Internal Market Commissioner Frits Bolkestein said: “This report brings good news. The progress already made on the FSAP is a substantial achievement by all the European Institutions and by national regulators and supervisors, based on high quality input from market participants and experts. But we must keep the champagne on ice for now. The time for celebration will be once all the FSAP measures are working smoothly on the ground and when Europe’s economy is reaping the full benefits. I am sure that time will come, but we have a long way to go yet.”
The Progress Report emphasises that it is too early to make a final evaluation of the extent to which the FSAP has achieved its objectives. Many of the key FSAP measures have only just entered into force; others still need to be written into Member States’ national laws. Furthermore, some of the more technical implementing measures of key securities Directives have yet to be adopted.
Nevertheless, the FSAP is clearly already acting as a powerful vector for change, as financial markets organise themselves on a cross-border basis. Enlargement of the single market is expected to amplify the economic benefits to the Union and all its Member States, particularly during the high-growth catch-up phase, when the new Member States will have additional financing needs in order to fund capital investment programmes.
The Commission’s first “Financial Integration Monitor” (FIM - see IP/04/601) published in response to a call from stakeholders for a more evidence-based policy-making process, shows increased integration of financial markets.
However, it is difficult to determine the extent to which the FSAP – as opposed to the introduction of the euro, cyclical factors or technology – has contributed to this.
In parallel with the FIM, the Commission has begun a monitoring and consultation process to assess the state of integration of European financial markets as experienced by market practitioners. Reports from four expert groups in the banking, insurance, securities and asset management sectors have been published and are now the basis for wider consultation open until 10 September this year (see IP/04/600, MEMO/04/106).
There is considerable convergence between the reports prepared by the expert groups and the high level policy assessment being undertaken by the Financial Services Committee of senior Member State representatives. The FSC Report is due to be presented to the 2 June meeting of the EU’s Council of Economics and Finance Ministers, along with the Progress Report.
The Progress Report makes clear that the Commission should propose legislation only where this is clearly of significant benefit to the functioning of financial markets. Regulation at European level must be both effective and proportionate, respecting the subsidiarity principle. It must avoid distorting legitimate competition between market players and be attentive to European competitiveness in a global market place. Commission proposals are and will continue to be based on wide consultation and on impact assessments.
In some cases, additional action has become necessary since the beginning if the FSAP, in response to events and circumstances, in particular accounting scandals in the United States and Europe, especially the Enron affair and the US government’s response to it, and then the Parmalat scandal. The Commission is reflecting on ways to further strengthen the main lines of defence against corporate malpractice both at EU level and at international level.
It became clear already at an early stage of the FSAP that an integrated market could not be achieved by regulation only: parallel work was set in hand to develop more streamlined regulatory and supervisory structures. Further improvement in cooperation between supervisors across sectors and across borders is needed.
The new Member States should have implemented from the date of accession all FSAP measures with an implementation deadline before 1 May 2004. Where implementation deadlines of FSAP measures are later than May 2004, deadlines apply to all twenty five Member States alike. To facilitate this process, delegates from the new Member States have been included as observers in EU meetings and committees over the last year and the Commission has maintained an intensive dialogue with the new Member States, aiming to ensure effective implementation of EU financial services legislation.
FSAP and related measures recently adopted
Of the 42 FSAP measures, 93% have crossed the finishing line within the mid-2004 time limit set by Heads of State and Government. Since the last Progress Report of November 2003 (see IP/03/1591), agreement has been reached, under the co-decision procedure, on the Financial Instruments Markets Directive (also know as the Investment Services Directive, see IP/04/546), the Transparency Directive (IP/04/398) and the Directive on Takeover Bids, though the Commission considers the outcome here to be very disappointing (see MEMO/03/245)
In March 2004, the European Commission published its Communication on the regulation of UCITS depositaries in the Member States, setting out a step-by-step approach to reduce differences in national rules (see IP/04/430). In April 2004, the Commission also issued two Recommendations, on the information to be included in the UCITS simplified prospectus and on the use of derivatives by UCITS, in order to ensure adequate investor protection.
