Select Committee on European Union Forty-Fifth Report

CHAPTER 7: recommendations

139. We list the various recommendations that we have made in the course of this Report.

  • Clearing and Settlement: The Committee did not examine these issues in detail in the course of this inquiry but consider that an efficient and effective cross-border clearing and settlement system is a fundamental building block that has to be in place. We strongly support the work being done by the Giovannini Committee and we urge that an early decision be reached on whether EU legislation will be needed or whether the market alone could bring about a pan-European clearing and settlement system (paragraph 28).
  • International Accounting Standards: We urge all parties to consider the importance of common accounting standards, not only in the interests of achieving an internal market in financial services in the European Union, but also in order to bring about compatibility of standards with the American and Asia-Pacific markets (paragraph 33).
  • Wholesale Retail: There is a problem, too, in that it is difficult to define what is meant by wholesale and retail in the context of financial services. More effort should go into seeking to clarify this distinction (paragraph 40).
  • Deadlines: We were, therefore, pleased to hear the Financial Secretary to the Treasury argue robustly for quality of legislation, "we are very aware that it is much more important to get it right than to meet a deadline [Q. 494]". However, success remains a hostage to political fortunes as we have seen in the matter of the Investment Services Directive (paragraph 44).
  • Resources: Commission: The Commission's Directorate General for the Internal Market will have an important role to play in monitoring implementation and enforcement and should be properly resourced to do the job effectively (paragraph 48).
  • Burden on Companies: We endorse the Minister's sentiments that the Directives should be sensitively implemented and that quality of regulation was more important than deadlines in the creation of a single market (paragraph 50).
  • The Investment Services Directive: The Committee regrets that an issue of some importance was decided in ECOFIN by Qualified Majority Vote (QMV) in the face of opposition from important financial centres and urges the Government to make every effort to ensure that an acceptable outcome be reached. (paragraph 55).
  • Transparency Directive: Quarterly Reporting: The obvious solution should be for a requirement for flexibility so that Member States could choose quarterly reporting or UK-type practice where existing national practice did not already require frequent reporting to the market. The objective of the Directive, after all, is transparency (paragraph 64).

Liability: The Committee considers that it is important that the text of this Directive be clarified so that the degree of potential liability may be accurately identified. We therefore urge the Government to establish with the Commission the extent to which the liability of a director or auditor might be increased as a result of this Directive. If Mr Burn's interpretation of the effect of this Directive is confirmed, we wish to know how the Government will respond (paragraph 68).

  • Takeover Directive: It will be important for the capital markets that a level playing field in the regulation of takeovers emerges. The lack of an agreement on the Takeover Directive by the April 2004 deadline would not in itself seriously affect the ability of the EU to make progress with the other elements of the Financial Services Action Plan but such a failure could weaken the movement towards the efficient and effective operation of a single market in capital including that in existing companies. However, key provisions in the proposed Directive should not be diluted. There is, as we have said before[75], a clear UK interest in the Directive improving the position in other Member States, and in particular opening up markets for UK companies and making more secure the position of UK investors in Europe (paragraph 75).
  • Lamfalussy Process: Consultation with Market Practitioners: The Committee concluded that this could only be to the good and that it was understandable given the complexity and magnitude of the task imposed by the FSAP, that progress should appear to many witnesses to be hesitant (paragraph 89).
    • Resources: The Committee remains uncertain whether or not sufficient resources will be available to ensure smooth and effective implementation of legislation through the different levels of the Lamfalussy process. We have already recorded the Commission's concern on this point (paragraph 48). We were struck by the modest size of the permanent cadre of CESR. We are also concerned that the process of implementation has yet to be costed. Deadlines set by the European Council are important to maintain the impetus towards integrated markets in financial services but there is still a lot to do. There is tension between those who want to keep regulation flexible at Level 2 and 3, primarily politicians, and CESR who want the same rules in each Member State. Inevitably, this will affect the way in which legislation is implemented and will pose problems in many Member States (paragraph 90).
  • A European Regulator?: We agree with witnesses: there is no case for a European Regulator for as far forward as we can realistically see. (paragraph 91).
  • Success of the Lamfalussy Process: The Committee agrees that it is still too early to be able to judge the eventual success of the Lamfalussy process. (paragraph 92).
  • Commission's "Internal Market Strategies 2003-2006": We welcome these proposals designed to increase the speed and consistency of transposing EU Directives into national law (paragraph 94).
  • The Private Sector and Enforcement: We agree with this view: the private sector has to be persuaded to identify cases of poor implementation or enforcement and to bring this information to the attention of the Commission (paragraph 98)
  • Measuring the effectiveness of the FSAP proposals: The Committee was in no position to comment on whether or not these proposals would be effective though we recognise that some form of measurement of success after 2005 would help demonstrate the benefits that are expected to flow from a fully-liberalised market in financial services. (paragraph 102).
  • Enforcement: Given the uneven record of Member States in implementing Directives, we urge the Commission to engage at an early stage in the appropriate enforcement processes (paragraph 103).
  • Review Process: The Committee believes that there needs to be some review process and a mechanism to deal with fatal flaws that might emerge when Directives are transposed. We are glad to note[76] that the Commission has set up four groups of market practitioners to assess the internal market for financial services and to help map out the next stage of the integration process following the completion of the Financial Services Action Plan (paragraph 104).
  • Global Context: It is important that as Member States implement the measures constituting the FSAP, they should be aware, individually and collectively, of the need to remain competitive when measured against New York or the Asia-Pacific centres (paragraph 109).
  • EU/US Dialogue: The Committee is encouraged that the Government has been actively engaged in the current discussions between the EU and the US and strongly supports the Commission's role in encouraging a transatlantic dialogue. Inevitably, a single European market in financial services will provide a major challenge for New York. The dialogue will have to be handled carefully but the benefits to the global market in financial services are so great that any form of protectionism on either side of the Atlantic should be eschewed (paragraph 114).
  • Position of London: The Committee recognises the fears of the practitioners in the UK market. London is, undoubtedly, successful and this attracts both admiration and envy from less successful markets. A single market in financial services can only be to the benefit of an efficient and competitive dominant market player. Nevertheless, it will be important for the Government and the financial services industry to monitor closely the implementation of Directives as the Lamfalussy process evolves and to be prepared to intervene at an early stage if EU legislative proposals contain elements that might seriously inhibit the ability of the markets in London to continue to attract non-EU issuers and participants (paragraph 121).

140. The Committee considers that the European Commission's Financial Services Action Plan raises important questions to which the attention of the House should be drawn and makes this Report to the House for debate.

75   "If at first you don't succeed …… Takeover bids again". 28th Report, Session 2002-03, HL Paper 128, Paragraph 80. Back

76   European Report 2815 - 28 October 2003, Page 11.2. Back

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