The EU commissioner for financial services, Lord Hill has outlined a range of proposals in an aim to cut back European regulations and help boost investment. He acknowledged that red tape is hindering small businesses from accessing finance necessary for growth.
He has announced a major review of 40 pieces of legislation that have been introduced since the financial crisis, as well as detailing plans for a Credit Market Union to relax the rules currently in place.
The Capital Markets Union Action Plan will aim to reduce firms’ reliance on banks and to match borrowers and savers more efficiently across the EU. Under the new scheme, it would become easier for VC funds to put money into new firms.
The €100,000 minimum limit on investors’ contribution to venture capital funds could also be reduced, which could then prove an opportunity for smaller investors. The current passport scheme allows a business approved in one country to invest in the EU – but only if the fund is smaller than €500m – may also be changed, with the limit possibly removed or increased.
According to the Commission, companies in the EU get around 80 per cent of their funding from banks – a stark contrast to the US, where the figure stands at around 20 per cent. Moving away from non-bank lending would be a particular help for small firms, which have typically struggled to get investment from banks since the financial crisis.
While Lord Hill said that the proposals didn’t mean the “big reforms” and architecture they had put in place after the crisis was wrong, he pointed out when 40 pieces of legislation are introduced in the space of five years “common sense tells you that you are unlikely to have been able to work out all the consequences and interconnections”.
He also flagged up the issue of prospectuses for small firms in particular, calling them “real doorstops, running to hundreds of pages and costing more than €100,000”. He intends to draft up new guidelines to help bring them up to date and “be affordable for SMEs to produce”.
The Centre of Economic and Business Research said British small and medium-sized businesses were being forced to spend 18 hours a week on EU red tape, working out at a cost of around £5bn for small firms alone.
Recent research from the FSB suggested small businesses were split on whether to stay in the EU, with 47 per cent saying they’d stay in, with 41 per cent saying they’d vote to leave. A poll from Business for Britain found that 41 per cent of SMEs believed the EU was harming their businesses as opposed to 20 per cent that said it was helping them.
The Commission is now asking finance firms and customers to draw attention to regulations that are overly expensive and messy, in a concession that much current legislation may need streamlining to free up opportunities for businesses.
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