Strengthening Europe's Capital Market: National and European Impetus Needed

In a position paper on the European Savings and Investment Union (SIU) published today, Deutsches Aktieninstitut calls for strengthening Europe's capital market.A major effort is needed to strengthen the investor base in Europe and to improve citizens' participation in the success of companies. Deutsches Aktieninstitut calls on the Member States to invest an annual amount equivalent of two percent of gross wages in the development of a capital stock in public pension systems. In addition, the position paper recommends streamlining the regulation of investment advice and capital market financing.

“Liquid and efficient capital markets are vital for European innovation and competitiveness,” emphasises Henriette Peucker, chief executive of Deutsches Aktieninstitut. “Europe needs a big leap to make the Savings and Investment Union successful and the EU Commission, the EU Parliament and the EU Member States must drive this effort. Europe should promote the use of capital market investments for pensions and wealth creation. Additionally, regulation should facilitate capital market financing for new business models and future job creation.”’ 

Impetus for private retirement provision and asset formation

Experience in other countries, such as Sweden or the US, shows that the design of the pension systems and wealth formation has a decisive influence on the development of the capital market. Without direct responsibility for the pension systems, the EU can still provide impetus or set targets together with the Council. 

Deutsches Aktieninstitut therefore proposes that the EU and the Member States set themselves the target of investing an amount equivalent to two per cent of gross wages in the accumulation of a capital stock in the public pension system each year. This would create political momentum. However, it would be left to the governments to decide how they achieve this goal. 

In addition, a fundamental reform of the Pan-European Personal Pension Product (PEPP) and the introduction of a European label for investment savings accounts would help to create incentives for investing and saving for retirement in the capital market, and thus also improve the financing of European companies. 

Furthermore, there are many levers that can be adjusted to make the capital market in Europe more efficient and attractive. 

• Reduce regulation on investment advice: Reducing documentation requirements and restrictions in investment advice for simple and transparent investment instruments such as broadly diversified equity funds strengthen the role of banks and other financial service providers in promoting equity and securities-based saving.
• Reform diversification rules for investment funds: Active investment funds should be allowed to invest up to 20 per cent of their portfolio in a single share in order to give investors a greater stake in successful large companies and to keep these companies in Europe. The 20 per cent limit already applies to ETFs.
• Simplify reporting requirements for companies: To make listings on the stock market attractive for companies, sustainability reporting, among other things, should be significantly simplified and the obligation to tag electronically financial and sustainability information should be abolished.
• Facilitate capital raising in Europe: The removal of information from securities prospectuses that is already available in companies' ongoing reporting, a greater harmonisation of liability regimes and the removal of translation requirements will make it easier to address investors across Europe.
• Take into account the needs of small listed companies, for example by maintaining and expanding the concept of the SME Growth Market as a stock exchange segment with simpler regulatory requirements.
• Develop the Statue of the Societas Europaea (SE) in the direction of a capital market-friendly 28th regime in company law, which companies can opt into. The regime should, among other things, include flexible options for capital increases and facilitate cross-border employee participation.
• Counteract fragmentation of market liquidity in shares of individual companies.
• Uniform supervision in a practical manner: The competitiveness of the European capital market should be included in the mandate of the European Securities and Markets Authority (ESMA). 

Overall concept also focuses on the needs of companies

An overall strategy for vitalizing the capital market in Europe not only strengthens the investor base but also focuses on the needs of companies in the capital market," says Peucker, explaining Deutsches Aktieninstitut's overarching message for strengthening the capital market. 

The position paper provides impetus for the upcoming debates at European and national level. The European Commission has announced that it will publish its first political priorities for the Savings and Investment Union in mid-March 2025. Around the same time, the EU Parliament is expected to publish a draft initiative report.