Europe is simultaneously diverse and unified. We witness the trade-offs of this dichotomy every day. The beauty of being locally unique comes at the expense of less standardisation. What is good in culture and food can be a pain when it comes to accounting, lending, and regulatory environments.

It is obvious that it is beneficial to everyone if financial markets function Europe-wide and are not limited to single countries (e.g. member states of the EU). However, financial services and especially lending are not independent from the economic chains which they are financing. Therefore, local knowledge needs to be combined with pan-European data conventions, as well as unified accounting and operating standards. The name of the political wishlist targeting this issue is called Capital Markets Union. Everybody has heard of it but nobody knows what it is actually supposed to be. The reason for that is simple: for the last seven years, the CMU has been a lobby-driven patchwork of measures, put forward in the hope that “a market” would develop eventually – a bit like adding a funny smell to gasoline instead of building car chargers in the hope that people switch to electric vehicles.

As it turns out, unifying Europe’s financial markets is hard work. An integrated financial market requires proper infrastructure to be put in place first. Especially when it comes to lending, different components need to exist, since without them, cross-border transactions can’t happen. Mainly, we need to have three things in place:

1. Data technology (with standardised and normalised data)
2. Market technology (bringing together counterparties)
3. Settlement technology (trade execution in a risk-neutral way)

If these components do not exist, transaction parties either don’t meet, don’t understand each other, or the post-trade logistics will not function.

CrossLend has heavily invested into these three key pillars over the last few years. A core challenge was that too many aspects of the transactional chains within Europe were dysfunctional, making it very hard to put a marketplace in between. This dilemma starts with the fact that originator data often contains errors or missing information. Additionally, on the transaction settlement side, every local regulator has their own view on securitisation and the capital treatment of certain assets.

Accordingly, infrastructure, in the context of the unification of the European lending market, does not only refer to data analytics, pricing, and marketplaces. In fact, we needed to build everything, from data repair technology to numerous country-specific and asset class-specific asset mobilisation techniques based on sound legal opinions.

The reward is large though. In fact, if properly connected, the diversity, granularity, and fragmentation of the European lending market results in a highly resilient asset class. Different risk profiles, geographies, and loan types put together are leading to an unparalleled pool of uncorrelated assets which can be assembled to form investment products that suit the needs of different investor types. With the proper infrastructure in place, the complexity of the European lending ecosystem has become a true asset. We are looking forward to continuing going down this road as it feels like the journey has just begun.