POLICY COMMITTEE

Draft Minutes

Wednesday, 15 July 2015 – 11.00 – 13.00 CEST

Brussels, Belgium

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PARTICIPANT LIST

Policy Committee Members

1 / Carmine / Di Noia / PC Chairman / Assonime
2 / Jérémie / Pélerin / PC Member / AFEP
3 / Pierre / Marsal / PC Member / ANSA
4 / Jan / Bremer / PC Member / DAI
5 / Juan Manuel / Vazquez / PC Alternate / Emisores Españoles / conf call
6 / Nicoletta / Pollio / PC Alternate / Enel / conf call
7 / Riccardo / Turrini / PC Alternate / ENI / conf call
8 / Maria / Gomes / PC Alternate / QCA
9 / Jacques / Beglinger / PC Member / SwissHoldings
10 / Myrtle / Grondhuis / PC Member / VEUO

WG Chair(wo)men

11 / Francis / Desmarchelier / WG chair / AFEP
12 / Valentina / Allotti / WG chair / Assonime / conf call
13 / Markus / Kaum / WG Chair / Munich RE / conf call

Other participants

14 / Julia / Raptis / Participant / Policy Officer, EC
15 / Susannah / Haan / Participant / EuropeanIssuers
16 / Aleksandra / Palinska / Participant / EuropeanIssuers

ITEMS FOR APPROVAL

  1. Welcome and Approval of Minutes

-Draft Minutes of 11 March 2015

-Final Minutes of 28 January 2015

The minutes were approved.

ITEMS FOR DISCUSSION

  1. Prospectus Directive: discussion withJulia Raptis, Securities markets Unit at the European Commission

Before the arrival of Ms Raptis, Mr Di Noia explained that there are many ongoing changes with the Securities Markets unit that is working on the Prospectus Directive revision. The head of Unit, Maria Teresa Fabregas Fernandez is moving to chair the Financial Markets Infrastructure Unit and will be replaced by Tilman Lueder, currently heading the asset management unit. He also mentioned that the deputy head of Securities Markets unit had moved to the CMU unit, meaning that it is the policy people only who will remain.

Mr Di Noia welcomed Ms Raptis and set the scene for further discussion. He mentioned the first directive that was accompanied by a regulation (2003) and that the empirical evidence was not really in line with objectives of the legislation. He mentioned that the review did not bring the expected alleviation of burdens and that we ended up with very voluminous prospectuses, which are not useful for investor protection while very costly especially for smaller issuers (up to 28% in some cases). So the directive is only really used ex post by investors. He said we would like to have a European regime to help offerings, so look forward to hearing from the Commission.

Ms Haan mentioned:

  • need for a funding escalator: crowdfunding, national MTFs, SME Growth Markets, main markets as different companies having different needs;
  • need to empower companies by allowing them to choose whether to be subject to local or international (EU) rules;
  • Need to look at ecosystem, not just disclosure rules aiming investor protection– what are systems in place to prevent the wrong companies from coming to market? E.g. training, approval, indices, need training for local regulators, etc.
  • Need to focus not only on investor confidence, but also corporate confidence

Ms Raptis thanked EuropeanIssuers for the invitation to the meeting. She mentioned that all the contributionsto the consultation were now online. She said that the Commission was planning to submit aproposal at the end of November. It is part of a bigger project and policy ecosystem – CMU. Currently the Commission is assessing the responses, testing ideas with stakeholders and the Member States. They are committed to introduce more flexibility in the regime and they want to ensure that companies that have different needs are catered for in the regime. They would like to make it easier for SMEs to access capital markets. Nevertheless, for the moment there is no official position of the Commission that she could present. Ms Raptis stressed she was very happy to listen to our points.

Mr Di Noia, before passing on to Ms Gomes, stressed that the main message is “if something is not broken don’t fix it” (having in mind primary market MTFs), as that could bring unintended consequences.

Ms Gomes stressed that Prospectus producing requirements should not be extended to MTFs and that they should remain subject to the rules of the market which would preserve flexibility of the system. She mentioned that there is an opportunity to create a bespoke and specific PD regime for public offers for SME growth markets where exemption thresholds don’t apply. That would replace the current proportionate regime that exists so far for companies with reduced market capitalisation. She stressed that companies should be allowed to follow local rules and opt in to a more stringent requirements if they wish to reach out to the European investor base. Regarding the bespoke regime for SME growth markets where exemption thresholds don’t apply, she explained that pre-approval by a Competent Authority should not apply and that the contents would be principle based: a list of minimum disclosures and overriding principles. Incorporation by reference should also be allowed for SME growth markets (any information publicly available should be allowed to be incorporated by reference).

