12 Financial services
| (a)
(26181)
4167/1/04
—
(b)
(26182)
4168/1/04
—
(c)
(26239)
14842/04
SEC(04)1459
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Financial Services Committee note: Review of the Lamfalussy framework
Financial Services Committee Report on financial integration with attached draft Council Conclusions — Further preparation of the post-FSAP 2005 debate
Commission Staff Working Document: The application of the Lamfalussy process to EU securities markets legislation
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| Legal base | — |
| Document originated | (c) 15 November 2004
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| Deposited in Parliament | (a) and (b) 6 December 2004
(c) 11 January 2005
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| Department | HM Treasury |
| Basis of consideration | EMs of 17 January 2005
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| Previous Committee Report | None
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| Discussed in Council | (a) and (b) 16 November 2004
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| Committee's assessment | Politically important
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| Committee's decision | (All) Cleared
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Background
12.1 The Financial Services Action Plan (FSAP), published in May
1999, focuses on the legislative action necessary to establish
an integrated European financial services market. Implementation
of the FSAP has had an important role in seeking to achieve the
objective of the Lisbon Strategy for the EU to be the most competitive
and dynamic knowledge-based economy in the world by 2010.
12.2 Since March 2001, a new four-level approach
to regulation of the European financial services industry, known
as the Lamfalussy process or framework, has been adopted. At the
first level the European Parliament and Council adopt legislation,
determining framework principles and the Commission's implementing
powers, on the basis of Commission proposals on which the Commission
is advised by sector-specific committees of Members State representatives
chaired by the Commission. At the second level sector-specific
committees of national regulators prepare and advise on implementing
measures to be adopted by the Commission. At this level the committees
of Member State representatives perform a "comitology"
role of voting on the Commission's implementing measures before
their adoption.[33]
At the third level the committees of national regulators work
on strengthening co-ordination of regulation, for instance by
establishing common interpretations of legislation and peer group
review of regulatory practice. At the fourth level the Commission
strengthens compliance with and enforcement of EU rules. These
arrangements are designed to improve the quality of new legislation
on financial services, promote consistent interpretation and ensure
convergence in national supervisory practices.
12.3 In July and October 2004, we considered a report
by the Financial Services Committee (the FSC — an advisory
committee for the ECOFIN Council comprised mainly of senior national
finance ministry officials) on the integration of European financial
markets, which reviewed a wide range of FSAP activity, including
the use of the Lamfalussy process. This report was debated by
European Standing Committee B in October 2004.[34]
The documents
12.4 When they were introduced, it was agreed that
the Lamfalussy arrangements would be reviewed in December 2004
by the Council, the Commission and the European Parliament. The
ECOFIN Council agreed Conclusions on 16 November 2004, on the
basis of the FSC note in document (a). In the same month the Commission
published the staff working paper in document (c) and called,
in the context of its role in the review, for comments from interested
parties. The European Parliament discussed the Lamfalussy arrangements
in the context of a report on post--FSAP strategy, which went
to its ECON Committee on 23 November 2004.
12.5 The FSC's report in document (a) rehearses the
background to the introduction of the Lamfalussy process for the
securities sector in 2001 and gives examples of legislation adopted
under the arrangements. It then reviews the extension of the scope
of the Lamfalussy arrangements to cover the banking and insurance
sectors. The FSC says overall experience with the Lamfalussy framework
in the securities sector has been encouraging, having generated
extra momentum in and increased the flexibility of the legislative
process. Transparency has also greatly improved.
12.6 Looking to the future, the FSC notes a number
of areas still requiring further attention. It stresses the importance
of the reasons behind the four-level split and of the respective
roles of the different parties in the process. It also notes that
legislative measures at the first and second levels of the process
will have an effect on market practice only when equal emphasis
is put on the third and fourth levels (convergent application
and enforcement). It emphasises particularly that the third level
requires further development to ensure that agreed common standards
are adhered to by Member States. Transparency, despite the improvement
already noted, requires further development.
