DRAFT
EU Financial Services Legislation –
enlargement and regulatory convergence
UNECE WORKSHOP Athens 7-8 November 2003
Dr. Alexander Spachis
Adviser on Enlargement
Financial Institutions Internal Market Directorate General
European Commission
Fax : +32-2-295 39 54
E-mail : markt-f-enlargement@cec.eu.int
http://europa.eu.int/comm/internal_market/en/index.htm
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Financial Services
a typical “Single Market” subject
 The
4 Freedoms: in particular
establishment, services and capital: which
is which?
 What are restrictions? What are
discriminations?
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Freedom of establishment /
Freedom to provide services
Community law framework
Establishment & services at Treaty Level

Freedom of establishment Arts. 43-48 EC
(ex 52-58)
 Freedom to provide services Arts. 49-55 EC (ex
59-66)
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Freedom of establishment /
Freedom to provide services
Community law framework
Personal scope of application

nationals of EU Member States and EEA
 companies / firms


set up under national law of an EU Member State
registered office / head office / principal place of
business
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Freedom of establishment /
Freedom to provide services
Community law framework
The notion of ‘establishment’

economic activity
 fixed infrastructure
 indefinite duration
 how : agency, branch, subsidiary (secondary
establishment)
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Freedom of establishment /
Freedom to provide services
Community law framework
The notion of ‘services’

Art. 50 EC : subsidiary notion
 economic realities
 three types of provision of services



service provider moves to other MS to provide service (Art. 50)
service receiver moves to other MS to receive service
(Court of Justice, application Art. 49)
no movement of persons, only service crosses borders
(Court of Justice, application Art. 49)
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Role of the European Commission
What does EU Commission do?
 Researches
and drafts legislation
 Negotiates directives in Council and EP
 Checks Member States follow EU rules
(infringements)
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Financial Services Directives




Home country control
= supervision by the authorities of the MS of origin
Close co-operation host State and home State
authorities
Minimum harmonisation - key measures of prudential
supervision
Mutual recognition : the European passport
 only for ‘branching’ and ‘provision’ of services
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Financial Services Directives
Banking

Codified Banking (2000/12/EC)
contains 1st and 2nd coordination , solvency ratios, own funds, large exposures,
consolidated supervision


Capital Adequacy - CAD (93/6/EEC, amended by 98/31/EC)
Bank Accounts (86/635/EEC)
Branch Accounts (89/117/EEC)
Deposit Guarantee (94/19/EC)
E-money (2000/49/EC)

Financial conglomerates



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Financial Services Directives
Insurance

Insurance on Life - 3 directives
(79/267/EEC,90/619/EEC and 92/96/EEC)

Insurance on Non-Life - 4 directives
(73/239/EEC, 88/537/EEC, 92/49/EEC, 87/344/EEC)

Insurance Accounts (91/674/EC)
 Insurance on Motor Vehicles - 4 directives


(72/166/EEC, 84/5/EEC, 90/232/EC and 2000/26/EC)
Pension funds
Intermediaries
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Financial Services Directives
Securities










Investment Services - ISD (93/22/EEC)
Insider Trading (89/592/EEC)
Listing Particulars (80/390/EC)
Regular Reporting (82/121/EC)
Prospectus (89/298/EEC)
Public Offer (90/211/EEC)
Admission to Trading (79/279/EC)
Major Holdings (88/627EEC)
UCITS (85/611/EEC) (subsequently replaced)
Investor Compensation (97/9/EC)
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Financial Services Directives
Payment Systems

Cross-border Credit Transfer (97/5/EC)
 Settlement Finality (98/26/EC)
 Electronic Payment Instruments (REC 97/489/EC)
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Money Laundering




New rule : identify your customer (no anonymous account)
Every bank must have an officer responsible for
detecting and reporting suspicious operations from
criminal activities
exceeding € 15 000
Keep records for 5 years
Enhanced administrative co-operation
Second Money Laundering Directive


Obligations on lawyers, accountants, ...
Know also the final beneficiary owner
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Fundamental economic objective
Lisbon European Council 23/24 March 2000
“To become the most competitive and
dynamic knowledge-based economy in the
world, capable of sustainable growth and
with more and better jobs”
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A single market of 25 in financial
services
What is its aim?

To ensure smooth operation of single financial
services market





Banking
Insurance
Investment and trading
Asset management
Consumers and operators can take full
advantage
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Integration of Financial Markets crucial:
Link companies looking for finance
with investors wanting to make most
of savings through efficient
exchanges
Huge economic benefits:
•
•
•
•
Microeconomic
Macroeconomic
Social
Financial Stability
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Not there yet
 Markets
remain fragmented
• The cost of financial products 3 times higher in
one Member State than in another
• stock market capitalisation in US is 179% of GDP
compared to 90% in EU
• expensive clearing and settlement
• Retail markets vs B2B
 Obstacles
•
•
•
•
remain
Heavy handed laws
Gaps in scope
Failure to implement Directives adequately
And more…
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Important unfinished business:
ISD Revision
Single passport for investment firms
• Harmonised high levels of investor protection
• Functional approach to ATS
• Common regulatory principles for regulated markets
•
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Need to integrate now
 Introduction
of Euro
 Enlargement
 ‘post-Enron’ confidence issues
 Technological
breakthroughs
 Market pressures
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Two wider issues for regulatory
convergence and financial
services
1.
Creating a more efficient regulatory system:
the Lamfalussy process
2.
Ensuring that EU Enlargement takes place
successfully
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The Lamfalussy approach
Level 1: Broad Framework Principles in
Directive/Regulation
Level 2: Implementing Rules delegated to
Commission, assisted by ESC and CESR
Level 3: Strengthened Co-operation between
Regulators to Improve Implementation
(and achieve converging practices)
Level 4: Strengthened Enforcement of Community Law
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Enlarge the EU: why and how


