Calling for a Pan-European Alternative Finance Market

The Capital Markets Union is being called upon to throw its considerable weight behind the alternative finance movement.

The purpose of the CMU is to enable businesses from all over the EU to access “diverse sources of capital”. The group kicked off with a consultation on how best to direct its activities in February, issuing the following statement:

“The Capital Markets Union aims to break down the barriers that are blocking cross-border investments in the EU and preventing businesses from getting access to finance. If EU venture capital markets were as deep as the US, as much as €90 billion ($102 billion) more in funds would have been available to companies between 2008 and 2013.”

The EU’s economic and monetary affairs committee has called for a CMU-led support plan for the alternative finance market in Europe. The group has emphasised the importance of supporting cross-border investment, and of the efficient use of savings to fund small businesses. A statement issued by the committee called for some crucial “building blocks” to be established by the CMU. These include diverse investment choices, risk mitigation methods and the provision of clear, EU-wide investment information.

Each of the above points is intended to create a more cohesive and efficient alternative finance market within the EU – and thus to boost access to capital avenues within the SME sector.

Drilling down deeper into the demands of the committee, effective cross-border insolvency rules and a functional resolution framework have been posited as the cornerstones in a healthy pan-European alternative market. These rules are of course especially relevant to the Continent’s budding peer-to-peer lenders.

On clarity of information, the committee asserts that a greater level of transparency and educational resource is required for both fundraisers and investors. The emphasis for fundraisers has been placed on ease of comparison, whilst education – particularly around risk – is the missing informational ingredient for retail investors.

Regulation was also touched upon. The committee calls for EU states to review their regulatory approach to the alternative finance space. Equity crowdfunding was singled out as an area where existing rules perhaps appear “too burdensome”.

The common theme amongst each of the committee’s pleas is the call for a procedural standardisation in the treatment of alternative finance across the EU. This isn’t the first time that the idea of a pan-European alternative finance market has been mooted. Partel Tomberg of Bondora has often asserted the belief that the only way for EU platforms to compete with the likes of Lending Club and Prosper in the US is to treat Europe as a singular market, within which capital can flow seamlessly across borders. The CMU may help to make that vision a reality.