Christa Randzio-Plath
Chair of the Committee on Economic and Monetary Affairs
European Parliament
Review and Perspectives of Financial Services
Integration in Europe
Brussels, 29 April 2004
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The Financial Services Action Plan, set up in 1999 with the aim to integrate
European capital markets by 1 January 2005, can undoubtedly be called a
great success. The European Parliament, in particular the Economic and
Monetary Committee have always done its utmost to bring forward this
important project and to realise the timely conclusion of the Action Plan's key
measures. Contrary to Commission and Council, we have always delivered on
time.
The FSAP-measures will surely contribute to render European financial
markets more efficient and secure and will foster proper cross-border
competition. A "European Passport" has been created in many fields of
financial services and will save considerable costs for firms and their clients.
Good examples are the Directives on pension funds and prospectuses.
European Parliament has always been keen on reaching a good balance
between market efficiency and investor protection as to enable retail clients to
reap the full benefit of financial market integration.
Market Abuse Directive
The Market Abuse Directive of 2002 can be seen as a milestone in the
promotion of the integrity of financial markets and has been very actively
brought forward by Parliament. Scandals in recent years have had a lasting
detrimental effect on investor confidence in the financial markets. The
purpose of the directive is to increase protection for all investors and to render
the EU capital markets safer and more attractive. The aim is to set standards
for market integrity, to harmonise regulations throughout Europe aimed at
preventing market abuse, to establish a binding obligation to ensure
transparency and equal treatment of all market participants and to promote
co-operation and greater exchange of information between state authorities.
This will serve considerably to reduce some of the existing loopholes and
inconsistencies in the national legislations to the benefit of investor protection.
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Investment services directive (ISD)
The European Parliament always supported the idea to allow for greater
competition between regulated markets, ATS and internal execution systems.
Regulated markets have as a rule lost their former status of ‘quasi-public
bodies’ and offer their services on a for-profit basis. There is no need to afford
them preferential treatment.
Parliament stressed however the need for strict transparency requirements for
in-house trading systems of banks. This is necessary in order to stimulate
competition and to give investors the choice of the best trading system. The
exact nature of the transparency requirements and the obligation for investment
firms to make bids public (former Article 25, current Article 27) has been
discussed keenly within Parliament.
Parliament managed to find a compromise after very difficult negotiations
between and within the political groups. Unfortunately Council has for a very
long time neither shown sufficient efforts nor enough flexibility to really
achieve a compromise with Parliament. This is clearly not acceptable for
future projects. Member States should always keep in mind that in the field of
financial services we are in co-decision procedure and therefore Parliament
must be treated as an equal Partner in this process.
Due to very intensive work that took place in the past few weeks and thanks
to the huge efforts undertaken by many colleagues, Parliament was
eventually able to reach an "last-minute" compromise with the Council. I
clearly welcome this agreement regarding that cornerstone of the FSAP, but
let me remark, that it should not become normal procedure to work out
compromises under such time pressure.
Concerning the substance, the agreement will provide a fair framework for
both exchanges and investment firms. In particular two crucial questions
could be solved:
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
Regarding the definition of "standard market size": Shares will be grouped in classes on the basis of an
average value of the orders executed in the market for that share. The standard market size for each
class of shares will be a size representative of the arithmetic average value of the orders executed in the
market for the shares included in each class of shares.
 Regarding "price improvement": investment firms have been given
possibilities to execute orders of their professional clients at a better price
in justified cases, but they are not allowed to do so in the case of retail
clients. There must not be any discrimination between individual retail
clients as not all of them have sufficient insight into market practices.
Transparency Directive
A further important legislative procedure that was finalised in March concerns
the permanent transparency requirements for issuers of securities traded on
regulated markets.
This is important because high quality, comparable
information for investors in Europe not only serves to promote the integration of
financial markets and cross-border capital investments but also facilitates a
better functioning of financial markets and results in a higher level of protection
for investors. These are all objectives, which the European Parliament has
always felt committed to.
One of the controversial points in the original proposal for a directive was the
planned introduction of obligatory quarterly reports.
However, these could
prove to be an incentive for short-term profit maximisation for the purposes of
‘window dressing’ and this cannot be the aim of the directive. Companies
should aim at a long-term increase in their real value. In addition, such reports
constitute a financial burden in particular for SMEs without providing any visible
added value to investors. What is important to investors is not the quantity but
the quality of information. This is particularly so for small investors.
A significant proportion of companies already publish quarterly reports, in part
due to national provisions, in part voluntarily, mostly in order to meet the criteria
for inclusion in certain sectors of the stock exchange. This again raised the
question as to the need for a legal obligation, and in particular one provided for
by European law. Consequently, the Compromise achieved between Council
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and Parliament leaves this point to national discretion and offers companies the
possibility of voluntarily submitting to stricter disclosure requirements, as may
be common practice in certain sectors. All other companies are just required to
issue interim statements, which comprise a more general description of the
firm's financial development.
Extension of the Lamfalussy process
Parliament is clearly aware that highly complex technical subjects require the
specialised knowledge of experts. This is in particular true for the fast
changing world of banking and finance. For this reason, Parliament in
principle supports the delegation of certain legislative powers to expert
committees and the Commission, as implied by the so-called Lamfalussyprocedure. However, it must be the legislator who decides where the dividing
line falls between a political and a technical procedure. The European
Parliament must therefore have rights to control and influence individual
pieces of secondary legislation if they are not in line with the political
objectives of the law.
The draft Constitution took an important and appropriate step with its
proposed provisions under Article 35 (delegated regulations). Unfortunately, it
was not possible to come to a final agreement on the Constitution at the
Brussels Summit in December 2003. In view of the extension of the
Lamfalussy procedure beyond the field of legislation on securities to cover
other sectors of legislation on financial markets, the European Parliament
therefore called for clear assurances regarding a proper institutional balance
between Council, Commission and Parliament until the planned provisions of
Article 35 come into effect.
Parliament voted in favour of the extension of the Lamfalussy-procedure
under the following conditions:

the institutional balance and the rights of Parliament must be always
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guaranteed as declared by Commission and Council on 31 March 2004;

The Member States must seek to adopt the text of Art. 35 of the draft
Constitutional Treaty for delegated legislative provisions in order to
respect the institutional balance between Council and Parliament

The implementing measures being adopted must not modify the essential
provision of Directives

The European Parliament must be given a period of 3 months to allow it to
give its opinion on the implementing measures

There will be a review of the Lamfalussy extension by the end of 2007.
Additionally, the transparency of the whole process needs urgently to be
enhanced to guarantee sufficient participation of all interested groups,
particularly retail investors.
Legislative procedure is an instrument to translate voters' demands into laws.
It must be a transparent, understandable and controllable process that cannot
be completely left to opaque committees that have never been selected by
the electorate.
Perspectives
The 1999 FSAP was a necessary precondition to achieve an integrated
financial market, but proper implementation on the national level will be
crucial. Additionally, Europe will require further individual directives or
packages of measures to complete financial market integration. A particular
priority must be the creation of a single area for mass payments and the
clearing and settlement of securities transactions. In both fields, Parliament
has pressed for action, but the Commission is very slow off the mark in
presenting concrete proposals to overcome the shortcoming in those fields.
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