APPENDIX 7: Committee Visit
Summary of evidence taken by the Committee
in Brussels Wednesday, 29 October 2003
Meeting with Mr. Jurgen TIEDJE, DG "Internal
Market"
Mr Tiedje is Secretary of the European Securities
Committee and desk officer for the "Transparency Directive"
under the Lamfallussy procedure. He has worked on Securities markets
in DG Internal Market since September 2001 and has worked in the
Commission for 11 years.
Financial Services Action Plan (FSAP)
As part of the Lisbon agenda to make the EU the most
competitive economy in the world by 2010, it had been agreed by
the Council that the FSAP would be completed by 2005. Cross-border
trade in equities had increased by 25% each year from 1996 to
2001. The need for a single market in financial services had become
even more important with the introduction of the Euro.
Of the 42 initiatives of the FSAP, 38 had been completed,
and the remainder should be completed by April 2004. The deadline
for implementation was 2005. This was very rapid, especially compared
to an earlier series of financial measures which had been discussed
throughout the 1990s without reaching a conclusion.
This progress was partly a result of the Lamfalussy
procedure: first the Council agreed a policy; second the Commission
worked out the technical details under the comitology process;
third the measure was implemented consistently through the Council
of European Securities Regulators (CESR); and finally the measure
was enforced. The third stage was still in embryonic form and
the fourth was not yet developed. The first directive needed to
be implemented by October 2004.
The Commission prepared a formal draft directive
only once it had obtained technical advice from CESR—the
Financial Services Authority (FSA) was the UK member. A qualified
majority of National Ministry Supervisory Authorities (the Treasury
for the UK) was then needed to adopt the draft. (The European
Parliament was only consulted during this process. It had asked
for the same rights as the Council, but this had been refused.
The current system was, however, due for renegotiation in 2007.)
The directives thus balanced the views of the regulators (whose
role was to defend investors and market participants) with the
views of the national ministries.
Consultation
Mr Tiedje said that the Commission consulted extensively.
They had issued written consultations and held hearings for both
the Investment Services Directive and the Transparency Directive.
Consultation helped the Commission to identify the main issues
and resulted in a gain in time later in the process. However,
market participants often under-estimated the tight deadlines
to which the Commission was working.
Mr Tiedje agreed that there was no real consultation
of small retail investors as opposed to institutional investors.
His unit was setting up groups of experts, but consumer representation
was hard to achieve as they tended to have no expert knowledge
and their demands were often unrealistic. He commended the FSA's
system of industry and consumer consultative panels.
In response to the claim that the Commission was
trying to do too much too quickly, Mr Tiedje reaffirmed the improvement
in consultation procedures, for example by consulting industry
experts before a consultation paper was issued. The amount of
consultation was driven by the FSAP deadline of 2005—consultation
was expected to reduce thereafter.
Regulatory Impact Assessments (RIAs)
RIAs, both ex ante and ex post were
becoming systematic. The call for cost-benefit analysis of regulatory
decisions was coming from the UK, but this would be difficult
and expensive to do over 25 Member States—were it to be
required it would paralyse the Commission. Assessing costs relied
on information from market participants
Subsidiarity
The Commission looked for maximum harmonisation in
some areas, such as the use of International Accounting Standards
(which had been asked for by industry) and the Prospectus directive,
which would ensure the automatic mutual recognition of prospectuses.
In other areas the Commission sought minimum harmonisation: rules
to prevent market manipulation and insider dealing were set by
the Commission, but methods of implementation and enforcement
were left to Member States.
Accountability
The Commission was ultimately responsible to the
European Parliament and the Council, although Member States were
accountable for the implementation of directives.
CESR used peer pressure to enforce implementation
of directives, which could ultimately be enforced by the Commission.
However, the Commission relied on joint working with CESR and
Member States to police implementation. Of the complaints received,
about 5-10% went to court and the Commission won 90% of cases.
With enlargement, however, it was becoming more important not
to win cases but to avoid them by increasing co-operation with
CESR and Member States.
Consumers did not have direct right of challenge
but could complain via the national regulator (the FSA for the
UK) to bring matters to the Commission's attention.
National Regulatory Authorities
In the UK, as in Germany, Austria and Ireland, the
National regulator was unified (e.g. the FSA). In the Netherlands,
however, they adopted a functional approach with one authority
for banking, another for consumer protection and so forth. In
2001 there had been 40 regulators for 15 member states. The trend
was now towards having one national regulator per member state.
