangible impact on their lives. As the decline of asset values caused European households’ capital markets savings to drop to pre-pandemic levels in 2022, it is essential to encourage savers to tap into the investment opportunities available in the market.
But what does it mean in practice? What concrete steps are needed to build an investment culture in the EU? We have identified 5 areas which we consider good places to start:
1. Highlight the individual benefits of the CMU
As market players, we have a responsibility to explain the many benefits that a single capital market would have on the lives of European citizens. Capital markets are a public good acting for the real economy and people, but many people still see it as a vague concept benefitting only businesses. The common market already allows individuals to move freely across borders, which is made even easier by the use of a common currency in 19 Member States. A single capital market could have a similar effect on the economy.
2. Facilitate access to the market
We need to strike the right balance between protecting investors and ensuring access to investment opportunities by reducing the heavy administrative burden for professional investors and adapting rules and processes to the different types of issuers and securities available in the market. To tackle this last point, the Luxembourg Stock Exchange has recently developed a fast treatment and new prospectus approval exemption process for specific types of securities, restricted to professional investors and experienced issuers on the Euro MTF only.
3. Address people’s retirement needs
To this day, EU retail investment remains rather low compared to other markets, with people favouring long-term savings. To change this mindset, the benefits of retail investments must outbalance those of savings and we must create more awareness around pension plans and needs among EU citizens. Creating new and well-designed financial products will be key to drive this shift in mindset and behaviour.
4. Empower EU citizens to invest safely and sensibly
If EU citizens are to take responsibility for their investments and their pensions, we need to ensure that investment opportunities are clear and tangible enough to meet their needs. Individuals have a key role to play to support the economic growth of the EU, help finance the transition to a net zero economy and contribute to the creation of jobs across Member States. We need to raise awareness of the positive impact that increased retail investments have on the real economy. This education starts at school but should be re-enforced at later life stages in order to strengthen financial literacy.
5. Build trust in the market
The EU’s work on a retail investment strategy is a useful step to assess the suitability of the existing framework for retail investments’ profiles and the needs of consumers and eventually to encourage their participation in capital markets. However, it will not be enough to turn savers into investors if they do not trust the market. We must build trust in the EU capital market, and for that, we need a combination of financial educational programmes, new technologies and incentives, and a commitment to increased integrity and transparency around fees.
The EU’s decision to move toward a single capital market aims to create “an economy that works for the people”, as put by European Commission President Ursula von der Leyen. Financial professionals and capital market practitioners have a responsibility to take this message to the public. The current geopolitical and socioeconomic context could be a catalyst to the development of the CMU and thereby allow EU companies to access funding, creating new opportunities for its citizens to invest and put their savings to work not only for the economy, but also for their life projects.