Inspiring companies need financing
Markus Ferber MEP
“The regulatory environment needs to change to secure good financing conditions for the European economy”
Commentary by Markus Ferber MEP, Vice-chair, Economic & Monetary Affairs Committee, European Parliament, EPP
Small and medium-sized enterprises (SMEs) are truly the backbone of the European economy. In the years of the financial crisis, they were the companies that grew most dynamically and that created jobs, thereby supporting the economy when most needed. The LSEG’s 1000 Companies to Inspire Europe report gives an impressive overview of some of the most innovative and fast-growing companies in the EU. And it also proves how diverse and cutting-edge the European economy can be at its best.
However, in order to thrive, small companies need access to finance. The crisis has also shown that SMEs are among the most vulnerable parts of the European economy as they are the first to suffer when banks get into trouble and traditional ways of financing are no longer available. While increased exposure through initiatives such as the 1000 Companies to Inspire Europe report can go a long way in helping some successful companies to obtain financing, the regulatory environment also needs to change in order to fully secure good financing conditions for the whole of the European economy.
Improving access to finance for SMEs therefore constitutes one of the key regulatory challenges in the months and years to come. The approach to do this should be threefold. First of all, the many pieces of financial markets legislation that have been passed over the past years need to be looked at in their entirety in order to identify what is holding financing back. This stocktake then arguably needs to result in appropriate legislative action.
Second, traditional ways of financing, such as via banks, must be strengthened. This means on the one hand sensible capital requirements and on the other hand not overburdening banks with prudential requirements that just divert resources from the core business to compliance.
Third, apart from strengthening traditional financing channels, new ones should be tapped into and the Capital Markets Union project can constitute the legislative framework to do so. The key aim needs to be to lower the cost and administrative burdens for smaller companies to access capital markets. MiFID II has already paved the way by setting up a new type of trading venue dedicated to smaller entities. The next step should be to streamline the approval procedures for smaller entities and frequent issuers in the context of the revision of the prospectus directive.
The LSEG’s 1000 Companies to Inspire Europe proves how inspiring, innovative and dynamic European companies can be. In order to empower those inspiring companies and further encourage entrepreneurship, the regulatory framework will need to be set up in the right way: access to finance will have to be the guiding principle.