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"I have no difficulty whatsoever with the aim of creating a single financial market across the European Union. I believe that will be advantageous to Europe's citizens, both in terms of the additional choice open to them in meeting their financial needs, and in terms of the stimulus to economic growth which a broader and deeper capital market will provide."
He highlighted five priorities for achieving such an integrated market by 2005:
"First, we are convinced that mutual recognition based on harmonised core standards is the best way to go. The trick, of course, is to identify just which standards need to be harmonised, and which can be left to local discretion without damaging the integrity of a single financial market. It would be helpful if, in relation to each directive, it could be agreed at an early stage just how far the harmonisation process needs to go. We lack a proper framework within which to make these decisions. The Lamfalussy Group set out some principles which ought to govern the preparation of directives in the future, which included the important notion of subsidiarity. But we have heard rather less about those principles than we have about other aspects of the Lamfalussy recommendations."Second, and again taking my cue from the Lamfalussy report, we believe that it is necessary to set up comparable committees in banking and insurance to match CESR. An "in principle" political decision to do so has been made, but the practicalities require a lot of work, and are not proceeding as rapidly as they might. Those committees should have advisory panels, and should consult effectively.
"Third, it is important to analyse just what the barriers to cross border activity really are. As I have already said, many of them are not to do with drafting harmonised regulations. Sometimes they are attributable to the way in which those regulations are implemented in member states. We know ourselves of cases where regulatory approaches which deliver a single market have been agreed centrally, but where inconsistent additional requirements are imposed at local level which have the effect of negating European wide agreements. Yet, at present, those additional protectionist impositions are allowed to remain, and the enforcement effort seems weak.
"Fourth, we should not forget that there are other important non-regulatory barriers which block the development of a single financial market. There are tax and legal obstacles, for example. Even more important are the barriers to cross border acquisitions. In my view the single financial market will not achieve its full potential without significant European-wide financial institutions. Yet there are still countries in which it is quite impossible to buy a bank, or even a significant fund management operation. These informal barriers, sometimes imposed by prudential regulators, are too little discussed.
"Fifth, and last, we need to think harder about just what the obstacles are, from the consumers' point of view. At present, for example, we are in the throes of negotiating a consumer credit directive, which would impose standardised requirements on disclosure information to consumers across Europe, even where the consumer credit markets are very different in terms of the nature of products, and the nature of the distribution and sales process. I personally doubt whether this initiative will in practice deliver a great deal of additional cross border activity."
Howard Davies was speaking at a conference on the direction of European financial regulation at the Guildhall London. The conference was entitled "The impact of the Financial Services Action Plan on the regulation of EU Securities Markets".
