State of Play In 2015, the European Commission presented an Action Plan to create a European Capital Markets Union (CMU). Nearly a decade later, EU policymakers are once again concerning themselves with strategies to bolster the EU’s capital markets. The primary objective of the CMU was to develop and further integrate capital markets in the EU, mirroring the robust market seen in the United States. Yet secondary objectives, like diversifying financing for EU businesses, supporting green and digital transitions, improving long-term investment options, and enhancing resilience and risk-sharing, were also included within the CMU. Since 2015, the European Commission has proposed more than 40 legislative and non-legislative actions across three main action plans to realize the CMU’s objectives. The first 2015 Action Plan was built upon the work laid by the Financial Services Action Plan (FSAP). It targeted several key areas such as the cross-border investment fund distribution by the European Long-Term Investment Fund (ELTIF), the introduction of new prudential regulations including the revision of Solvency II and the launch of the Pan-European Personal Pension Products (PEPP). Although the ELTIF initially progressed slowly, it gained traction over the years. The PEPP, however, has not met its intended success. The second 2017 Action Plan updated and complemented the CMU action plan by strengthening existing actions and introducing new measures in response to evolving priorities and challenges. The European Commission proposed to strengthen the powers of the European Supervisory Authorities (ESAs), develop the role of fintech in the capital markets and promote sustainable finance.  The third 2020 Action Plan introduced various new proposals, including the Retail Investment Strategy (RIS), the European Single Access Point (ESAP), the Financial Data Access (FiDA) Regulation and the Listing Act. It also proposed reviews of existing capital markets legislation such as the ELTIF Regulation and Solvency II. The main goal of this Action Plan was to enhance retail participation by facilitating access to EU capital markets. The initial CMU Action Plans from 2015 and 2017 are currently in the implementation phase. Indeed, the majority of legislative proposals from the 2020 Action Plan have been adopted, except for the RIS and the FiDA. On March 20th, 2024, the European Parliament’s Economic and Monetary Affairs (ECON) Committee voted in favour of the Rapporteur’s Report on the RIS. All the eyes are now on the Member States as they deliberate their position within the Council of the EU. Progress on the FiDA proposal is less advanced, and it remains uncertain if the ECON Committee will reach a position before the end of the current legislature. Trilogues for both the RIS and FiDA are expected to start with the new European Parliament and European Commission. EU Struggles with Competitiveness The CMU Action Plans have had a limited impact on the size and activity of EU capital markets, falling short of the goal to match US levels. Instead, the gap has widened, with Asian markets gaining ground. Some more recent figures confirm that EU capital markets represent only 10% of global activity, down from 18% in 2006. Although Europe has changed, the world has changed more. For instance, events like Brexit had only a minor effect on the Irish insurance market, resulting in minimal new entrants. Moreover, the persisting fragmentation of EU capital markets poses a barrier to effectively funding the real economy. Cross-border activity within the EU remains limited and below its potential. Insurers find inconsistent applications of regulations and supervision, particularly in prudential and retail areas. Additionally, according to the IMF, EU households are less active in capital markets than their US counterparts, with only 12% involvement compared to 30%. These patterns highlight the EU’s ongoing struggle to boost the competitiveness of its capital markets and assert itself as a major player in global capital markets. Creating Momentum vs CMU Fatigue Many stakeholders across Europe perceive the current Capital Markets Union (CMU) as lacking a clear focus and direction. Alongside established objectives like enhancing EU capital markets and financing the twin transitions, a new narrative has emerged in the current political cycle: achieving open strategic autonomy. This multitude of objectives, coupled with the challenges in implementing certain actions, may lead to ‘CMU fatigue’ for some, yet it might also keep the ball rolling for those who want to acheive these objectives. Furthermore, the additional pressure on governments and public budgets has led some Member States to focus on EU internal competition rather than collective objectives. For instance, France is implementing measures to attract private equity firms and bankers to Paris, likely from Dublin, Frankfurt or Madrid rather than from New York or Singapore. At the same time, there is a sufficiently vocal and powerful alliance of policymakers across Europe who continue to beat the drum for the CMU. The new European political cycle, following the European Parliament’s election in June 2024, is an opportunity to complete the CMU. On March 11th 2024, the Eurogroup, led by Paschal Donohoe, adopted a statement outlining the future of the CMU. This statement by the 27 EU Finance Ministers concludes nearly a year of ongoing consultations with market participants like Insurance Ireland. The statement advocates for bolstering the EU’s global competitiveness by encouraging cross-border private risk-sharing and facilitating efficient capital flows. The statement urges EU institutions and Member States to harmonize supervision across the EU aiming to cut compliance costs for cross-border undertakings. Former Italian President Enrico Letta’s upcoming high-level report for the April 2024 European Council meeting will likely discuss how to strengthen the CMU. Similarly, Mario Draghi’s report commissioned by the European Commission to boost EU competitiveness may also deal with CMU-related aspects. The CMU from an Irish Insurance Industry Perspective The financial services and insurance market in Ireland stands out as the most impressive success stories of European integration. Ireland is the gateway for EU financial and insurance undertakings to access global markets. Ireland holds the fourth-largest insurance market and is the third-largest provider of reinsurance in the EU. The Irish insurance industry contributes to the completion of EU capital markets by offering investment opportunities and risk management solutions. Its long-term nature and its ability to assess, transform and manage risks make it a crucial partner for EU policymakers. In this context, Insurance Ireland notes the following three key priorities for completing the CMU: Enhancing EU-level supervisory coordination for cross-border. The recent revision to the ESAs Regulations regarding reporting requirements in the fields of financial services marks a positive step. These changes aim to enhance supervisory activities by facilitating better information exchange. Additional suggestions seek to enhance governance and decision-making processes, to reach further “supervisory convergence” as advocated by Kristalina Georgieva, IMF General Manager in June 2023. Some very influential policymakers in Brussels are suggesting a Kantian shift towards a more top-down CMU approach, including transferring all cross-border competencies to the ESAs to accelerate the achievement of a single rulebook. Fostering EU competitiveness. The missed opportunity to streamline regulations during the recent Solvency II review has worsened the situation. Compared to international standards, the high capital requirements and ever-increasing regulatory burden hinder EU insurers’ capacity to invest, take risks, and compete globally. Moving forward, the European Commission and European Parliament must prioritise competitiveness while ensuring robust but efficient regulation, creating a level playing field and unlocking the full potential of EU and Irish insurers. Addressing consumer trust. The transparency efforts of the RIS are valued, but overloading consumers with information can backfire, discouraging participation and potentially pushing them towards riskier alternatives. Instead, the focus should be on information quality and allowing consumers to make informed decisions based on their risk tolerance. Insurance Ireland urges the new European Parliament and European Commission to prioritise these concerns during the implementation of the RIS and future regulations.   Next steps at the EU level: o   17th to 18th April 2024 Letta Report to European Council o   22nd to 25th April 2024 Last European Parliament’s Plenary Session o   6th to 9th June 2024 European Parliament’s elections o   17th June 2024 Informal European Council o   Late June 2024 Draghi Report to Commission President o   27th to 28th 2024 Official European Council o   16th to 19th July 2024 First European Parliament’s Plenary Session o   August 2024 European Parliament’s Summer Break o   September to October 2024 Appointment of new European Commission