12.7 The Conclusions adopted by the ECOFIN Council
endorsed the FSC's suggestions about development of the use of
the Lamfalussy process. The Council also agreed to review the
Lamfalussy framework again in spring 2006.
12.8 The Commission's Staff Working Document, document
(c), reviews the use of the Lamfalussy process in the securities
sector, examining how the arrangements have been put into effect
so as to improve legislation on securities markets. The Commission
looks at the various committees created, reports the Commission's
own activities under the system, cites specific examples of outcomes
already achieved at each of the four levels and describes improvements
which have been made to the process since its introduction. It
suggests that the open and transparent delivery of Lamfalussy
measures has meant an improvement in the quality of legislation
and an acceleration of the legislative process.
12.9 The Commission also suggests ways in which the
process may be further improved in the future. Timetables for
first and second level measures, the amount of detail in legislative
and implementing measures, and implementation and enforcement
are amongst the areas identified as requiring action.
12.10 The FSC, in document (b), updates its previous
report to the ECOFIN Council on integration of European financial
markets. It reviews:
- the follow-up to reports the
Commission had commissioned from four independent expert groups
(industry practitioners and representatives of consumer bodies)
on the post-FSAP state of financial integration in the areas of
banking, insurance, securities and asset management;
- notes that the issues identified
by these groups were discussed at a June 2004 high-level conference
organised by the Commission on "European Financial Integration:
Progress & Prospects";
- progress made in different
areas since the FSC's earlier report, including supervisory arrangements,
supervisory convergence, financial stability, crisis prevention
and contingency planning; and
- progress on other initiatives
to remove the remaining obstacles to financial integration, including
such matters as reinsurance, corporate governance, accounting
standards and clearing and settlement.
12.11 On 16 November 2004, the ECOFIN Council adopted
draft Conclusions in document (b) which include endorsement of
the FSC's approach to financial integration, emphasis on consistent
implementation and effective enforcement of legislative measures,
support for the future for non-legislative action where possible,
(rather than more legislation), a strong call for thorough impact
assessments for any legislative proposals and a stress on the
importance of completing the outstanding legislative proposals
in the FSAP.
The Government's view
12.12 On documents (a) and (c) the Financial Secretary
to the Treasury (Mr Stephen Timms) says:
"Both reports recognise the Lamfalussy arrangements
as having clear benefits for the financial services sector; a
fact agreed by the Parliament, Commission and Council. Experience
to date has shown the Lamfalussy framework to have generated additional
momentum to, and increased the flexibility of, the legislative
process. In addition, the arrangements have been found to improve
transparency through open and early consultation with market participants.
"The UK Government fully supports the successful
application of the Lamfalussy arrangements. The May publication,
by HMT, the Bank of England and the FSA [Financial Services Authority]
entitled 'After the Financial Services Action Plan: A new strategic
approach' set out some practical steps to further enhance
the working of these arrangements."
12.13 On the FSC note updating the ECOFIN Council
on integration of financial services, document (b), the Minister
again cites the paper by HM Treasury, the Bank of England and
the Financial Services Authority, saying:
"The UK Government's policy in this area is
set out in full in the May strategy document After the EU Financial
Services Action Plan: A new strategic approach. This document
details the UK's five priorities to guide future action (better
implementation and enforcement of EU measures affecting the financial
sector; seeking alternatives to legislation; applying better regulation
principles; making the Lamfalussy arrangements work well; and
recognising the global nature of financial services). These five
priorities were endorsed by Parliament at the scrutiny debate
on financial integration held on 20 October."
Conclusion
12.14 These documents provide useful background
information on developments in regulation of the financial services
sector, although we note that they do not report the views of
the financial services sector on these developments. We clear
the documents.
33 Comitology procedures regulate the exercise by the
Commission of implementing powers conferred on it by the Council
and the European Parliament and are essentially intended for detailed
measures to implement Community legislation. Back
34
(25735) 4156/04; see HC 42-xxxii (2003-04), para 3 (13 October
2004) and Stg Co Deb, European Standing Committee B, 20
October 2004, cols. 3-34. Back
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