The Desirability of a Single Market in Financial
We, and our witnesses, agree that a single market
in financial services would benefit the European Union and the
United Kingdom. It should lower the cost of capital and borrowing,
increase the range of choice for borrowers and investors and ought
to provide protection for the investor/consumer.
The Financial Services Action Plan (FSAP)
The FSAP provides a major impetus towards the creation
of an internal market but it raises many important issues. We
recognise that deadlines are important to achieve political milestones
but we do not believe that they should be the determining factor.
Quality of legislation is vital. Financial markets carry an
inherent systemic risk. Over-regulation could stifle innovation
and lead to higher costs.
There will be major burdens for the Commission, the
Committee of European Securities Regulators (CESR), Member States
and Companies in transposing the framework regulation. We do
not think that the extent of the potential burden has been fully
The Global Context
It is essential that any changes to the regulatory
system in Europe take account of the global nature of financial
markets. Business can move elsewhere. We think this must be
a key criterion against which to test all proposed EU regulation.
The Position of London
London attracts envy and admiration in other Member
States. There has been a misunderstanding about the nature of
the financial markets located in London. They are not an exclusive
UK asset. London is a global market not a national one; it should
be regarded as a EU asset. If over-regulation or poorly drafted
legislation drives business away from London, it will not go elsewhere
in the European Union but to international markets where the regulatory
touch is lighter.
The Investment Services Directive (ISD)
The Council decision on 7 October 2003, when the
UK and four other Member States were outvoted, represents a step
backwards. We urge the Government to make every effort to achieve
an acceptable outcome.
Implementation and Enforcement
The Lamfalussy process is designed to accelerate
the creation and subsequent implementation of framework legislation
and to provide appropriate detail and guidance for industry.
There is tension at the heart of this system between the light
touch need for flexibility and the desire and intention of the
regulators to achieve as much harmonisation as possible in order
to bring about a level playing field.
We support a "call-back" requirement for
legislation at Level 2 to be scrutinised by the European Parliament.
The Lamfalussy process relies on comitology to accelerate the
implementation of legislation but this must not be accompanied
by a loss of parliamentary accountability.
A Single European Regulator
While the Lamfalussy process faces enormous challenges,
we believe that it must be given time to see if it will work effectively
in providing the regulatory framework that will enable a European
single market to flourish. We found no support for the concept
of a single European regulator.
Clearing and Settlement
Although not part of the Financial Services Action
Plan there is a need for a Europe-wide, cross-border, efficient
and effective clearing and settlement system. We did not examine
this in detail and cannot make a recommendation for a specific
means of achieving this. We support the Giovannini process.
We urge the European Union at all levels to consider quickly whether
legislation is required or whether the markets can create a pan-European,
cross-border clearing and settlement system without the need for
International Accountancy Standards (IAS)
Negotiations on these are moving ahead and the International
Financial Reporting Standards (IFRS) are due to be implemented
in 2005. It is essential that the remaining difficulties (on
IAS 32 and 39) be resolved soon and that mutual acceptability
be achieved with other international systems such as the United
States Generally Accepted Accounting Principles (GAAP).