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Financial Services Action Plan (FSAP)
This communication on the implementation of a financial services action plan proposes policy objectives and specific measures for improving the single market in financial services .
Commission Communication of 11 May 1999 entitled "Implementing the framework for financial markets: action plan" [COM(1999) 232 final - Not published in the Official Journal].
This action plan follows on from the Communication of 28 October 1998 entitled "Financial services: building a framework for action". It was presented at the request of the European Council, meeting in Vienna in December 1998, which invited the Commission to draw up a programme of urgent work to achieve the objectives set out in the framework for action, on which a consensus had emerged. It is also based on the discussions held within the Financial Services Policy Group (FSPG), composed of personal representatives of the finance ministers and the European Central Bank (ECB).
At its meeting in Cologne on 3 and 4 June 1999, the European Council requested the Commission to continue the work undertaken on the action plan within the FSPG.
The action plan for a single financial market puts forward indicative priorities and a timetable for specific measures to achieve three strategic objectives, namely establishing a single market in wholesale financial services, making retail markets open and secure and strengthening the rules on prudential supervision.
The euro is the catalyst for a market-driven modernisation of EU securities and derivatives markets. Changes in the organisation of financial marketplaces are already visible, notably in the closer relationship between different exchanges and in the consolidation of payment and securities settlement systems. Broadly, the action planned is in six areas:
- Establishing a common legal framework for integrated securities and derivatives markets.
The Commission must prepare the ground for the effective cross-border provision of investment services. This means, among other things, urgently updating the Investment Services Directive, putting forward a proposal for a Directive on market manipulation and drafting a communication determining the protection rules applicable to sophisticated investors and household investors.
- Removing the outstanding barriers to raising capital on an EU-wide basis.
The existence of national rules, which hinder the offering of securities in other Member States, makes such operations extremely costly and is inhibiting pan-EU activity. The Directives on reporting requirements and on public-offer prospectuses therefore need to be updated. It will also be necessary to step up cooperation between the Commission and the Forum of European Securities Commissions (FESCO).
- Moving towards a single set of financial statements for listed companies.
There is an urgent need for solutions which give companies the option of raising capital throughout the Union using financial statements prepared on the basis of a single set of financial reporting requirements. International Accounting Standards (IAS) currently seems the most appropriate benchmark for framing a single set of such requirements. Likewise, International Standards on Auditing appear to be the minimum which should be satisfied in order to lend credibility to published financial statements. A future Commission Communication will deal with these issues and will in particular propose that the Fourth and Seventh Company Law Directives be amended.
- Creating a coherent legal framework for supplementary pension funds. The development of funded pension schemes calls for the creation of a strict prudential framework affording scheme members a high standard of protection. This should stimulate job creation by lowering labour costs and help to reduce the burden of financing old-age pensions caused by demographic change. The lack of a Community framework can also discourage labour mobility. The Commission plans to bring out a Communication on the topic which will serve as a basis for a proposal for a Directive on the prudential supervision of pension funds.
- Providing the necessary legal certainty to underpin cross-border securities trading.
The mutual acceptance and enforceability of cross-border collateral is indispensable for the stability of the EU financial system and for an integrated securities settlement structure. Legislative measures are therefore needed to achieve these objectives, and the Commission will, amongst other things, be putting forward a proposal for a Directive on the cross-border use of collateral.
- Creating a secure and transparent environment for cross-border restructuring.
All areas of the European economy are currently undergoing radical restructuring, and in particular the financial sector. Adoption of the Directive on takeover bids and the European Company Statute should protect minority shareholdings and make for a more rational organisation of corporate legal structures in the single market. Adoption of the European Company Statute will enable the Commission to come forward with proposals for Directives on cross-border mergers of public limited companies and transfers of company headquarters. Prudential considerations must also be taken into account. To avoid such considerations impeding the restructuring process under way, objective and publicly disclosed criteria will have to be adopted for authorising restructuring operations in the banking sector.
Fundamental change in the EU financial markets is being driven mainly by wholesale services. However, the retail sector is itself in the process of considerable adaptation. A legal framework is now in place that allows financial institutions to offer their services throughout the Union and has established a bulwark against institutional failure and systemic risk. And yet, an array of legal, administrative and private law obstacles hamper the cross-border purchasing or provision of these services (e.g. single bank account, mortgage credit). The Communication identifies a number of pragmatic steps that could be undertaken to overcome these obstacles. The Commission has identified six key areas for action:
- Information and transparency.
Clear and understandable information for consumers is vital when they are investing some or all of their savings in another country. Action must be taken to enhance information provision, transparency and security in the cross-border provision of retail financial services; this will comprise a proposal for a Directive on distance selling of financial services, a recommendation on mortgage credit information, a proposal for a Directive on insurance intermediaries, and an action plan to prevent counterfeiting and fraud in payment systems.
- Redress procedures.