Mr Bremer spoke up on the need to raise the exception thresholds: the fundraising (as the 5 million threshold is too low) and the threshold of number of investors that they offer can go to (from the current 150). He stressed that was important in view of the CMU objective to create additional funding sources, growth and jobs. He asked whether the EC could consider raising this threshold or at least leave it up to MS discretion to adjust them.

Ms Raptis said that they are considering the thresholds, but that we need to look at what the objective of this revision and CMU is, which is increasing cross-border investment, a genuine single market project for the EU as a whole (28 MS) and this will be reflected in this proposal.

Mr Desmarchelier stressed the importance of distinguishingbetween a public offer that is an IPO from a secondary offer within PD in order to reduce the complexity of raising capital within the EU. In the case of secondary offers,there is already a great deal of information available. Cluttered Prospectuses are often difficult to read, while the repetition of information already available in the public sphere distracts from the new offer-specific information. Therefore, the requirement to produce aprospectus should be lifted for any subsequent offer. Instead a securities type document should be envisaged, focused on the salient terms of the offer. A dedicated expert group or a specific pilot project should discuss what this document should look like. Also there should be no time limit onthe validity of the prospectus.

Mr Desmarchelier also mentioned that there should be more reliance on incorporation by reference of the ongoing disclosure requirements, such as Annual Reports, or Financial Statements. This way investors would more easily find documents, while the volume of the Prospectus would be reduced. Securities type document would state where the information can be found.

Given that pre-vetting by the Competent Authorities is time consuming (pre-approval can add up to 4-6 weeks while IPO windows are small), no pre-approval by a NCA in case of secondary offers should be required.

Mr Beglinger mentioned that, in Switzerland, the Prospectus Directive had not been implemented so far into Swiss law (currently they are autonomously implementing MiFID). Instead, public offerings are subject to the stock exchange rules. Thanks to that, the market is very flexible and within 3-4 days you can have something on the market, which is very important when the IPO windows are short. This is a major competitive advantage for Switzerland as it helps to attract many listings. Probably it would be useful to take this into consideration at the EU level.

Mr Di Noia also mentioned that,even within the existing regime, we need faster approval of prospectuses. The delay and bureaucracy results in companies going rather for bond financing.

Ms Raptis said that the Commission knows that they need to strike a balance between the interests of investors and companies. Nevertheless, she believes that prospectuses do play an important ex ante role as a basis of liability for companies and advertisement. She acknowledged that time is indeed of essence. So for secondary offerings if the issuer is known, and securities are of the same ISIN, a prospectus may indeed not be needed. But there are also IPOs of unknown companies and in this cases there is a need for more comprehensive disclosure – this is the balance that they are trying to strike in the proposal. They want to see where the scope needs to be adjusted.

  • See also a note from a meeting with Maria Fabregas Fernandez, head of unit

Action points:

- look through the other responses to the PD consultation, identify the main actors and form coalitions, also if possible with investor representatives;

- SwissHoldings to provide details of Swiss system & EI secretariat to send as example to the EC;

- EI secretariat to set up a Working Group call end of July/beginning of September) to further discuss what we would like to see in the securities type document and the prospectus summary in order to be able to provide the Commission with further technical details.

Ms Palinska also provided feedback on a meeting with the Wealth Management Association (UK) that is proposing to remove the threshold of 100 000 euro, which exempts companies at this threshold from the requirement to provide a prospectus when issuing bonds. They explain that this threshold has pushed retail investors to investment in bond funds, rather than directly into bonds, as the high amount means that they are not able to buy bonds directly of larger companies anymore while ensuring diversification of their portfolio. They see the potential for systemic risk in forcing retail investors into bond funds, as in the case of a bull market when everyone wants to exit, there are some examples of the fund managers having to freeze the fund (i.e. they don’t allow anybody to sell for a certain period). They believe that having one prospectus for all bond issuers would benefit the market, investors and companies, as the larger ones could get more retail investor participation.

Mr Di Noia mentioned that bonds on the Italian MTF are only for qualified investors.

  1. Shareholder Rights Directive –state of play and next steps

On 8 July the Parliament voted on the Shareholder Rights Directive revision. See the provisional version of the text adopted (published on the Parliament website).The main points for quotedcompanies comparing to Cofferati report approved on 7 May in JURI are:

  • Shareholder identification as a RIGHT FOR COMPANIES (positive);
  • Incentives for long-term shareholding are OUT;
  • Remuneration ratio’s in policy and report are OUT (positive);
  • Member States may decide to make the vote on remuneration policy ADVISORY (positive);
  • Maximum remuneration amounts in remuneration policy OUT (positive);
  • Mandatory employee consultation on remuneration is OUT (positive);
  • Mandatory CSR requirements in the remuneration policy are OPTIONAL (positive);
  • Vote on remuneration report is ADVISORY (positive);
  • The title and the scope of the directive is CHANGED (refocused on listed companies on regulated markets);
  • Public disclosure of country-by-country reporting on profits, taxes and subsidies was voted + tax rulings (negative, although we are counting on Council to have it OUT in trilogues) through amendments to the Transparency Directive 2004/109/EC & the Accounting Directive 2013/34/EU (difference in the scopes)

