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Europaudvalget 2012-13, Finansudvalget 2012-13
EUU Alm.del Bilag 468, KOM (2013) 0150 Bilag 1
Offentligt

European Commission

Internal Market and Services DG,

Rue de Spa 2 (3/020)

Unit 02

B-1049 Bruxelles

[email protected]

MINISTER FOR BUSINESS AND

GROWTH

MINISTRY OF BUSINESS AND

Danish response to the European Commission’s Consultation on the

Green paper on the long-term financing of the European economy

Denmark welcomes the Commission’s Green Paper on the long-term fi-

nancing of the European economy and the Commission’s aim to start a

broad debate on how to address the challenges associated with financing

long-term investment needs by governments and companies.

Denmark supports many of the ideas in the Green Paper, and we particu-

larly find it positive that the Commission focuses on alternative financing

sources, developing the venture capital market and creating securitization

instruments for small and medium-sized enterprises (SMEs).

If the Commission proceeds with its thoughts on harmonizing the frame-

work for covered bonds, it is essential to take into account the proven

stability of such systems which should not be undermined by a totally

harmonized solution with a less prudent starting point. The Danish model

for covered bonds (Danish mortgage covered bonds - “realkredit”) has

proven to be stable during the financial crisis providing sufficient funding

to the real economy in difficult times and is thus an important example of

long-term stable financing. Please, refer to our answer to question num-

ber 13 in this regard.

Although Denmark recognizes the role of life insurance companies and

pension funds in providing long-term financing, we find that any initia-

tive in this regard should take into account the insurance policy holder

protection. Please, refer to our answer to question number 7 for further

details in this regard.

Financial regulation in the aftermath of the financial crisis has been ex-

tensive and an impact analysis on the overall impact could be relevant,

including how the initiatives in the Green Paper could potentially balance

some of the negative consequences for long-term financing of the finan-

cial regulation. Denmark would suggest that the Commission in collabo-

ration with the three European Supervisory Authorities initiates an in-

depth impact assessment. In this respect, we find the work of EIOPA as

GROWTH

Slotsholmsgade 10-12

DK-1216 Copenhagen K

Tel.

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+45 33 92 33 50

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CVR no. 10 09 24 85

[email protected]

www.evm.dk

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initiated by the Commission on the rethinking of risk assessments on

long-term investments an important task.

In general, several governments have already taken initiatives to address

the challenges mentioned in the Green Paper. Denmark finds that EU ini-

tiatives should take into account existing national initiatives and make

sure that they can still have an impact.

Danish answers to selected questions in the Green Paper

7) How can prudential objectives and the desire to support long-term fi-

nancing best be balanced in the design and implementation of the respec-

tive prudential rules for insurers, reinsurers and pension funds, such as

IORPs?

As mentioned above, although Denmark recognizes the role of life insur-

ance companies and pension funds in providing long-term financing, we

find that any initiatives in this regard should take into account the im-

portance of insurance policy holder protection. This means that the com-

panies should hold an adequate level of capital to remain healthy and to

balance the high return and risk profile associated with long-term invest-

ments.

In Denmark, the Danish FSA has noticed that the pension funds increas-

ingly invest in long-term investments such as infrastructure. In order to

balance prudential objectives and the desire to support long-term financ-

ing, the Danish FSA has requested the companies to describe the treat-

ment of investments in “alternative assets”. Investments in alternative as-

sets typically give a higher return, because the company accepts to hold

the assets over the long-term and therefore is compensated for the lack of

liquidity as compared to short-term assets. The Danish FSA has commu-

nicated its expectation that the board of supervisors in each company

have to take responsibility regarding the valuation and risk assessment of

investments in alternative assets.

13) What are pros and cons of developing a more harmonized framework

for covered bonds? What elements could compose this framework?

Denmark does not see the need for a fully fledged harmonized framework

for covered bonds, since the diversity in markets and local systems have

to be reflected in the regulatory framework. The Danish model for cov-

ered bonds (Danish mortgage covered bonds - “realkredit”) has proven to

be stable during the financial crisis providing sufficient funding to the re-

al economy in difficult times and is thus an important example of long-

term stable financing.

If the Commission proceeds with its thoughts on harmonizing the frame-

work for covered bonds, it is essential to take into account the proven

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stability of such systems which should not be undermined by a total har-

monized solution with less prudent starting point. Furthermore, the re-

view clauses built into CRD4/CRR in relation to covered bonds and pri-

vate initiatives such as “Labeling of Covered Bonds” by the European

Covered Bond Council should be awaited before further regulation

should be pursued here.

