Letter from the Association of Private
Client Investment Managers and Stockbrokers
We are grateful for the opportunity to contribute
to the House of Lords inquiry into issues raised by the European
Commission's review of the Single Market. We note that the sub-committee's
inquiry will focus on three key sectors one of which is financial
services, and our comments are relevant to this sector.
The Association of Private Client Investment
Managers and Stockbrokers (APCIMS) is the organisation that represents
those firms who act for the private investor and who offer them
services that range from no advice or execution only trading through
to portfolio management for the high net worth individual. Our
217 member firms operate on more than 500 sites in the UK, Ireland,
Isle of Man and Channel Islands, and following the merger of EASD
into APCIMS increasingly in other European countries as well.
APCIMS members employ 25,000 regulated staff, they have under
management €450 billion for the private investor and undertook
last year 18.6 million trades on their behalf. A list of APCIMS
members is attached to this letter.
We address our comments first on the general
areas, and turn next to the sector specific questions.
A. THE CURRENT
STATE OF
THE SINGLE
MARKET
What has the impact of the recent enlargements
of the European Union been on the single market?
APCIMS comment: there is no doubt that the
recent enlargements have had an impact on the single market but
perhaps less so in financial services than in other areas. This
may be because the new entrant states have had significantly less
well developed financial markets than existing states. In theory
therefore they have been able more easily to introduce new financial
services legislation. The impact therefore has largely been confined
to there being a wider debate on issues which is a welcome development.
As regards the processes for initiating and introducing legislation,
the introduction of the Lamfalussy process has clearly enabled
the enlargements, and has meant that the processes have been maintained
in a streamlined and more efficient manner than hitherto.
Are there significant barriers to firms seeking
to offer their goods or services or to consumers accessing these
goods or services, in other Member States of the European Union?
What are the most important of these barriers? Are small businesses
more likely to encounter barriers when seeking to offer their
goods and services in other member states? What measures are needed
to overcome those barriers?
APCIMS comment: the major barriers remain
cultural, with tax differences, familiarity with local products
and language differences all playing a part. There is no doubt
that while significant new business opportunities have opened
up with the internet, the most challenging barrier to cross border
business is that of consumer redress. Consumers need the comfort
of knowing that if they are buying a product or service from a
foreign supplier that they can obtain satisfaction and redress
as easily as possible in the event of something going wrong.
Do you consider further legislative measures by
the Commission to be necessary for the completion of the single
market? If so, what measures would you consider appropriate?
APCIMS comment: we do not believe that further
legislative measures are necessary at this time for the completion
of the single market. Of the two largest pieces of legislation
for the securities markets, namely the Capital Requirements Directive
(2006/48/EC) and the Markets in Financial Instruments Directive
(2004/39//EC) only the first has been implemented (with effect
from January 2007), and the target date for the latter to be implemented
is 1 November 2007. Much of the financial industry (and particularly
smaller firms) have struggled with the extensive changes brought
about with the introduction of the measures in the Financial Services
Action Plan, and until implementation of MiFID has been completed
and indeed been in operation for some time, it will be too early
to assess what further measures might be needed.
Are the current provisions for monitoring market
functioning and performance effective? What evidence is there
that Member States are honouring their obligations equally?
APCIMS comment: we consider that the resources
given to monitoring market functioning and performance are not
sufficient. Neither within the European Commission nor amongst
the regulatory bodies of CESR, CEBS and CEIOPS are there adequate
resources devoted to the assessment of market performance. Unfortunately
the problem is deep seated and partly stems from the absence of
impact assessments before the measures of the Financial Services
Action Plan were introduced. This has meant a lack of understanding
on the part of the legislators and regulators as to how they expect
the markets now to be functioning. We applaud the Commission for
now having addressed part of the problem, and there is now a section
in the Commission charged with carrying out impact assessments
before new initiatives are introduced.
