EU Listing Rules need to offer more effective support for SMEs, investment industry surveys find

Ahead of the European Parliament plenary vote on the EU Listing Act agreement, research from CFA Institute and BETTER FINANCE analyses investment professionals and retail investors’ views on whether EU listing rules are doing enough to reduce regulatory burdens for SMEs

Brussels, 4 April 2024 – Following the political agreement between the European Council and European Parliament on the EU Listing Act, a new report by CFA Institute and BETTER FINANCE finds that investment professionals and retail investors believe the listing package needs to better support SMEs to more efficiently access capital markets for their funding needs.

Ahead of the European Commission’s Listing Act package proposal in December 2022, which set out to increase the attractiveness of public markets and make capital more accessible to SMEs, CFA Institute and BETTER FINANCE carried out surveys with their EU-based memberships to gauge views on the obstacles European companies encounter when trying to get funding through capital markets. The Federation of European Securities Exchanges (FESE) provided inputs on the Listing Act package proposal in line with the themes of the survey.

The European Parliament’s plenary vote on the Act is set to take place on 22nd April, and ahead of the vote, the report emphasises the necessity for Member States to judiciously adopt any multiple voting rights shares (MVRS) directives.

The Listing Act’s proposals outlined in the political agreement include an amendment to the Prospectus Regulation that promises to reduce issuer burdens and enhance transparency for investors. However, the surveys found that there were several additional solutions that have the potential to reduce barriers for SMEs. Specifically, concerns related to the introduction of a directive on MVRS, as respondents felt allowing deviations from the ‘one share, one vote’ principle would encourage discrimination among shareholders.

The key takeaways from the CFA Institute and BETTER FINANCE surveys are:

• Any EU-wide MVRS directive is either unnecessary to encourage listing or unsuitable to boost investor confidence.

• The Prospectus Regulation would benefit from a review that would both reduce the regulatory burden and cost on issuers (standardisation, approval process) and facilitate investor information.

• A standardised EU definition for SMEs is difficult to reconcile with specific member state needs.

• SMEs need better coverage to address the lack of liquidity in SME growth markets while boosting investor participation.

• SME growth markets should be the main scope of revised legislation, whereby listing costs need to be alleviated, in addition to aid packages and improved cross-border information.

• Financial education programmes should be provided through various channels and for all investors in order to increase knowledge of primary (and secondary) market participation.

Josina Kamerling, Head of Regulatory Outreach for CFA Institute in EMEA, says: "SMEs account for 99% of all businesses in the EU, so it is imperative they’re able to easily access financing from the public capital market. Although the EU Listing Act includes a series of recommendations to provide a more flexible regulatory environment for SMEs, our findings from both professional and retail investors set out additional recommendations for consideration.

"Specifically, we recommend further refinement of the suggested policy around the introduction of an MVRS directive, to effectively reconcile market integrity, investor protection and proportionality. Moreover, legislative debate would merit further consideration of the views of key stakeholders ahead of finalisation. We strongly urge policymakers and member states to review the recommendations ahead of April’s plenary vote.”

Aleksandra Mączyńska, Managing Director at BETTER FINANCE adds:

"Empowering SMEs to thrive in the European market is the next challenge, which must be reconciled with fostering a robust investment ecosystem characterised by transparency and fairness for investors. The introduction of multiple voting rights shares (MVRS) across the EU is a significant concern; thus, it's imperative that Member States implement strict safeguards and ensure comprehensive transparency throughout the investment chain to protect prospective shareholders. Overall, while the EU Listing Act review makes strides in this direction, Level 2 technical standards require a balanced approach, on which BETTER FINANCE will actively engage with regulators and stakeholders. "

To access the report CFA Institute and BETTER FINANCE Report on the Review of the Listing Rules in the EU, visit: Report on the Review of the Listing Rules in the EU (cfainstitute.org)

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