Analysis of the Legal and Regulatory Situation of Uncovered Corporate Bond Issuance in the Baltic States: is there a Common Framework Possible?

While the development of the Baltic corporate bond market is based on the uncovered bond segment, the elaboration of the legislative base has a devoted emphasis on the covered bonds. The shift from a country-focused to the pan-Baltic-focused capital market has been publicly acknowledged by the governments (Ministry of Finance of the Republic of Latvia, 2018) and is in line with the ongoing Capital Markets Union initiative of the European Commission (The High Level Forum on the Capital Markets, 2020). Moreover, a pan-Baltic covered bond legal and regulatory framework has been initiated (Ministry of Finance of the Republic of Lithuania, 2019). The strong demand for the corporate bond segment in the Baltics (the average number of issues listed in the period 2009-2019 reached 44) where no covered bonds are traded on Nasdaq Baltic (Nasdaq Baltic, 2020) creates the need for a unification of the uncovered corporate bond legislation. The existing academic research is relatively modest on analysing legal frameworks of corporate bond issuance. The studies examine the division between domestic and international (typically Eurobonds) legal issuance frameworks with more focus on the legislative frameworks as related to the terms of issuance. Few articles consider a new supranational bond issuance framework, while the interpretation of the issue is radically diverse. There is no existing academic research on the legal framework of the uncovered corporate bond issuance in the Baltics. The aim of this research is to reveal the feasibility of the development of a pan-Baltic uncovered corporate bond issuance framework by analysing the existing legal and regulatory documentation of the corporate bond issuance in the Baltic states. The research provides a limitation for the corporate bond issuance process legislation in the form of information disclosure requirements and the prospective situation of a default of an issuer. The research presents the primary data analysis of the in-depth interviews with pan-Baltic legal professionals in the corporate bond issuance segment conducted in the period December 2019-March 2020. The research demonstrates that the concern of the information disclosure for the issue of corporate bonds is covered under the new regime of the Prospectus Regulation, where further harmonisation of the smaller scope of issues is needed. The national insolvency laws in the Baltics are yet different and need to be harmonised for the default of the issuer. In the result of the research, the idea of a proposal for a pan-Baltic legal and regulatory framework for uncovered corporate bond issuance is evaluated as feasible action corresponding both to the goals of the Capital Markets Union and a pan-Baltic capital market development. The research methods used in this article are scientific publication analysis, document analysis, and in-depth interviews.

The new European crowdfunding regulation: facilitating cross-border services

Purpose To explain the new Crowdfunding Regulation to market participants and to describe the impact of the Crowdfunding Regulation on current crowdfunding business models in the European Union. Design/methodology/approach This article provides an overview of the new Crowdfunding Regulation with a focus on the provisions concerning cross-border services (“European Passport”) and the new authorization requirements for crowdfunding service providers. Findings In particular the introduction of the European passport will open new funding sources for project owners. This together with the harmonized authorization requirements of crowdfunding service providers is expected to contribute to further growth of the crowdfunding market in the European Union. The Crowdfunding Regulation is a further step on the way to a Capital Markets Union in Europe and regulates crowdfunding for the first time on a European level. Practical implications The Crowdfunding Regulation does not cover all existing crowdfunding business models in Europe (e.g., consumer as project owners and qualified subordinated loans are exempted). Insofar, the rules of the Member States continue to apply with the consequence of a partial fragmentation of applicable regulations. Originality/value Expert guidance from experienced financial-services lawyer.

Behavioural Economic Influences on Primary Market Disclosure – The Case of the EU Regulation on European Crowdfunding Service Providers

On 5 October 2020, as part of the Capital Markets Union (CMU) project, the European Parliament adopted, in second reading, Regulation (EU) 2020/1503 on European crowdfunding service providers for business (‘ECSP Regulation’). This Regulation, which shall apply as of 10 November 2021, consists of rules which aim at improving access to crowdfunding for EU businesses in need of capital, particularly start-ups, while, at the same time, providing a high level of protection to investors. To attain that it builds on three sets of measures: clear rules on information disclosures for project owners and crowdfunding platforms; rules on platform governance and risk management; and a coherent approach to supervision and enforcement. The focus of this article is on the disclosure-related set of provisions. Its aim is to demonstrate how the new rules embrace a more behavioural approach to primary market disclosure which, in contrast to the paradigm of full disclosure, focuses on the content, quality and framing of disclosure as an alternative means of enabling informed and, thus, allocatively efficient investment decisions. In a second step, it seeks to provide a preliminary evaluation of these measures both from a practical and a normative perspective.