National regulators could engage better with CESR to improve the
development and implementation of policy.
Meeting with Mr. Dominique RISTORI, Director,
DG "Energy & Transport"
Mr Ristori is the Director responsible for General
Affairs and Resources covering Financial Resources; Human resources,
training and IT; Interinstitutional relations, enlargement and
international relations; Internal market, public service, competition
and user's rights, and Information and communication.
Competition policy in Energy and Transport
Mr Ristori noted that energy and transport were two
public service sectors that directly affected citizens. Previously
both sectors had been controlled by monopolies but a turning point
had been reached (particularly in energy) with the introduction
of liberalising directives which were part of the programme to
complete the single market.
The Commission initiatives required to install a
proper legal framework had to be complemented by other initiatives
which sought to change mentalities and promote harmonisation,
particularly through the use of regulatory forums. The European
Council of Energy Regulators formed in 2000 was a case in point,
building on twice yearly meetings in both electricity and gas
since 1998. The European Association of Transmission Operators
also played a vital role. The Barcelona European Council 2002
addressed the finalisation of the internal energy market, and
had agreed to open the energy market completely by 2007.
In effect, the Commission was incorporating a competition
policy for utilities and network industries which had been first
developed most fully in the UK. In preparing for these initiatives,
representatives of industry and consumers had played an important
part in helping to decide on the requirements, and to identify
whether new European laws were necessary. This process of engagement
was vital to achieve accountability, legitimacy and consent.
Public service obligations and competition
Mr Ristori stated that there was no necessary connection
between black-outs and liberalisation. Regulators were equally
concerned with competition and security of supply; this needed
to be explained to the public, given consequences such as improving
cross-border planning, information flows and procedures, and reinforcement
of grids. Equally, the Commission recognised a third element of
regulatory protection—social needs. Europe was not, therefore,
following the United States model: there was a distinctive European
model. Key elements of social policy (universal service, protection
of vulnerable groups) were written into directives, but the details
of implementation were left to Member States and national regulators.
The Commission was pragmatic, seeking ways to integrate public
service obligations with a pro-market stance. The whole endeavour
was premised on the benefits to customers and citizens.
The growth in the EU to 25 Member States meant that
there would be a continued need for regulation and for it to be
independent of government, albeit fully accountable. The objective
was to have 'competent' authorities in place (that is, political
credentials alone were insufficient). The objective was effective
competition—competitive prices rather than lower prices
per se, although this could result as long as security
of supply was achieved. One policy was to disengage gas from oil
prices because oil prices were mainly set by a cartel. Reducing
cartel power could be achieved by the EU using its negotiating
power to demand greater transparency—the EU was the largest
importer of energy in the world.
Public Consultation
Good regulation in the hands of competent authorities
was the key to confidence building in liberalisation, but involved
initiatives such as the 'Passenger Charter of Rights'. The absence
of user representative bodies across Europe was recognised by
the Commission. BEUC did not have the capacity to generate all
the necessary responsible dialogue, and trade unionists were not
true user representatives. The Commission wanted to facilitate
developments in this regard and a new initiative was forthcoming,
based on working through member states to promote and invite representative
bodies to participate.
Co-ordination and harmonisation
Co-ordination was seen as essential to the development
of the internal energy market (with reference made to the recent
'black-outs' in Italy). Harmonisation consistent with subsidiarity
principles could result. The Florence conference had identified
two common competencies for the EU: (i) fair access based on non-discrimination
and (ii) control of the methodology for tariffs. Co-ordination
of 'congestion management' was particularly important, and the
policy was to reach the level of 10 % of electricity capacity
on European interconnection to underpin security of supply.
If co-ordination and harmonisation led to acceptance
of the need for pan-European regulation, then accountability would
require a supervisory role for the European Parliament. Accountability
of regulators to member state parliaments did not compromise independence,
but helped to instil the right attitude in regulators and enabled
them to be a permanent bridge between the technical and political
realities.
Meeting with Mr. Alexander WILLAN, DG "Information
Society"
Mr Willan has worked since 1999 in the Unit which
deals with the implementation of the EU regulatory package for
electronic communications (including telecommunications) and is
the desk officer responsible for following implementation of the
new framework in the UK. Prior to this, he worked to develop the
EU regulatory framework for postal services.
The Regulatory Model
Mr Willan said that the UK and Finland were among
the first countries to liberalise telecoms. Oftel had been very
successful: it had a good reputation for independence and had
anticipated events in most other Member States. The success of
the independent regulatory model in the UK had helped to remove
doubts about its effectiveness in other countries.