But more resources need to be devoted to monitoring
market functioning and it was disappointing to note that in assessing
the introduction of the Prospectus Directive (2003/71/EC) one
person in the Commission was assigned this large task and only
on a part-time basis. We recommend that now that the majority
of the Financial Services Action Plan is in operation and that
attention turns to market functioning, that the Commission ensures
that sufficient suitably skilled staff focus on ensuring that
Member States are honouring their obligations equally.
Is there a need for greater cooperation between
National Regulatory Authorities?
APCIMS comment: there has been a huge improvement
in co-operation between National Regulatory Authorities as a result
of the introduction of the Lamfalussy process. There are also
signs of continuing progress with the introduction of joint training
courses for regulators and convergence is improving through groups
such as CESR-Pol (which seeks to reach agreed decisions on market
abuse and accepted market practices). There is however still room
for improvement especially in the regulation of multi- national
operators. For example, Euroclear is supervised by some nine regulators
and has to respond to each in an appropriate way often having
to provide the same information but in slightly different formats.
This is a clear case for greater co-operation with the potential
for regulators to agree perhaps to supervise different parts of
the Euroclear Group and to work to common standards.
Are the current remedies available to the Commission
to enforce single market legislation adequate, and are they used
effectively?
APCIMS comment: the current remedy that
the Commission has for enforcing single market legislation is,
of course, the power under the Treaties to bring infraction proceedings.
In this context it is of considerable and welcome interest to
see the very recent action taken by the Commission in its request
to a total of 24 member states (all except the UK, Ireland, and
Romania) to write into national law the Markets in Financial Instruments
Directive and its implementing Directive. These requests are "reasoned
opinions" which is the second stage of the infringement procedure
under Article 226 of the EC Treaty. To our knowledge, the Commission
has not taken similar action on any of the previous Directives
in the Financial Services Action Plan even although we were aware
of some member states delaying implementation (for whatever reasons)
for significant periods.
What is your view of the country of origin principle?
Does it constitute the best basis for single market measures?
APCIMS comment: we believe that the country
of origin principle is at the root of many of the late discussions
that have occurred in relation to MiFID. The issues have related,
inter alia, to the supervision of branches and to transaction
reporting and have all been concerned with the extent to which
Article 32(7) of the Level 1 Directive has been applied (relevant
Article attached at Annex A).
We believe that one solution would be to do
away with the notion of local involvement in a branch and to ensure
that in legislative terms branch supervision should be a matter
for home countries. However, this would probably expose the xenophobia
and mistrust that exists even where there are suggestions that,
for example, the German regulator BAFin may have responsibility
for more of the business conducted by Deutsche Bank in London.
There could be a legitimate view that BAFin should have responsibility
for all of the supervision of Deutsche Bank in London.
What is the significance of the single currency
to the operation of the single market?
APCIMS comment: there remains much progress
to be made before the single market can truly be said to be a
reality. It is notable however that more than 50% of euro-denominated
securities trading originate in the UK, and this would seem to
suggest that the significance of the single currency is not as
great as might be suggested.
B. SECTOR SPECIFIC
QUESTIONS
What has been the impact of the implementation
of the Financial Services Action Plan as a whole; and in particular
the Markets in Financial Instruments Directive?
APCIMS comment: we believe it is too early
to assess fully the impact of the Financial Services Action Plan,
and certainly the MiFID which will not be in operation until November
2007. One of the obvious impacts has been the large costs for
firms in terms of compliance and new processes which they will
have to adopt and put into practice. For smaller firms which will
benefit less from the FSAP, at least in the short term, the burden
has been very large indeed.
Do you support the Commission's code of conduct
on clearing and settlement?
APCIMS comment: we warmly welcomed the Commission's
code of conduct on clearing and settlement. We believe that industry
led solutions are in general far preferable to legislative initiatives
where the outcomes can have unpredictable and unwanted conclusions.
We are following the ECB's Target 2 Securities project very closely
as if it does proceed, it could have outcomes for the UK that
are expensive and fall disproportionately on smaller firms.
26 June 2007
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