20 Financial services policy
| (26580)
8823/05
COM(05) 177
| Green Paper on Financial Services Policy (2005-2010)
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| Legal base | — |
| Document originated | 3 May 2005
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| Deposited in Parliament | 19 May 2005
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| Department | HM Treasury |
| Basis of consideration | EM of 18 July 2005
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| Previous Committee Report | None
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| To be discussed in Council | None planned
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
20.1 The Financial Services Action Plan (FSAP), endorsed by the
Lisbon European Council in March 2000, is an important element
in implementing the Lisbon Strategy (aimed at making the Community
"the most competitive and dynamic knowledge-based economy
in the world" by 2010). It focused on the legislative action
necessary to establish an integrated European financial services
market. Since 39 of the 42 measures it proposed have now been
adopted, the legislative phase of the FSAP is drawing to a close.
The document
20.2 The Green Paper sets out the Commission's view of what the
next stage of financial services policy should be. It says that
during the period 2005-2010 the Commission's overall objective
is:
"to consolidate progress towards an integrated, open,
competitive, and economically efficient European financial market
and to remove the remaining economically significant barriers;
to foster a market where financial services and
capital can circulate freely at the lowest possible cost throughout
the EU — with adequate and effective levels of prudential
control, financial stability and a high level of consumer protection;
to implement, enforce and continuously evaluate
the existing legislative framework, to deploy rigorously the better
regulation agenda for any future initiatives, to enhance supervisory
convergence and strengthen European influence in global financial
markets."
20.3 The first section identifies the Commission's
priorities for the period 2005-2010 as:
· consolidation
of existing legislation with few new legislative proposals;
· effective
transposition of Community rules into national legislation; and
· continuous
evaluation of the application of rules in practice.
20.4 The Commission states its intention to "modify
or even repeal measures that are not delivering the intended benefits".
It says the principles of better regulation will be observed and
applied at all policy stages. It requires an evidence-based expectation
that any proposal for new legislation or implementing rules would
yield significant economic benefits, facilitating cross-border
business and enhancing the competitiveness of Europe's financial
markets, while protecting internal stability. It calls on Member
States not to "gold-plate" when transposing legislation.
20.5 The second section of the Green Paper reiterates
the Commission's commitment to better regulation, transposition,
enforcement and continuous evaluation and lists its priorities
as:
"continued application of open and transparent
policy making with extensive use of consultation mechanisms at
all levels;
simplifying and consolidating all relevant (European
and national) financial services rules;
converging standards and practices at supervisory
level, while respecting political accountability and current institutional
boundaries;
working with Member States to improve transposition
and to ensure consistent implementation;
evaluation [sic] whether the existing directives
and regulations are delivering the expected economic benefits
and repealing measures that do not pass this test; and
ensuring proper implementation and enforcement,
if needed, by infringement procedures building on existing legislation
and case law."
20.6 In the third section the Commission discusses
consolidation of financial services legislation over the next
five years. It sets out the Commission's immediate priority of
completing negotiation of outstanding measures over the next 12
months and identifies matters where it may no longer make proposals
or where it may reconsider proposals. It also discusses efficient
and effective supervision of financial services, enhancing cross-border
investment and competition and the global importance of European
financial services.
20.7 The final section of the Green Paper discusses
possible new legislative initiatives, identifying asset management
and retail financial services together with (but less certainly)
mortgage credit, rules on information requirements, financial
mediation and bank accounts.
20.8 The Green Paper also has two annexes: the first
supplements the discussion in the body of the paper, and the second
shows timelines for the adoption and implementation of financial
services legislation.
The Government's view
20.9 The Economic Secretary to the Treasury (Mr Ivan
Lewis) says that agreeing a future financial services policy following
the FSAP is a priority for the Government during the UK Presidency,
building on what he calls "this very encouraging Green Paper".
He says the Government's policy on these matters was set out in
its May 2004 document, After the EU Financial Services Action
Plan: A new strategic approach, and reiterated in its September
2004 document, After the EU Financial Services Action Plan:
UK response to the reports of the four independent expert groups.
These documents discuss the Government's five priorities to guide
future policy:
· better
implementation and enforcement of Community measures;
· seeking
alternatives to legislation;
· applying
better regulation principles;
· making
the Lamfalussy arrangements[53]
work well; and
· recognising
the global nature of financial services.
The Minister notes that these priorities were endorsed
following a scrutiny debate in October 2004 on financial integration
in the Community.[54]
20.10 The Minister tells us also that the Government's
view on convergence of supervisory arrangements is set out in
its January 2005 document, Supervising financial services in
an integrated European Single Market: A discussion paper.
It suggests a range of practical measures such as joint inspections
and secondments between supervisors, along with more ambitious
proposals for streamlining data requirements and developing enhanced
cooperation arrangements between supervisors. It rejects legislative
and institutional change in favour of optimising current legislative
and institutional arrangements.