The key attributes of a National Regulatory Authority
(NRA) were independence, impartiality and transparency. In holding
the balance between the market and consumers regulators had to
consult at both national and EU level and make clear their reasons
for their decisions. The BRTF 5 Principles of Better Regulation
informed the legal framework, but the principles themselves could
not easily be enforced.
Appeals
The best accountability, however, was legal: the
Commission had established a transparent legal framework regulating
electronic communications which promoted the consumer interest,
for example, with regard to universal service provision. The framework
required dispute resolution procedures, but also established the
principle of allowing appeal to independent bodies both on the
merits of NRA decisions as well as on due process.
In terms of making this appeals system work, the
framework only set objectives and principles: it was up to Member
States to implement the administrative procedures. To prevent
vexatious legal challenges, however, any NRA decision should in
principle stand pending appeal. Consumers should not initially
refer complaints directly to the Commission, but should first
seek recourse at national level, particularly through NRAs.
Consumers
The Commission was reluctant to distort competition,
even where it resulted in outcomes consumers did not like. The
EU regulatory framework for electronic communications was based
on minimum regulatory intervention and favoured the promotion
of competition. In the case of the opening up of directory inquiries
services in the UK, customer dissatisfaction was due to the poor
quality of service from some providers. There was no regulatory
solution to this problem; this was part of the bedding-in process.
The EU could only create and enforce a level playing field for
competition. Competition would eventually remove the poor providers
and there would be long-term benefits.
Co-ordination
The Commission brought regulators together through
the new Electronic Communications Framework. The Communications
Committee involved Member States and NRAs in general discussions;
the Committee had to be consulted before the Commission could
adopt recommendations; and the Committee had a formal consultative
role where the Commission vetoed measures taken by an NRA to implement
directives.
In addition the Commission facilitated the European
Regulators Group: this had no formal legal powers but was a discussion
forum which could assist compliance through the exertion of peer
pressure. The Radio Spectrum Committee was a specific group which
was consulted by the Commission on harmonisation proposals for
spectrum use.
In terms of promoting regulatory good practice, the
Commission had issued a communication, but could do more.
RIAs
RIAs were part of the legislative procedure but were
not given priority. There were, however, requirements for financial
impact assessments, and the process of consultation and market
analysis also identified potential costs. The directives establishing
the electronic communications framework also contained provisions
for the Commission to review the economic impact of implementation
measures adopted.
Economic and Content Regulation
Economic and Content Regulation were often hard to
separate in practice. There could be an advantage in one body
considering both, but the nature of the activities was different.
Content regulation was highly political, and there could be a
risk that political considerations could spill over into areas
of economic regulation.
Meeting with Mr. Emil PAULIS, Director, DG "Competition"
Mr Paulis has extensive experience in working in
DG Competition in relation to Mergers, Legislation and relations
with Member States. He is Director of Policy Development and co-ordination.
The dual nature of DG Competition
Mr Paulis spoke about the dual nature of DG Competition
as both a law-making and a law-enforcing body. The Competition
Commissioner (currently Mario Monti) had a special remit to conduct
investigations to enforce competition law. The final outcome of
any investigation, however, was made as a collegiate decision
by the Commission as a whole. As the Commission had no budgetary
power in these areas there was no conflict of interest: the Commission
was independent. In theory any Commission decision to overturn
the conclusions of DG Competition would not be made public; in
practice events were often leaked to the press. This was an additional
encouragement for the DG to operate in a transparent manner.
The advantage of this 'administrative justice' was
that companies could discuss cases with the DG in advance. They
could also criticise decisions and help the Commission to avoid
repeating mistakes: following the Airtours decision, the media
outcry helped to bring about reform within the DG. By contrast
advance discussions with judges or criticism of their decisions
were not permissible. There were advantages to both Judicial and
Administrative justice: the key factor was the quality of the
people involved.
Once the Commission had taken up a case, the Member
State no longer had competence. The case would go to the ECJ if
appealed.
Scrutiny of the Annual Report
The DG published an annual report and a forward plan.
The Commissioner was called to give evidence on these every year
by the Economic and Monetary Affairs Committee of the European
Parliament. The Committee would then adopt the annual report together
with their own recommendations. The Commissioner then replied
to explain his position and his reaction to the recommendations.
