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

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

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

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’

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

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

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