20) To what extent do you consider that the use of fair value accounting

principles has led to short-termism in investor behavior? What alterna-

tives or other ways to compensate for such effects could be suggested?

The experience from Denmark is that the use of fair value accounting

principles has not led to short-termism in investor behavior. On the con-

trary, the experience is that the use of fair value accounting principles in

life insurance companies and pension funds with long-term obligations

means that the companies invest in assets with a similar long-term hori-

zon in order to match the volatility on the assets and liabilities. Based on

this experience, we find that fair value accounting could encourage long-

term investments in the life insurance companies and pension funds and

therefore could be an important remedy in this respect. It should be noted

that the same experience is observed in Denmark in terms of non-

financial companies.

21) What kind of incentives could help promote better long-term share-

holder engagement?

Denmark welcomes the intention to enhance the transparency surround-

ing corporate governance and shareholder engagement. In order to pro-

mote better long-term shareholder engagement, it could be considered

whether the establishment of an independent forum could have the in-

tended impact. The independent forum should formulate guidelines for

shareholders, including for their shareholder engagement, because corpo-

rate governance is aimed at the company as an organization rather than

the investors.

25) Is there a need to develop specific long-term benchmarks?

Denmark shares the view that benchmarks and in particular the develop-

ment of long-term benchmarks could serve as a means to assist long-term

investors.

26) What further steps could be envisaged, in terms of EU regulation or

other reforms, to facilitate SME access to alternative sources of finance?

In Denmark, new legislation is being prepared with the aim to improve

the banks’ opportunities to securitize corporate loans. The aim of this

scheme is to make it easier for banks to provide funding for Danish firms

and in particular Danish SMEs. At the same time, new legislation is being

prepared aiming at creating a firm legal basis for the use of representa-

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tives (trustees) on Danish bond issues meant to make the corporate bonds

market more accessible, also for others than the largest companies.

The new pieces of legislation involve very specific changes and modifi-

cations to the existing Danish legal framework, and it should be noted

that there can be difficulties in developing EU-regulation in this field on a

one-size-fits-all basis. EU regulation, if adopted, should strive to take into

account the legal framework of the individual Member States. Total har-

monization is not advised as it could potentially hinder the development

due to uncertainty and too much administrative hassle.

27) How could securitisation instruments for SMEs be designed? What

are the best ways to use securitisation in order to mobilize financial in-

termediaries' capital for additional lending/investments to SMEs?

It is important to keep in mind that banks know the SMEs best. As such,

banks deal with SMEs on an everyday basis and have the best conditions

for making a valid credit analysis. Therefore, SME financing schemes

should take into account the knowledge of the SMEs nested in the banks.

In Denmark, a new model for securitisation of corporate loans will pro-

vide Danish banks with an opportunity to gain liquidity and in some cases

also capital relief when securitizing corporate loans. The Danish model is

inspired by the German refinancing register, but adapted to fit Danish cir-

cumstances and legal framework. The model will enable large investors

such as pension funds to buy corporate credit risk via the banks, also

from smaller firms, and thus stimulate new funding to SMEs.

28) Would there be merit in creating a fully separate and distinct ap-

proach for SME markets? How and by whom could a market be devel-

oped for SMEs, including for securitised products specifically designed

for SMEs’ financing needs?

The Danish starting point is that products can be traded on traditional

market places. In Denmark, the Copenhagen Stock Exchange - Nasdaq

OMX - in December 2012 opened up a new alternative market place for

issuing corporate bonds called the First North bond market. This more

lightly regulated market place could help facilitate more bond issues go-

ing forward from a wider range of companies than we have seen so far. It

is expected that the new legislation regarding the use of representatives

(trustees) for bond issues mentioned above will help facilitate the devel-

opment of this alternative market place.

29) Would an EU regulatory framework help or hinder the development

of this alternative non-bank sources of finance for SMEs? What reforms

could help support their continued growth?

From a Danish standpoint, we welcome new initiatives from the Com-

mission, such as the work towards creating a European framework for is-

suing corporate bonds for SME’s.

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However, it should be noted that there can be difficulties in developing

EU regulation in this field on a one-size-fits-all basis. EU regulation, if

adopted, should strive to take into account the legal framework of the in-

dividual member states.

Yours sincerely,

Annette Vilhelmsen