Consultation
The DG consulted constantly with Member States. Advisory
Committees met every week to discuss draft decisions. These Committees
produced an opinion which was sent with the draft decision to
the Collegiate Commission. This culture of co-operation had often
led to changes in draft decisions. The European Competition Network
obliged the Commission to consult Member States, but also vice
versa.
Ninety-nine per cent of consultation took place with
industry. Consumers were hard to access as they were not organised,
had little expertise, and there was little incentive for an individual
to respond to consultations. This gap was filled by the civil
service impartiality of the Commission itself which took on the
role of consumer champion to ensure a balanced view.
Decentralisation
Decentralisation had led to more work for the Commission,
not less. The Commission gave general guidance on competition
law; all draft decisions by Member States had to be notified to
the Commission; and from 1st May the Commission was obliged to
help the judges of Member States with specific queries in the
field of competition law. This last obligation was potentially
an enormous increase in workload.
Decentralisation did, however, result in faster decisions.
The system of notification would have to end, and enforcement
would be left to Member States. Local enforcement had the further
advantage of greater acceptance of legal decisions.
Enforcement
Private legal action was essential to the enforcement
of competition law—no central authority could be as effective.
In the US companies feared private cases far more than actions
brought by the state. This was because, if proved, losses were
multiplied by three, punitive damages could be awarded, and costs
were always awarded against the defendant. By contrast, in the
EU it was almost impossible to be successful, although there were
now some private actions in the UK (for example against the directors
of Equitable Life).
It was theoretically possible that the Commission
could have to pass judgment on itself as a regulator. However,
Mr Paulis was strongly against the idea of a separate European
Competition Agency. To ensure balance between Member States it
would have to constitute itself as a mini Commission with representatives
from all Member States. An Agency would be subject to strong political
pressure. He would prefer a judicial system to a separate Competition
Agency. As it was, the Commission gave judgment based on a European
outlook, and did not take account of national interests.
Meeting with Mr. Tom Jenkins, Senior Adviser,
ETUC
Mr Jenkins has only recently moved to ETUC. Prior
to this post he worked for the TUC in the UK dealing with European
issues.
Consultation
Mr Jenkins spoke about his experience in Brussels
and Whitehall. In general the Commission was more open and consulted
better. Formal structures such as the Economic and Social Committee
advised the Commission and other institutions; there were a range
of tri-partite Advisory Committees; and there were special procedures
under the treaties for input by Social Partners on aspects such
as Health and Safety legislation (for example with respect to
the new Chemicals policy). There was also considerable informal
discussion with the Commission. The Commission, however, usually
ended up reflecting the views of Governments.
The ETUC would like to be consulted not just on labour
market issues but on wider matters such as company law. The takeover
directive would have a significant impact on workers but they
had not initially been formally consulted. The ETUC was sometimes
seen as a subsidiary body of DG Employment and Social Affairs.
On social policy the ETUC had an impact, but this was less in
other areas where they had to rely on lobbying the European Parliament
and the Council.
The Executive Committee of the ETUC was formed by
the leaders of national TUC bodies: their views were thus representative
of their national members. The ETUC could also claim to represent
the wider community as individual members often represented families.
Their views also often coincided with those of consumer groups,
and they worked with NGOs on specific issues: this was often more
successful than working with general consumer groups (such as
BEUC).
Role of the ETUC
The ETUC had difficulty in responding to all the
consultations issued by the Commission as they only employed a
small number of people. Much was left to national TUC bodies with
offices in Brussels. The ETUC did, however, seek to harmonise
the approach of national TUC bodies, and represented them before
the institutions.
The ETUC in Europe, and the TUC in the UK, lobbied
on specific pieces of legislation but not so much on decisions
taken by regulators fulfilling their functions. Complaints were
made to the Commission where governments were in breach of their
obligations under EU law, and cases had been taken to the court.
Accountability
The Commission was gradually becoming more accountable
to the European Parliament (although its drift to a free market
ideology, driven by the Council, was not welcomed by the ETUC).
Citizens generally were not well-represented directly,
except through the advisory Economic and Social Committee. Politicians
had the main role in representing the interests of citizens. The
Committee of the Regions had not been as successful as had been
expected, and there had been tension between their representatives
and the constituency representative to the European Parliament...
Ombudsmen also had a role in protecting the consumer interest.
There was a balance between independence and accountability.
The ETUC would like the European Central Bank to be more accountable,
but there were at least procedures for dialogue with social partners
which had no equivalent in the UK. Openness and transparency were
vital to effective accountability.
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