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EU gives go ahead to pension fund investment in risk capital markets Back  
The European Commission recently adopted a proposal for a Directive on the prudential supervision of supplementary pension funds. By setting as principle that investment rules will be based on the ‘prudent-man’ principle, this Directive will ensure pension funds can invest in risk capital markets.

This is part of a wider process designed to stimulate the risk capital markets in Europe, which although small in the context of overall financial markets it is a unique source of equity financing for young and innovative businesses.

The EU Commission says that more needs to be done to create an environment favourable to creating and sustaining new and innovative businesses in Europe and that the Financial Service Action Plan is key to the development of risk capital markets.

According to Pedro Solbes, EU Commissioner for Economic and Monetary Affairs ‘there is a need for further progress in implementing relevant structural reforms, in financial-market integration and in promoting a culture of entrepreneurship.’

Frits Bolkestein, EU Commissioner for the Internal Market, stresses that the ‘timely implementation of the Financial Services Action Plan by 2005 will do much to foster a more integrated EU risk capital market.’

The Commission prioritised three areas which member states need to address in order to develop the risk capital markets in Europe. The three areas are: the easing of quantitative constraints on institutional investments in equity capital; the softening of bankruptcy laws to allow failed entrepreneurs a second chance; and the development of a fiscal framework more conducive to investment and entrepreneurship.

The European Council in March 2000 called for the implementation of the Risk Capital Action Plan by 2003. This proposes initiatives to be taken at Community and/or Member State level in the areas of market fragmentation, institutional and regulatory barriers, taxation, paucity of high -tech SMEs, human resources and cultural barriers.

Meanwhile the Commission plans to introduce other measures under the FSAP to accelerate market integration. Before year end the Commission plans to introduce proposals to facilitate cross-border financial activity, such as improved procedures for issuing prospectuses to raise capital, the agreement at EU-level on which investors should qualify as professional, and the introduction of common accounting standards.

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