The Commission came forward in April 2004 with a Communication outlining the direction of future work to increase the efficiency and safety of cross-border clearing and settlement, while ensuring a level playing field among providers of clearing and settlement services (see IP/04/551 and MEMO/04/99).
Implementation of adopted measures
A Directive to restructure European regulatory and supervisory committees in the banking, insurance and investment funds sectors has also been endorsed by the Council, thus extending to legislation in those sectors the four-level approach already in use for adopting EU securities legislation (see IP/02/195).
There has been good progress on implementing measures for the securities Directives already adopted under this four-level approach. The European Securities Committee (ESC) has agreed the second set of implementing measures for the Market Abuse Directive and a first set of measures for the Prospectuses Directive (see IP/04/563)
From 1 January 2005 onwards, all EU companies listed in the EU will have to prepare their consolidated accounts in accordance with International Accounting and Financial Reporting Standards (IAS and IFRS) adopted at EU level. The Commission has adopted all existing IAS into EU law, with the exception of IAS 32 and IAS 39 which are still being reviewed by the International Accounting Standards Board (IASB). On IAS 39, discussions continue between the IASB and interested parties and the Commission will take stock of the situation at the next meeting of the Accounting Regulatory Committee, planned on 14 June;
Future priorities
The Commission’s legislative Work Programme for 2004 envisages that especially high priority should be given to the adoption of three proposals by the new European Parliament and Council this year:
- modernisation of 8th Company Law Directive on Statutory Audit, which aims to reinforce audit quality and to restore trust in the audit function. The Commission submitted its proposal in March 2004 (see IP/04/340 and MEMO/04/60);
- the Third Money Laundering Directive (to be proposed by the Commission shortly), which aims to reinforce measures on preventing the use of the financial system for money laundering and terrorist finance;
- a Directive on Capital Adequacy setting out revised capital requirements for banks and investment firms (CAD III), to be implemented by 2006-2007. This effort is taking place in parallel with the work of the G-10 Basel Committee to develop a new international framework and the Commission will present its legislative proposal soon after agreement in Basel.
Follow-up to Action Plan on Company Law and Corporate Governance
The Action Plan on Company Law and Corporate Governance was presented by the Commission in May 2003 (see IP/03/716 and MEMO/03/112). Negotiations are continuing on the proposed Tenth Company Law Directive on cross-border mergers (IP/03/1564, MEMO/03/233). The Commission has undertaken a consultation on a future 14th Company Law Directive on cross-border transfer of seat (IP/04/270) and a proposal is expected in autumn 2004. A Commission proposal to simplify and modernise the 2nd Directive on capital maintenance and alteration is also expected this year.
The first Corporate Governance initiatives under the Action Plan are expected for the second half of 2004. These are
- a Recommendation on Directors' Remuneration, giving shareholders more transparency and influence (a public consultation has already taken place);
- a Recommendation to promote the role of independent non-executive or supervisory directors. A public consultation will end on 4 June;
- a confirmation at EU level of the collective responsibility of directors for financial statements : again consultation is due to end on 4 June ;
- full disclosure of the use of structures like special purpose vehicles and off-shore centres; and
- the introduction of an Annual Corporate Governance Statement for listed companies.
Other proposals on the table or expected soon
A Directive on Reinsurance Supervision, aiming to harmonise methods for reinsurance supervision in Europe, was proposed by the Commission in April 2004 (IP/04/513, MEMO/04/90).
The outline of a new Legal Framework for Payments in the Internal Market was presented in December 2003 (IP/03/1641, MEMO/03/248), with the aim of allowing European consumers to make any payment within the EU as easily as in their home Member State. The Commission intends to come forward with a proposal for legislation in early autumn.
A proposal scheduled for 2005 on Insurance Solvency II, based on extensive work now taking place, will seek to create a consistent risk-based insurance solvency system that is compatible with international developments in supervision and financial reporting.
The next Progress report on financial services initiatives will be sent to the EU’s Council of Economics and Finance Ministers by the end of 2004. The full text of the current report is available at:
http://www.europa.eu.int/comm/internal_market/en/finances/actionplan/index.htm
