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FSAP legacy and priorities for the next phase
Speakers and participants widely considered the FSAP as a success and recognised that it has laid the legal foundations for an effectively integrated EU financial market – notably in the field of issuing and trading of financial instruments. In the opinion of Jochen Sanio (Chairman of BaFIN, the German Financial Supervision Authority) and Michel Prada (Président of the Autorité des Marchés Financiers, France), EU institutions and Member States had made great strides in recent years. The extent of progress and the economic significance of these measures was not always widely understood but would become apparent with time. In the opinion of Tommaso Padoa-Schioppa (Member of the Executive Board of the European Central Bank), the legal framework for integrated financial markets was now nearly complete. Andres Trink (Chairman, Estonian Financial Supervision Authority) qualified this by observing that only the framework rules are in place: much work remains to be done in completing detailed implementing measures and fostering further supervisory convergence in the EU. Michel Pébéreau (Chairman of BNP-Paribas) underlined the enormous progress made in recent years in integrating wholesale financial markets but contrasted this with the situation for retail financial services.
André Villeneuve (Euronext-Liffe) noted that despite this evident progress towards integration, European financial markets remain less dynamic and attractive to foreign investors than rapidly emerging Asian markets. EU CEOs need to wake up to the challenge of US and international competition. Alain Joly (Chairman of the Supervisory Board, Air Liquide) recalled that the objective should be to make cross-border investing and capital raising in the EU as easy as within national markets. Pehr Gyllenhammar (Chairman of European Financial Round Table) cited the case of private sector provision of pensions as an example of how integrated and efficient financial markets could help to address Europe’s wider socio-economic problems including the promotion of labour mobility throughout Europe.
As Commissioner Bolkestein noted at the end of the conference (see SPEECH/04/328), conference proceedings confirmed a continued strong commitment to the vision of an EU single deep and liquid capital market. Discussions centred merely on the methods to be used to achieve this objective, the pace of change and the selection of priority areas for action. Charles McCreevy (Finance Minister of Ireland) summed up the mood of many participants when he stated that “there is little appetite among Member States and industry for a further major programme of EU legislation dealing with the financial services sector at this time”. The Chief Executive of the UK Financial Services Authority, John Tiner, issued a plea to the incoming Commission and to Member States to make the consistent implementation of FSAP rules their leading priority for the next phase. The Financial Secretary to the UK Treasury, Ruth Kelly, urged the Commission to give more systematic consideration to non-legislative remedies to single market failures. Alexander Schaub (Director General, Internal Market DG, European Commission) agreed that there was scope for more effective exploitation of synergies between EU anti-trust policy and regulatory action.
Commissioner Bolkestein said that the Commission would take these lessons to heart. It will have to learn to “legislate smart” – through better prioritisation of actions and factual evidence that action is needed to address single market failures. Jörg Asmussen (Director General, German Finance Ministry) endorsed this need for a pragmatic and realistic approach to setting the European financial integration agenda. EU Finance Ministers had recently considered a report setting out some orientations for such a policy. However, he noted that there are limits to the extent to which political decision-making process should be determined by sometimes incomplete cost-benefit calculations.
Demand for an improved and more cost-effective organisation of prudential supervision
Against the backdrop of “regulatory fatigue”, a number of conference participants highlighted the crucial need to improve supervisory cooperation through the newly created (level 3 committees). Tommaso Padoa-Schioppa saw in these committees the potential to make progress towards codification of European supervisory practices in a largely common rule-book. This will give market participants the legal certainty that they need to operate cross-border and to unlock the benefits of a single market. Arthur Docters van Leeuwen (Chairman of the Committee of European Securities Regulators - CESR) and Fabrice Demarigny (Secretary-General of CESR) outlined some ideas on how to maximise CESR’s potential contribution to effective implementation of the rules it develops. Michel Prada (Chairman of the Autorité des Marchés Financiers, France) and others pointed out that progress would require national securities regulators enjoyed comparable enforcement and prosecution powers.
Olivier Lefebvre (Euronext) requested that consideration be given to the creation of a European “ombudsman” to arbitrate in disputes between European exchanges, participants and supervisory authorities. Ian Mullen (British Bankers’ Association) welcomed the commitment made by the Chairman of the Committee of European Banking Supervisors (CEBS), Jose Maria Roldan, to halve, and then halve again, the degree of national supervisory discretion in the application of EU capital adequacy rules. However, Sir Nigel Wicks (Deputy Chairman, Euroclear) recalled that national supervisors have purely national responsibilities and no European vocation.
It is important that the work of the new supervisory committees be driven by a real commitment to enhancing the common regulatory framework and market access. Christa Randzio-Plath (outgoing Chair of the European Parliament’s Economic and Monetary Affairs Committee) echoed this point when she cautioned against a “re-nationalisation” of European financial rule-making if the supervisory committees become a means of feather-bedding existing, divergent national rules – to the detriment of a real single market.
