21 Financial services
| (a)
(26726)
11190/05 + ADD1
COM(05) 314
(b)
(26742)
11500/05
COM(05) 327
|
Green Paper on the enhancement of the EU framework for investment funds
Green Paper on mortgage credit in the EU
|
| Legal base | — |
| Document originated | (a) 12 July 2005
(b) 19 July 2005
|
| Deposited in Parliament | (a) 20 July 2005
(b) 27 July 2005
|
| Department | HM Treasury |
| Basis of consideration | EMs of 7 September 2005
|
| Previous Committee Report | None
|
| To be discussed in Council | None planned
|
| Committee's assessment | Politically important
|
| Committee's decision | Not cleared; further information requested
|
Background
21.1 Over recent years there have been various Community measures,
mainly legislative, designed to more fully integrate and improve
the single market in financial services. The Commission has recently
published a Green Paper about the policy options for financial
services in the period 2005-2010.[64]
The documents
21.2 In these documents the Commission presents further Green
Papers on specific financial services issues. In document (a)
the Commission seeks views on proposals to improve the regulatory
climate for investment funds in the Community, in particular for
undertakings for collective investment in transferable securities
(UCITS), that is specially constituted collective investment portfolios
exclusively dedicated to the investment of assets raised from
investors. The Commission says that there is a perception amongst
interested parties that the present UCITS legislation could function
better, but sees no compelling case for fundamental legislative
reform. It says that instead there should be a focus on ways of
improving the functioning of the existing legislative framework.
The Commission outlines and seeks views on its immediate work
plan to bring greater legal certainty to the day-to-day implementation
of the Directives and to make better use of the current framework.
21.3 The Green Paper also looks at longer-term challenges
facing the industry: ongoing innovation in investment strategies
and products, new business models, the emergence of specialised
services providers, change in distribution systems and more discerning
investors. The Commission discusses possible responses to and
invites views on a number of issues:
- encouraging a more cost-efficient
industry;
- maintaining high levels of investor protection;
- competition from substitute products, such as
unit-linked life insurance;
- the European alternative investment market, that
is private equity funds and hedge funds; and
- whether in the longer term UCITS law needs modernising,
through use of the Lamfalussy process.[65]
21.4 The Commission calls for comments by 15 November
2005.
21.5 In document (b) the Green Paper asks for views
on the case for Commission action in relation to the Community's
mortgage credit markets. It notes that mortgage markets are large
and complex. At the end of 2004 outstanding balances equated to
about 40% of Community Gross Domestic Product. These markets differ
widely in many respects and less than 1% of total residential
mortgage credit activity is represented by direct cross-border
sales. The arguments for action result from recommendations in
a 2004 report from a Commission-appointed "Forum Group on
Mortgage Credit".[66]
The Commission then examines issues related to:
- consumer protection —
matters relating to information, provision of advice and credit
intermediation, early repayment, calculation of annual percentage
rates, usury rules, interest rate variation, credit contract,
enforcement and redress;
- legal matters — matters relating to applicable
law, client credit-worthiness, property valuation, force sales
procedures and tax;
- mortgage collateral — matters relating
land registers and proposals for a "Euromortgage" (to
facilitate creation and transfer of mortgages by weakening the
link between mortgage collateral and mortgage credit); and
- funding of mortgage credit.
In annexes to the Green Paper the Commission summarises
its responses to Forum Group recommendations not dealt with in
the body of the document.
21.6 The Commission asks for views on a range of
questions on these issues by 30 November 2005.
The Government's view
21.7 In relation to document (a) the Economic Secretary
to the Treasury (Mr Ivan Lewis) says that the Government welcomes
the broad approach of focusing on improving the functioning of
the existing regulatory framework. It remains committed to working
to improve the framework for UCITS regulation and will emphasise
the need for robust cost benefit analysis to back up any new initiatives.
After discussion with interested parties the department will respond
to the Green Paper.
21.8 As for document (b) the Minister comments that
the Government welcomes the discussion the Green Paper will facilitate.
Again it remains committed to exploring how further integration
of Community mortgage markets might best be encouraged. He says
the document is reasonably even-handed in its analysis of the
recommendations of the Forum Group.
21.9 The Minister says that much of the Green Paper
is welcome to the Government because it reflects well on the strengths
of the UK market. But he comments that some of the issues necessarily
touched on are potentially sensitive and that any regulatory proposals
that might emerge would need to be subject to thorough scrutiny.
21.10 The department is consulting interested parties
before responding to the Green Paper.
Conclusion
21.11 These documents deal with important and,
as the Minister notes, potentially sensitive matters. It is probable
that we will wish to recommend a debate (or separate debates)
— either on these documents or at a later stage. But before
considering this further we should like to see the department's
responses to the two Green Papers. Meanwhile we do not clear the
documents.
64 See (26580) 8823/05: HC 34-iv (2005-06), para 20
(20 July 2005). Back
65
The Lamfalussy process is a four-level approach to regulation
of the European financial services industry. At the first level
the European Parliament and Council adopt legislation, setting
framework principles and the Commission's implementing powers,
on the basis of Commission proposals on which it is advised by
sector-specific committees of high-level representatives of Members
States 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 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. 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. Back
66
See http://europa.eu.int/comm/internal_market/finservices-retail/docs/home-loans/2004-reportintegration_en.pdf Back
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