20.11 Finally the Minister says that, following its
public consultation on the Green Paper, the Commission intends
to publish a White Paper in November 2005.
Views from the financial services industry
20.12 The Corporation of London has drawn our attention
to "A Paper prepared for the City EU Advisory Group reflecting
discussion in a working group in the City of London drawn from
a broad range of international financial services interests",
which sets out a response to the Green Paper. It endorses
the overall objective the Commission sets itself and comments
on many aspects of the Green Paper, including some, such as gold
plating and the European Parliament's concerns about the Lamfalussy
process, that the Minister does not address. We annex the useful
summary of this paper.
Conclusion
20.13 Financial services are an extremely important
sector of the European economy and ensuring the correct policies
for the sector is vital. We note the Government's endorsement
of the general thrust of the Green Paper, but we are sure that
the issues arising in it should be debated. However, given that
a debate could not take place until shortly before the Commission's
White Paper is due to be published, we will defer a final decision
on a debate recommendation until we see the White Paper. Meanwhile
we clear this document.
Annex
Summary from "A Paper prepared for the City
EU Advisory Group reflecting discussion in a working group in
the City of London drawn from a broad range of international financial
services interests"
This paper responds to the questions in the Commission's
Green Paper on Financial Services Policy (2005-2010). It is primarily
concerned with issues that relate to financial market sectors
in general ("cross sectoral issues") and does not deal
with issues that relate to particular financial markets.
The main themes of the responses to the Commission's
questions are as follows:
· There
is wide support for the Commission's broad objectives set out
in the Green Paper (and described in paragraph 1.1 of the paper);
· The
Commission should seek to secure the agreement of as many parties
as possible in the EU interested in regulatory and supervisory
matters to the "Statement of Principles and the Commitment
to a Vision of the Single EU Financial Market", set out in
the Annex to the paper:
· The
Commission should seek to ensure, to the extent possible, that
once transitional changes have been absorbed, regulatory/supervisory
and other burdens are permanently reduced;
· The
"better regulation" approach is widely welcomed. In
particular, a systematic approach for the avoidance of "goldplating",
for justifying new initiatives by rigorous impact assessments,
for using non-legislative approaches wherever possible and for
the ex post evaluation of rules with a commitment to repeal or
revise where the evidence so justifies;
· There
should be no automatic read across to professional and wholesale
markets of rules appropriate for the protection of retail consumers;
· There
should be a review, with market practitioners, of ambiguous legislation,
which makes business planning and consistent enforcement difficult;
· A means
should be found of meeting the European Parliament's concerns
about the Lamfalussy process without delay, given the uncertainty
concerning timing of the ratification of the draft Constitutional
Treaty or of a possible formal decision not to proceed with ratification;
· There
should be better, consistent implementation and enforcement of
legislation. A crucial test here of the Commission's resolve to
give priority to such work will be the necessary reallocation
of resources within the Commission services devoted to these objectives.
To reinforce the delivery of the better implementation and enforcement
agenda, a new combined unit should be established within the Commission,
reporting to the Internal Market and Competition Commissioners
tasked with these responsibilities;
· A European
training college for supervisors should be created, based on a
common philosophy and practice, with a core syllabus for each
sector, involving exposure to market practice and institutions;
· There
should be significantly strengthened efforts to improving cross
border supervisory cooperation in order to facilitate improved
implementation and enforcement and the elimination of duplicative
reporting, standardisation of reporting systems and common reporting
formats;
· There
should be workable and effective memoranda of understanding for
crisis management between financial supervisors, central banks
and national ministries of finance, including rules on burden-sharing;
· Any
change to current structures of supervision would need to be justified
as an appropriate and proportionate response to demonstrable problems,
as the Green Paper recognises in advocating an evolutionary approach
that balances effective supervision, financial stability and the
minimisation of the regulatory burden. The possibilities of establishing
arrangements for lead supervisors and for the delegation of supervisory
tasks and responsibilities should be debated;
· The
Commission's aspirations for deepening the regulatory dialogue
with the rest of the world, especially the USA, China, Japan and
India, are fully supported. The dialogue should involve market
practitioners;
· Any
proposals for new legislative action to encourage the integration
of retail financial services should be carefully targeted at proven
barriers, should be able to demonstrate cost effectiveness and
rest upon effective regulatory impact assessments. It might be
more fruitful in the shorter term to focus on the distribution
of cross border retail services via a local retail presence rather
than on direct cross border marketing.
Details of these and other responses to the Green
Paper are set out in the paper.
53 The Lamfalussy process is a four-level approach
to regulation of the European financial services industry. 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 high-level representatives
perform a "comitology" role (comitology procedures regulate
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)
of voting on the Commission's implementing measures before their
adoption. Back
54
Stg Co Deb, European Standing Committee B, 20 October 2004,
cols 3-34. Back
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