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