Discussion revealed support for progress on a certain number of legislative fronts – insurance solvency, re-insurance and capital adequacy. Alain Joly and Michel Pébéreau welcomed the Commission’s recent statements to the effect that some common legal provisions would have to be put in place for clearing and settlement systems. Alain Joly and Stig Enevoldsen (Chairman of the European Financial Reporting Advisory Group - EFRAG) stressed the importance of continued progress towards common accounting rules. Gianluca Garbi (CEO of Euro MTS) drew attention to the absence of any common regulatory approach governing the aggregation and dissemination of trading data which was the key to efficient price-formation in European financial markets. Speakers also mentioned areas where the EU should refrain from legislative intervention: Rudiger von Rosen (Managing Director, Deutsches Aktieninstitut) warned against any attempts to harmonise national corporate governance codes.
Marco Mazzucchelli (CEO San Paolo-IMI Wealth Management) reported that the asset management industry had identified a series of single market freedoms which could not be effectively exploited based on existing EU legislation. To remedy this in the short-term he suggested working with CESR and the Commission to identify practical solutions within the existing rules. Over a medium to longer-term, more far-reaching action might be required.
Retail financial integration
A recurrent theme throughout the conference was the absence of integration in EU retail financial markets and the reasons for this outcome. Stephen Sklaroff (Association of British Insurers) argued against trying to force the pace of cross-border delivery through legislation: many retail financial products cannot be exported from one country to another for deep-seated reasons that cannot be tackled through Single Market rules. While acknowledging that these concerns might be valid for many products at this stage, Sir Nigel Wicks argued that it would be a mistake to shut the door on retail financial integration. Along with Christa-Randzio-Plath, he recalled that European consumers and citizens would judge the success and relevance of the financial integration project in terms of whether it gave them better access to better and more competitive retail products. Michel Pébéreau mentioned some retail financial products (consumer credit, savings accounts, savings products) which are ripe for cross-border commercialisation.
According to Pehr Gyllenhammar and Gérard De la Martinière, the market is the best champion of consumer interests. This view was challenged by Mick McAteer (British Consumers’ Assocition) and Michel Pébéreau who insisted that consumer trust and confidence were a pre-requisite if cross-border delivery of financial services was to ever become commonplace. It would not be enough to place our faith in the commercial self-interest of market participants to create these conditions – a single case of cross-border mis-selling could compromise the entire project.
Towards more efficient supervisory and tax structures for multi-jurisdictional entities
A second issue which was heavily debated over the course of proceedings were the needs of what Olivier Lefebvre referred to as “multi-jurisdictional institutions”. Rather than institutions providing centralised functions or services out of one Member State, these multi-jurisdictional entities have emerged as the de facto driver of financial integration. The EU framework must offer solutions to the challenges that they face in trying to organise business functions across legal boundaries in the EU. He listed a number of exchanges and clearing and settlement systems which are subject to regulation and oversight by multiple authorities throughout Europe. Similar concerns were aired by representatives of banks and insurance groups operating subsidiaries in different Member States. Peter Schütze (Nordea) provided a telling description of the VAT and other tax complexities faced by Nordea in organising their business across its four home countries. He also highlighted competition distortions faced by pan-European groups which are caused by differences in the level of protection afforded by national deposit guarantee schemes.
Freddy van den Spiegel (Fortis) outlined some practical proposals on how prudential supervision could be more efficiently organised. José María Roldán (Chairman of the Committee of European Banking Supervisors) responded by arguing that the objective must be to find pragmatic solutions in a relatively short time-frame. The focus should therefore be on exploiting concepts – such as ‘consolidated supervision’ – which are already provided for in EU financial legislation and whose practical application can be enhanced.
The international dimension
A final area which was the subject of considerable interest was the importance of ensuring that efforts to build a single European financial market provide a spring-board for European success in international financial markets. Many commentators singled out the EU-US relationship as of particular importance. This should however not be a one-way traffic. Participants applauded recent intensification of regulatory dialogue between EU and US authorities. An issue which warrants particular attention in the short term will be credit rating agencies. Stavros Thomadakis (University of Athens) suggested that the key will be to obtain sufficient assurances that US produced ratings of EU issuers meet the needs of European markets and regulators while recognising the reality that this business is largely US domiciled.
In closing the conference, Commissioner Bolkestein concluded that the conference had helped to put the FSAP experience in context. It had brought the vision of the single market into sharper focus. It had framed the core policy questions for the next phase. The conference was an important milestone in the Commission’s stock-taking process. Commissioner Bolkestein expressed the hope that the consultation process will help to provide additional insights and how to give operational effect to the ideas discussed at the conference.
