Brexit and the future of the Capital Markets Union

Brexit and the future of the Capital Markets Union

Banking & Finance analysis: Peter Workman, partner at PwC, discusses the impact of Brexit on the UK’s participation in the Capital Markets Union (CMU) project.

What is the CMU?

CMU is an initiative launched by the European Commission back in 2014.

  1. reduce the existing barriers to cross-border investment in the EU
  2. increase the funding options available to companies (in part by reducing the existing over-reliance on bank lending), and
  3. reset the post-financial crisis regulatory framework which governs European capital markets

Deeper and more integrated capital markets should lower the cost of funding and make the financial system more resilient in the event of another financial crisis.

There is no single measure that will deliver CMU. Instead, there will be a series of steps that, cumulatively, will achieve CMU. The Commission intends to implement measures to systematically identify and then remove the existing barriers that stand between investor’s capital and investment opportunities, and the obstacles that prevent businesses from reaching investors. CMU intends to make the market for movement of those funds as efficient as possible, at both the Member State and EU level. The Commission intends to use a mixture of legislation, regulation, supervision, enforcement, and market-led response to remove the existing barriers.

Following the UK’s historic decision to leave the EU, question marks are now raised as to:

  1. whether the CMU is likely to remain a political priority for both the UK and EU
  2. the likely impact on the CMU project of the UK’s vote to leave the EU, and
  3. assuming the CMU project does proceed, whether the UK will still be able to participate

How will the UK’s vote in favour of Brexit impact the CMU?

As the bloc’s largest financial centre the UK (specifically the City of London) was expected to play a central role in the EU’s CMU project, as well as being one of its biggest beneficiaries. The UK’s vote in favour of Brexit has a range of potential impacts on CMU.

Market uncertainty and volatility

In the immediate aftermath of Brexit,

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