European financial services update: what we know so far

The Commission has launched two public consultations on possible reforms to the Markets in Financial Instruments Directive and Regulation (MiFID and MiFIR), setting out rules covering European securities markets, and the review of the Non-Financial Reporting Directive (NFRD).

Markets in Financial Instruments Directive and Regulation (MiFID and MiFIR)

What does this consultation mean for business?

The consultation is specifically looking to explore potential changes to investor protection rules to strike the right balance between promoting investor participation in capital markets, the competitiveness of the EU’s financial sector, and safeguarding the interests of investors.

There will also be a question to business around addressing the possible introduction of a new transparency tool that allows investment managers, investment advisors, and their clients to have access to live asset prices across the EU in a consolidated format (the consolidated tape). The introduction of the consolidated tape might require changes to MiFID and MiFIR.

The CBI will be feeding into BusinessEurope’s response to this review, working closely with our European sister federations to ensure CBI members are well represented in the EU.

EU Non-Financial Reporting Directive (NFRD) Consultation

What does this consultation mean for business?

Currently, EU law requires large companies with more than 500 employees to disclose information on the way they operate and manage social and environmental challenges.

Since the introduction of the Directive, companies have been required to include non-financial statements in their annual reports from 2018 onwards, including their policies on:

• Environmental protection
• Social responsibility and treatment of employees
• Respect for human rights
• Anti-corruption and bribery
• Diversity on company boards.

As set out in the European Green Deal communication, the Commission has committed to reviewing the NFRD this year as part of its strategy to strengthen sustainable investment in Europe. This will be an essential part of the Commission’s efforts to scale up sustainable finance by improving corporate transparency and providing stakeholders with more comparable and relevant information on sustainable business activities.

The CBI will be feeding into BusinessEurope’s consultation on the NFRD and ask for members to get in touch with initial comments.

Outlining sustainable finance

The Technical Expert Group (TEG) on Sustainable Finance has published its final recommendations (plus an annex) for the European Commission to take on board during its work to finalise a European definition for green investments.  

There is a lot to digest within the final report, however what’s key for business will be the support for a ‘two-tier’ approach to decide what investments are considered green or not. The first tier would focus solely on ‘pure green’ investments and the second would cover activities that present ‘neither substantial contribution nor significant harm’ - in essence, this would see a creation of a ‘brown-list’.

Having said this, the TEG also suggests that whilst solid fossil fuels should be excluded from the Taxonomy, a definition of enabling and transitioning activities should also be created. Therefore, if activities substantially contribute to the stabilisation of greenhouse gas concentrations or if an economic activity directly supports other activities to make a substantial contribution.

Whilst the TEG and Commission believe that this will incentivise more investments in purely green projects, the CBI will be calling for actors to consider the role of business in responsible investments that create long-term sustainable transitions.

What happens now?

The CBI will be working very closely with BusinessEurope to assess developments and understand the true picture of what this all means for business.

For more information on these issues, or to understand more about how the CBI works for members at EU level, please contact Megan Griffith-Otway.