Part II The Transatlantic Dialogue, 7 The New European Capital Markets

This chapter looks at the new European capital markets. The creation of the European Securities and Markets Authority (ESMA) was ‘an epochal date for EU financial market regulation’. Whereas ESMA's role is primarily one of overall supervision and promotion of supervisory convergence, the 2007–09 financial crisis, which led to its birth, continues incrementally to push the European legislator toward reinforcing ESMA's powers and capturing increasingly more activities under the ‘Single Rulebook’. With the proposal of a Capital Markets Union and Brexit, this trend is likely to continue. Potentially, the European Union is now well placed to forge a new paradigm for the regulation of capital markets, given the increased focus and the technical expertise which ESMA brings to bear. At least in theory, the EU should no longer be beholden to US or international models for its regulatory models.

Part II UK Securities Markets, 5 UK Listing, Prospectus, and Disclosure Regime

This chapter talks about the current UK listing regime that stems from the EU legislation that was enacted as part of the European Commission's action plan for the Capital Markets Union (CMU) and Financial Services Action Plan (FSAP). It describes the aims of the CMU and the FSAP in order to achieve a single financial services market with no obstacles to cross—border activity and a sound supervisory structure. It also highlights the key EU legislation that governs the UK listing regime, which includes the prospectus regulation that regulates the prospectus to be published when a company's securities are to be offered to the public or admitted to trading on a regulated market in the European Economic Area (EEA). This chapter discusses the Market Abuse Regulation (MAR), which covers the disclosure and control of inside information and the offences of market manipulation and insider dealing. It also mentions the Transparency Directive that harmonizes transparency requirements for issuers whose securities are admitted to trading on a regulated market.

Financial Market Integration and EMU

This chapter discusses the evolution of the market structure in European banking and the level of financial integration in the Eurozone and the interaction with financial regulatory developments. The chapter will address how the creation of the Banking Union’s Single Supervisory Mechanism (SSM) has affected banking market integration in the Eurozone. The chapter also raises related issues concerning monetary policy and banking supervision and some of the challenges in discharging these responsibilities within the Banking Union. This chapter also analyses the Capital Markets Union (CMU) proposal in respect of its important objective to increase the supply of credit from non-bank financial intermediaries to the economy of the European Union (EU) while also raising important prudential regulatory concerns concerning the risks raised by the shadow banking sector.

Recommendations

This chapter draws together the implications of the Euro crisis for the EU and its Member States and critically evaluates the shortcomings of the Treaty schema in terms of transparency and accountability. The discussion begins with the measures intended to ‘complete’ and ‘deepen’ the Economic and Monetary Union (EMU). It sets out the author’s own view regarding the key reforms that would be necessary, albeit one that is informed by the proposals made by the EU institutions. These include a reform of the EU fiscal rules; the provision of technical assistance to Member States implementing structural reforms; establishing a Euro area stabilization function; completing the Banking Union and making progress towards a Capital Markets Union; and strengthening the role of EU financial watchdogs. This chapter further puts forward a number of concrete proposals on how to bolster transparency and accountability in the area of EMU, the dividing line being between those proposals that could be implemented without a Treaty amendment and those reforms that would require a Treaty revision. It further addresses separately accountability (and transparency) in the Banking Union, as well as the role of EU courts in the EMU.

Ceci n’est pas un Capital Markets Union: Re-establishing EU-led financialization

In the 11 years since the outbreak of the financial crisis, the EU has introduced many policy initiatives directed at the financial sector, the most recent one being the Capital Markets Union. The official aim is to integrate Europe’s financial markets, fulfilling decades-old wishes for a Single Market for capital. Some scholars have already voiced concerns about different elements of Capital Markets Union since its inception in 2015, but the extent to which this critique was generalizable remained unclear. Through an analysis of policy documents and interview data inspired by the ‘What’s the Problem Represented to be?’-approach, this paper reveals two common threads among the many Capital Markets Union proposals, which are not explicitly acknowledged: a reduction of prudential rules and various forms of incentivizing financial products with public funds. It is therefore argued that Capital Markets Union is not a market integration project (as its name and official narrative suggest), as much as it is the re-establishment of EU-led financialization, following a long tradition of asymmetrical integration in the Union.