Market Building in a CMU: removing i nformation barriers to investment in SMEs

1. Market Building in a CMU: removing information barriers to investment in SMEs Dr Pierre Schammo Durham University, School of Law Senior Visiting Fellow, European Institute, London School of Economics @ CEPS, 8 February 2017

2. Talking points • Reflections on building an SME funding market • Focus on informational issues affecting funding S side (i.e., finance providers) and funding D side (i.e., SMEs) • Consider CMU White Paper contribution • Make a set of recommendations for a CMU strategy on information barriers

3. SME funding: introduction • Access to capital for SMEs is a key objective of the CMU • Long standing policy theme (eg. 1998 Risk Capital Action plan) • CMU ‘market-building’ strategy aims at facilitating access to, but also diversifying sources of, funding for SMEs • Building a (pan-EU) SME funding market presupposes strategy for addressing information problems • Problem definition: • Information problems on funding S side and funding D side • Information issues affect access to SME funding market, affect competition, inefficiencies in allocation of credit/funding • Information barriers work to the benefit of incumbent banks

4. Designing a strategy for addressing information barriers • Outside K markets context, less agreement among M-Ss on the paradigms, rules and institutions that are needed to address information barriers in SME funding market • Public sector vs market driven approaches to info sharing • UK at forefront of market driven approach • UK approach targets info barriers on funding D and S side • SBEE Act 2015, CMA ‘open API approach’ • Voluntary vs mandatory information sharing • Information duties can be placed on several different actors • Self-reg approach delivered mixed results in UK • Education: ‘business support’, but also (!) ‘business awareness’

5. Information barriers to SME investment: White Paper approach • Three actions points • Strengthen feedback given by banks declining SME credit • Map existing local or national support and advisory capacities across the EU to promote best practice • Investigate how to develop/support pan-EU info systems • Credit information sharing via SME opt-in system? • Overall, lot of emphasis on self-reg (best practice) and conciliatory approach towards contribution of banking sector: • See eg Commission approach to CRR Art 431(4) which was not widely applied in the past • No mandatory information sharing

6. Information issues in SME funding market: suggestions • A paradigm shift based on three pillars: • ‘Overcom[ing] information barriers’ in SME funding market requires market building measures • Inter alia, to support entrance of a new tier of actors in the market for SME information • Prospectus regulation, as a means to overcome information asymmetries will matter little for the vast majority of SMEs • Greater emphasis on policies of (quasi-mandatory) information sharing • CMU strategy is out of step with trends on information sharing that are taking place outside CMU context • More effective action on information barriers requires a market correcting strategy to dovetail market building

7. Thank you • Comments welcome: pierre.schammo@durham.ac.uk