Introduction of a new financing instrument for SMEs – ‘European secured notes (ESNs)’

Introduction of a new financing instrument for SMEs – ‘European secured notes (ESNs)’

On 22 October 2020, Romanian Member of the European Parliament (MEP) Maria Grapini of the Group of the Progressive Alliance of Socialists and Democrats in the European Parliament, posed a written parliamentary question to the European Commission:

“As you will know, the European Parliament adopted on 8 October a resolution on ‘Further development of the Capital Markets Union (CMU): improving access to capital market finance, in particular by SMEs’.

Under the heading ‘Financing of enterprises’, Parliament proposed that an ‘SME test’ be introduced for impact assessments on each Capital Markets Union (CMU) initiative.

Parliament also called for the introduction of a new financing instrument, ‘European secured notes’ (ESNs), which could help improve SMEs’ access to financing across the European Union, considering that these could support SMEs in the transition to a more competitive and sustainable economy and channel funding to the real economy.

Does the Commission plan to bring forward legislative proposals in response to these requests from the European Parliament, given the current circumstances where SMEs are hard hit by COVID-19 and, if so, within what timeframe?”

On 1 February 2021, Financial services, financial stability and Capital Markets Union Commissioner Mairead McGuinness responded on behalf of the European Commission stating: “The Commission considers the EU’s recovery from the unprecedented economic crisis due to the COVID-19 outbreak a top priority. The Capital Markets Union (CMU) is essential for mobilising private investments into companies, complementing public support. Companies of all sizes — and in particular small and medium-sized enterprises (SMEs) — need solid market-based funding sources. This was already the case before COVID-19, but will be more important in the recovery.

The Commission is currently assessing the possibility of introducing a ‘European Secured Notes’ (ESNs), which could provide a useful additional source of funding for SMEs.

Under the Covered Bond Directive, the Commission has already been mandated to adopt and submit to the European Parliament (EP) and the Council a report ‘on the possibility of introducing a dual-recourse instrument named European Secured Notes, […] together with a legislative proposal, if appropriate’ by 8 July 2024.

In its assessment, the Commission will consider the objective of supporting SMEs in the transition to a more competitive and sustainable economy and channelling funding to the real economy.

The Commission notes the EP’s concern regarding the need for proportionality in financial regulation and in particular its proposal to introduce an ‘SME test’ in impact assessments on each CMU initiative. The Better Regulation toolbox already contains an ‘SME Test’.

It indicates that ‘potential impacts on SMEs should be considered and reported systematically in all impact assessment reports’ and provides guidance on how to carry out such an assessment. When preparing its legislative initiatives, the Commission pays particular attention to proportionality and the impact of new rules on SMEs, and consistently seeks to minimise any burden for them.”


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