Efficient and effective machinery for the amicable and judicial settlement of disputes needs to be set in place to provide the necessary confidence in cross-border activity. The Commission will base its action on, and follow the approach advocated in, Recommendation 98/257/EC on the principles applicable to the bodies responsible for out-of-court settlement of consumer disputes which it adopted on 30 March 1998. On 1 February 2001, the Commission launched the FIN-NET network to facilitate out-of-court settlements of disputes in the financial field where the service provider is established in another Member State. All categories of retail financial services (on-line and off-line) are covered in order not to block the expansion of e-commerce or the efficient development of cross-border services. The aim of FIN-NET is to boost consumer confidence by proposing simple, rapid and inexpensive alternatives to traditional justice procedures. Alternative dispute resolution (ADR) arrangements will be galvanised by the euro and are a response to the political will of the Member States to make cross-border trade as straightforward as national trade. At present, the length, complexity and cost of trans-national services often discourage the consumer.
- Balanced application of consumer protection rules.
For a number of specific financial products, the Commission will analyse national consumer protection rules and will attempt to establish possible equivalence between clearly similar rules. Its action will focus mainly on drawing up an interpretative communication on the concept of the general good in the insurance sector.
- Electronic commerce.
The overall impact of electronic commerce will be to reinforce market integration, but it can be expected that certain problems, already identified for cross-border sales in retail financial markets, will be thrown into even sharper relief. The proposals for Directives on electronic commerce and distance selling are in the process of being adopted.
- Insurance intermediaries.
Member States' national rules contain provisions that protect consumers in their relations with insurance intermediaries. However, these rules were drawn up along very different lines, a fact which can hamper the freedom to provide services. The Commission will put forward a proposal for a Directive updating the 1976 Directive on insurance intermediaries and strengthening consumer protection. This measure, to be adopted in 2002.2002, will replace the 1997 Directive and thus become the single binding European text applicable to insurance intermediaries. .
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The advantages of the single currency are liable to be not immediately perceptible to individual consumers of financial services if appropriate steps are not taken. Low-value credit transfers between euro zone countries will continue to attract high charges until such time as an efficient, cheaper cross-border payments system is put in place. Likewise, charges for cross-border card payments are often higher than for domestic card payments. There is therefore a clear need for an integrated retail payments system, providing secure and competitive small-value cross-border transfers, to be put in place. Cooperation in this area should be developed between the European System of Central Banks (ESCB), the European institutions and the private sector.
Strengthening prudential structures
EU regulatory safeguards need to keep pace with new sources of financial risk and state-of-the-art supervisory practice in order to contain systemic or institutional risk (e.g. capital adequacy, solvency margins for insurance companies) and to take account of changing market realities (where institutions are organised on a pan-European, cross-sectoral basis). Suggested measures include:
- moves to bring banking, insurance and securities prudential legislation up to the highest standards, taking account of the work of existing bodies such as the Basle Committee and FESCO; work on prudential supervision of financial conglomerates.
- work on prudential supervision of financial conglomerates; following the third report on progress in the implementation of the Action Plan for the Financial Services set out below, the Commission felt that the drafting of a proposal for a Directive in this field was one of its ten priorities. Financial conglomerates are entities which offer a range of financial services in areas such as banking, insurance and securities. These structures which often operate on a cross-border basis have developed so fast that new rules are required. The traditional approach whereby financial operators were distinguished by sector no longer holds;
- initiatives to improve cross-sectoral discussion and cooperation between authorities on issues of common concern which include the creation of a Securities Advisory Committee.
Disparities between Member States' rules on corporate governance can give rise to legal and administrative barriers which hinder the efficient operation of the EU financial market. However, the term "corporate governance" covers a wide range of issues whose ramifications for the single financial market are at present unclear. Any Community initiative in this area should therefore initially be confined to reviewing national codes of corporate governance applied in the different Member States in order to identify any barriers which could frustrate the development of a single EU financial market.
Another important issue is the elimination of tax barriers and distortions. It would be politically difficult to create a single market in financial services as long as the process of tax coordination in financial markets was incomplete. The communication therefore underlines the need for early adoption of the Directive proposed in 1998 to ensure minimum effective taxation of cross-border savings income.The Commission will keep up its efforts to eliminate tax barriers impeding the smooth operation of the single market in financial services, and it plans to table proposals on pension funds and insurance, with the support of the Taxation Policy Group.
Implementing the action plan
Mechanisms are to be set in place for monitoring progress and contributing to the practical implementation of the different measures. One of these mechanisms will be continuation of the work of the Group of personal representatives of the finance ministers with a view to identifying future challenges, providing strategic data and setting priorities. A high-level forum could also be created to take soundings from bodies representing the principal EU interest groups which have an interest in the smooth and efficient operation of financial markets. EU representative bodies should also play a part in identifying experts who could help the Commission in assessing the implications of more technical solutions.
State of progress and preparation for the future
On 27 October 2003 the Commission set up a specialised group to measure the state of progress of the FSAP and prepare for the future. With the help of four new groups of market experts, it launched an in-depth evaluation of the state of integration of Europe's financial markets. This process began as the five-year legislative phase of the FSAP was coming to an end. The evaluation must be extensive, transparent and open. The formation of the expert groups, made up of high-calibre specialists in the fields of banking, insurance, asset management and securities trading, is the first step in the process. The task of these groups is to help the Commission identify the main questions which will be examined in the course of the ensuing consultation.
More information on the evaluation of the FSAP by expert groups: DG MARKT.