The obligation and the benefits
The conditions for success


Acceding countries must fulfil criteria
Union needs to prepare itself adequately
The agreements and Treaty :The case of financial services
and insurance
 No permanent derogations;
 only limited transition periods for some banking and
securities issues but none for insurance.
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Ensuring successful Enlargement of
a single market in financial services
Five processes :
•
Transposition checks
•
Peer Reviews with recommendations
•
Action plans
•
Monitoring and safeguard measures
•
Other preparations
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Key messages in the EU Commission's
Comprehensive Monitoring Reports
of 5 November 2003

Most countries advanced in reforming and
strengthening judicial system
 Progress in fight against corruption, fraud and
economic crime, but some concerns remain
 Financial intermediation has strengthened
 All ACs now have a more stable and efficient
banking sector
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Key messages (continued)



Domestic bank lending still low
Liberalisation of capital movements in line with acquis is
now complete in most countries
Attention needs to be paid to proper implementation of
money laundering directives and financial services
legislation, in particular the independence of supervisory
authorities
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Between now and 1 May 2004

Next step : assess the urgent needs identified in
the Comprehensive Monitoring Reports of the
the 10 countries , published on 5 November
2003 , and the regular reports on 2+1 countries
 Comprehensive monitoring and possibility of
imposing safeguard clause for Internal Market
 Transposition control : legislation of Acceding
Countries checked by Commission services (in
translation), comments sent and draft
corrections received
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ACs Compliance with Community law
Although good progress in transposition, more
needs to be done in the next 6 months:
 Banking : successfully implemented
but non-codified directives less advanced
(e.g. Capital Adequacy)
 Insurance : not bad, but work still needed in
order to be fully in-line, especially on motor
insurance
 Securities : some concerns about correct
implementation
 Payment Systems : steadily proceedingprogressing
 Money laundering: laws in place
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Effective Implementation and
Enforcement

Peer reviews and implementing capability
 Supervision: some EU legislation and direct
relevance of international voluntary
standards, especially the



Basel Committee CORE PRINCIPLES
IAIS Insurance Core Principles, see their website:
www.iaisweb.org
IOSCO core principles for securities
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
Supervisory Authorities : progress but more to
be done to achieve internationally accepted
standards
Most advanced : Banking supervision
Less experienced : Insurance and Securities

Implementation of out-of-court redress
schemes (FIN-NET) has just started: settlement
of disputes between service providers and customers,
including insurance.
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Anti-Money Laundering Defences

Legislation generally positive
(first directive implemented, second underway)
but certain technical problems (e.g. systematic
reporting of all transactions above a low threshold)

Good progress in implementation but
situation to be kept under close scrutiny
(e.g.: off-shore centre with links to high-risk countries)


Third EU directive in preparation
Insurance sector to be more careful
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FSAP – What next?
Take stock



what worked
what less successful
impact
 State
of integretation of EU financial
markets(Are markets fragmented? Is this a
problem?)
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How? (see press release of 27 Oct. 2003)
 Assessment
by market practioners
 4 Sectoral Expert Groups: banking,
insurance, investment and trading(of
financial instrumnts), asset management
 Case for any further EU action
 Start soon: 4 groups of experts meet early
december
 Report summer 2004
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A single market of 25 in financial
services: challenges and
opportunities

ACs made good progress in financial sectors.

Strong presence of foreign companies, often via large
local enterprises.

Privatisations resulted in strategic investments,
bringing local market knowledge together with access
to capital and know-how of the foreign financial
institution.
33
Challenges and opportunities(continued)

financial market for large companies is relatively
developed. Enormous long term potential for
developing the middle market.

Increased business will depend, in addition to
stability, on progress in rule of law and reform of
judiciary systems.

pension savings reform will generate further
opportunities for insurance and securities markets
(and fund management).

Supervision of supplementary pension funds : an
obligation as from 2005

Challenge to supervisory authorities: large amounts
of funds may also attract all sorts of "interests".
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Challenge in financial services is to deepen legal
framework and institutions that underpin financial
stability




harmonisation of legislation
transparent accounting and auditing,
comprehensive supervision,
effective bankruptcy mechanisms and adequate
collateral registration and recovery mechanisms.
 new EU committee structure ( level 3 committees of
regulators(=supervisors)) will contribute to better
supervision practices and efficiency, also in the acceding
countries.
 restructuring of sector, finished in some cases and well
under way in others, needs to be completed.
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