Provisions regarding Related Party Transactions are the same as in the Cofferati report, which offer much more flexibility than the original Commission proposal or draft Cofferati report. Key points are:

  • Thresholds deleted: up to the Member States to define ‘material transactions’;
  • Member States may decide whether to require a vote by shareholders on material transactions approved by the board;
  • Member States may exempt Transactions in the ordinary course of business on normal market terms
  • Member States may exempt intra-group transactions and company transactions with its joint ventures under conditions
  • Member States free to define the conditions for the report on the fairness of the transaction, including the actor responsible for the report (an independent third party, the supervisory body of the company; or a committee of independent directors)

Regarding country-by-country reporting, we would also like to draw your attention to the Commission consultation on possible public disclosure requirements for multinational companies, which is part of the ongoing Commission impact assessment on whether companies should be required to publicly disclose certain corporate tax information. Read more

Mr Di Noia complemented on the efforts and good co-operation between EuropeanIssuers and member associations. He summarised that apart from CBCR, the overall result is very good, even though the Parliament is not our favourite counter-part.

Ms Haan also thanked the members who had engaged with EuropeanIssuers and policy makers, and said that the co-ordination was good in terms of reinforcing messages and actions.

Mr Pélerin said that indeed so far it worked well although we should continue our efforts as the trilogues will start (even if not immediately). He suggested issuing a short paper with different topics in SRD showing our preference for wording, schedule meetings with key Member States and the Parliament (rapporteurs and shadows). He mentioned that now that MEP Toti had left, MEP Zwiefka will ensure follow-up. Even if the Luxemburgish Presidency is not keen on starting trilogues fast, he suggested we have something ready for early September.

Mr Di Noia agreed that we should update our position paper, specifying our preferences between the Council and Parliament texts.

Regarding CBCR within the context of SRD, he mentioned that it is an important and technical issue which should be discussed during the consultation.

Mr Marsal proposed that we should target the Luxemburgish Presidency during the trilogues. He wondered to what extent the Commission will be constructive on that topic. The Parliament has akeen interest in CBCR, but the question is how it will be incorporated into the end document. The Parliament cannot neglect the Commission’s sole right of initiative. The trilogue process is a black box unless we are in contact with each body.

Mr Kaum joined in complimenting EI and people within national associations on what had been achieved so far. One thing he would like to see possibly incorporated during trilogues though is the definition of the end investor.

Mr Di Noia said it would be great to reinstate this, although may be very difficult at this stage.

Mr Pélerin said that the Commissioner Jourova (DG JUST) does not want CBCR in the SRD, but regarding the position of the Council there is not much information, although he knows that France recently revised its position on CBCR. In the past France was pushing for public CBCR, now they favour transparency towards the tax authorities. He said that it would be good to exchange information on what the various countries’ positions are. In the Parliament, there is a clear majority in favour of CBCR: S&D, ALDE, part of EPP (even though there was an abstention instruction from the top, some EPP members voted in favour). Overall 400 MEPs voted in favour.

Action points:

- Update a position on SRD in preparation for trilogues to have something ready early September

- Set up meetings with the Luxemburgish presidency, the Member States reps, the Commission officials, and MEPs (rapporteur and co-rapporteurs)

  1. EC consultation on CBCR

Ms Palinska mentioned that the Commission published a public consultation on possible public disclosure requirements for multinational companies, which is part of the ongoing Commission impact assessment on whether companies should be required to publicly disclose certain corporate tax information. The deadline to respond to the consultation is 9 September 2015.

She set the scene by saying that such transparency requirements already exist for banks under the Capital Requirement Directive IV and for large extractive and logging industries under the Accounting Directive, in the form of country-by-country reporting.

Adding requirements to disclose country-by-country reporting on profits, taxes and subsidies for large companies came up during the negotiations on the directive on non-financial reporting (revision of the accounting directives). At the end, a review clause was added requesting the Commission to perform an impact assessment and consider adding this requirement (the Commission has to provide the report by 6 December 2018).

Now during the revision of the Shareholder Rights Directive, socialist MEPs inserted amendments on country-by-country reporting on profits, taxes and subsidies. The outcome is still unknown (MEPs passed them in the plenary but we hope to get them out in the trilogues).

She also mentioned that the intention behind this consultation and the impact assessment is to assess whether and how much further corporate tax transparency, exposing enterprises to more intense scrutiny on the part of authorities or by differentstakeholders, would contribute to this objective. Such scrutiny would rely on information being madeavailable either to tax authorities or to the public. More specifically, it could ensure compliance withtax laws, dis-incentivise tax avoidance and increase pressure on States to take appropriatemeasures.