16 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 | —
|
| Department | HM Treasury
|
| Basis of consideration |
Minister's letters of 23 November 2005 |
| Previous Committee Report |
HC 34-v (2005-06), para 21 (12 October 2005) |
| To be discussed in Council
| Not known |
| Committee's assessment | Politically important
|
| Committee's decision | Cleared, but relevant to any debate on the Community's financial services policy for the period 2005-2010
|
Background
16.1 Over recent years there have been various Community measures,
mainly legislative, designed to more fully integrate and improve
the single market in financial services. In May 2005 the Commission
published a Green Paper about the policy options for financial
services in the period 2005-2010.[37]
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. In document (b) the Green Paper asks for views on the
case for Commission action in relation to the Community's mortgage
credit markets.
16.2 When we considered these documents in October 2005 we noted
that they deal with important and potentially sensitive matters.
We said we might wish to recommend a debate (or separate debates)
— either on these documents or at a later stage but that
we should like to see the department's responses to the two Green
Papers before considering that further.[38]
The Minister's letters
16.3 The Economic Secretary to the Treasury (Mr Ivan Lewis) now
writes enclosing the two responses to the Commission. (They are
in fact both joint responses from the Treasury and the Financial
Services Authority.) The Minister tells us that the response to
document (a), the Green Paper on investment funds, was informed
by discussions with interested parties including a group of industry
practitioners convened by the department. Notwithstanding minor
differences of emphasis these interested parties were strongly
supportive of the Government's position.
16.4 In an introductory overview of this response the Government
asserts that creating a single market in financial services is
at the heart of economic reform in the Community and that because
of its key role in the investment chain achieving an efficient
single market in asset management is central to that agenda. In
spite of some recognised weaknesses the UCITS regulatory framework
has delivered many single market benefits to the retail fund management
industry. The Government believes that the priority now must be
to build on this success and relevant to this are its five priorities
for the era after the Financial Services Action Plan (FSAP):[39]
- better implementation — with the framework in place
the priority now is proper implementation;
- alternatives to Community regulation — supporting the
industry's work on standardisation of fund processing;
· better
regulation — carrying out robust, defensible cost/benefit
analysis of proposed legislation;
- making the Lamfalussy process[40]
work well — even closer regulatory cooperation through CESR
(the Committee of European Securities Regulators — the relevant
advisory committee for the second and third Lamfalussy levels)
to deliver consensus on notification and eligible assets; and
- recognising the global nature of financial markets
— UCITS providers sell not only in the Community and the
effects to UCITS on the ability of firms to do business in these
other markets must be taken into account.
16.5 The Government says it strongly supports the
Commission's view that the focus should be on exhausting the possibilities
offered by the existing framework and its comments on longer-term
policy goals in the response to the Green Paper must be read in
that context. It continues that it sees the immediate priority
actions to improve the functioning of the UCITS framework as related
to notification, private placement, a management company passport
and simplified prospectuses. The remainder of the response comments
in detail on these and other issues arising from the Green Paper.
16.6 In its introductory overview of its response
to document (b), the Green Paper on mortgage credit, the Government
asserts:
- mortgage markets constitute
an important aspect of the overall economy of Member States;
- increased efficiency and competitiveness in these
markets has the potential to contribute to the overall growth
of the Community's economy by enabling consumers to enter housing
markets, through helping homeowners maximise the value of their
housing assets and by facilitating labour market flexibility;
and
- as the Green Paper makes clear, increased efficiency
and competitiveness in mortgage credit markets is most likely
to be delivered by ensuring that mortgage credit can be demanded
and offered with limited hindrance throughout the Community and
that market completeness, product diversity and price convergence
are enhanced across Member States.
16.7 The Government continues that in order to achieve
increased efficiency and competitiveness the focus of future activity
should be shaped by the following priorities:
- better enforcement and implementation
of existing measures — timely transposition and implementation
by all Member States of agreed FSAP measures is important;
- better regulation — a
convincing economic impact assessment of any proposals is important.
The Government comments that the London Economics report[41]
published alongside the Green Paper "represents a first step,
but is a long way short of the sort of rigorous cost benefit analysis
that will be required to justify any specific action";
- exploring alternatives to regulation
before any decision is made on legislation for Community mortgage
markets. The Government notes the Green Paper itself highlights
areas where non-legislative action has begun to address barriers
to market integration — for example the Code of Conduct
on pre-contractual information for home loans and the EULIS (European
Land Information Service) and suggests there is scope for other
cooperative initiatives; and
- exploring the potential of market led initiatives
to exploit the global nature of financial markets, for instance
in relation to international wholesale markets providing funds
for Community mortgage lending.
16.8 The Government then goes on to set out its priorities:
- increasing non-discriminatory
cross-border access to consumer credit data, while maintaining
data protection safeguards;
- developing common valuation standards which can
be widely used and understood by valuers and lending institutions;
- raising confidence in repossession procedures,
while maintaining consumer safeguards; and
- encouraging the development of EULIS an recognising
it as an example of good practice.
It adds that mortgage funding priorities should be:
- a working group to contribute
to further work on mortgage funding efficiency;
- exploring the strong potential of industry collaboration
in this area; and
- liberalising those regimes that restrict mortgage
lending to particular sorts of enterprise, such as those taking
deposits.
16.9 The Government's response then deals in detail
with issues arising from the Green Paper and the London Economics
report.
Conclusion
16.10 We are grateful to the Minister for sending
us these responses to the two Green Papers. We remain of the view
that the documents cover important and potentially sensitive matters.
However we have concluded that they do not themselves warrant
a debate recommendation. Rather we now clear the documents but
note that they are relevant to the debate we expect to recommend
on the Commission's forthcoming White Paper on financial services
policy for the period 2005-2010.[42]
37 See (26580) 8823/05: HC 34-iv (2005-06), para 20
(20 July 2005). Back
38
See headnote. Back
39
The Financial Services Action Plan set out a programme of measures
to create a single wholesale market for financial services and
products and an open and more secure financial retail market and
to implement state-of-the-art prudential rules and supervision.
It was endorsed by the Cologne European Council in 1999 and was
largely completed during 2004. It was intended as a key part of
the Lisbon Strategy for the Community to become the world's most
competitive and dynamic knowledge-based economy. Back
40
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
41
See http://www.londecon.co.uk/Publications/frmpublications.htm
- London Economics is a specialist economics consultancy which
is part of the Indecon International Economic Consulting Group. Back
42
See (26580) 8823/05: HC 34-iv (2005-06), para 20 (20 July 2005). Back
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