Select Committee on Treasury Written Evidence



  The Report of a Committee of Wise Men, chaired by Baron Alexandre Lamfalussy, on the Regulation of European Securities Markets was endorsed by the European Council in March 2001. In respect of the securities sector the Report highlighted various difficulties in the legislative system including:

—    the tendency of the Council of Ministers to add unnecessary levels of complexity to Commission proposals; and

—    diverging approaches to regulation across Europe leading to fragmentation at the implementation stage.

  It was also noted that the transposition by Member States of Community instruments was often late and frequently incomplete. In effect the existing system was criticised for being too slow, too rigid and producing too much ambiguity. It failed to distinguish between core, enduring, essential framework principles and practical day-to-day implementing rules.

In order to address these difficulties the Lamfalussy Report outlined a four-level approach—described below—with the dual objectives of ensuring prompt delivery of the Financial Services Action Plan and ensuring that in future there would be a more accountable and efficient regulatory structure. This approach was first applied in the securities sector and subsequently extended to the banking and insurance and occupational pensions sectors.

To help deliver the necessary improvements in the system a new committee structure was created.

The European Securities Committee (ESC), European Banking Committee (EBC), and European Insurance and Occupational Pensions Committee (EIOPC)—the "Level 2" committees—were established to advise the Commission on policy matters. [7]They are chaired by the Commission and comprise representatives from Member States (Ministries).

The Committee of European Securities Supervisors (CESR), Committee of European Banking Supervisors (CEBS), and Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS)—the "Level 3" committees—were established to advise the Commission on the preparation of draft implementing measures; to contribute to the consistent implementation of Community directives and to the convergence of supervisory practices; and to constitute fora for information exchange between supervisory authorities. The members are high level representatives of the relevant supervisory authorities.


The four-level Lamfalussy structure introduces a clear division of responsibilities.

At Level 1, the Commission adopts the formal proposal for a Directive or Regulation after a full consultation process. Once Parliament and the Council reach agreement on the framework principles and the definition of implementing powers contained in the proposal, the detailed implementing measures are developed in Level 2.

At Level 2, the Commission after consulting the relevant Level 2 committee, requests advice from the relevant Level 3 committee on technical implementing measures. The Level 3 committee prepares advice in consultation with market participants, end-users and consumers, and submits it to the Commission. The Commission sets out the measures in a proposal to the relevant Level 2 committee that will vote on the proposal within a maximum of three months. The Commission then adopts the measure. During the Level 2 process, the European Parliament is kept fully informed and the utmost account will be taken of its view.

At Level 3, The Level 3 committees work on joint interpretation recommendations, consistent guidelines and common standards. Additionally they will compare regulatory practice to ensure consistent implementation and application.

At Level 4, the Commission checks Member State compliance with EU legislation and may take legal action against Member States suspected of breaching Community law.

This is shown diagrammatically, below.

7   A separate European Financial Conglomerates Committee has also been created. Back

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