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Brussels, 6th May 2004

Financial Services Action Plan: Commission seeks views on new expert reports on state of financial integration

The European Commission has published for open consultation reports by four independent groups of experts on the state of financial integration in the banking, insurance, securities and asset management sectors. The reports, which reflect the consensus view of the group members and not necessarily that of the Commission, provide a comprehensive assessment of the extent to which different types of financial business can be undertaken on a pan-European basis. They also outline the main expectations and concerns of the different sectors regarding the implementation and enforcement of Financial Services Action Plan (FSAP) legislation. They set out recommendations for harnessing the full potential of FSAP measures, and identify specific areas where the single financial market can be further enhanced through a combination of self-regulation, supervisory cooperation and - in some limited cases – additional EU-level policy intervention Based on these reports and reactions to them, the new Commission will be in a position to consider, early in its mandate, how to ensure the effective implementation and enforcement of the measures agreed under the FSAP and how best to build on those measures to complete the integration of EU financial markets. The Commission is also publishing a working document on indicators of economic benefits from financial integration (see IP/04/601) resulting from an extensive analysis of the EU financial system. The deadline for comments on the expert reports is 10th September 2004. The full texts are available at

Internal Market Commissioner Frits Bolkestein said: “I would like to thank the expert groups for their excellent work. Their reports define the terms of reference for the next phase of the stock-taking exercise – an open strategic debate in which views and comments are invited from all stakeholders. Five years after the launch of the FSAP, it is time to assess whether expectations have been matched and what lessons must be learnt. Make no mistake, we have come a long way. But to have the real impact on the markets that we want, we now need vigorous implementation and enforcement of what has been agreed politically. So that walls between national markets, like the walls of Jericho, come tumbling down for good. This is not to make life easier for “financial fat cats” but for the benefit of citizens and businesses in the enlarged Europe as a whole. Integrating financial markets means more efficient pension provision. A lower cost of capital, allowing businesses to expand and create more jobs. As for mainstream financial products aimed at individuals and families – our citizens as well as our businesses deserve cheaper loans and a bigger choice of competitive banking and insurance products from throughout the EU. That need not mean much more legislation – it does mean much more work. These reports are part of a process that will help us to get it right.”

As the legislative phase of the FSAP draws to a close, the Commission believes that it is time to start a dialogue with all stakeholders on the strengths and weaknesses of the new EU framework of financial legislation. In particular, the Commission wants to determine how to get the best out of this framework faced with financial markets which continue to evolve – notably under the effects of enlargement. The expert groups were therefore set up in October 2003 (see IP/03/1458, MEMO/03/209) to advise the Commission on the extent to which the Financial Services Action Plan (FSAP) has improved the conditions for doing financial business across EU borders. The groups were also mandated to advise the Commission on remaining weaknesses in the EU legislative framework.

The four reports

The reports suggest that it is too early to draw conclusions on the impact/effectiveness of FSAP measures, but the reports do identify some progress in the organisation of certain upstream business functions and capital-market oriented activities (trading and portfolio management, risk management).

By and large, however, the provisions of FSAP legislation – many of which are only now being implemented or will be implemented over the next couple of years - have not yet translated into improvements in market access or easier organisation of cross-border financial business. Specific provisions of some recent measures have been identified as being unhelpful. Inconsistencies between provisions of overlapping legislation have also been criticised.

There is a lot of common ground across the reports in terms of the emphasis placed on making the most out of the current legislative framework through better implementation, enforcement and supervisory convergence; improved prioritisation and justification of legislative interventions; and continued improvements in consultation. The consensus view is that more effective exploitation of existing provisions should take precedence over the adoption of new legislation unless the latter is indispensable for the solution of single market failures.

The reports stress the need for continued enhancement of the EU financial law-making process. All four expert groups recognise the improvements that have been made by Commission and others (the European Parliament, the Committee of European Securities Regulators) with regard to transparency and consultation. The report by the securities group deals extensively with procedural/institutional improvements at national, Commission and supervisory committee levels.

There is a strong consensus in the reports in favour of extending the current four-level approach to developing EU legislation (see IP/02/195) – indeed now extended from securities legislation to banking, insurance and collective investment funds (UCITS) - and of exploiting it as the basis for EU supervisory architectures over the foreseeable future. However, some experts called for further consideration to be given to the possible case for a move to centralised European financial supervision.

The experts call for the Commission to be more disciplined in motivating and targeting actions which will deliver tangible changes to market outcomes. EU level actions should clearly demonstrate that there are business functions which could be organised on a pan-European basis were it not for the continued existence of regulatory or public policy barriers. Efforts to facilitate cross-border marketing of financial services to retail consumers should focus on products/services which are inherently tradable on a cross-border basis.

This feedback concurs with the core message from the (draft) report by the Financial Services Committee discussed at the informal meeting of EU Finance Ministers in Punchestown, Ireland on 2-3 April, 2004.

The reports argue that new legislative measures should only be brought forward when impact assessments make a convincing case that the expected benefits to industry will outweigh adjustment or compliance costs.

The banking and insurance groups have identified the current Member-State-by-Member-State approach to supervision of cross-border groups/complex groups as being inefficient for industry and counter-productive from a risk-management perspective. There is a strong plea from these groups for greater rationalisation in the supervision of these groups.

Each report identifies a number of specific issues for further consideration. These include, in the asset management report, a list of possible enhancements to the current framework and in the banking and insurance reports, some back-office issues, as well as issues on group/conglomerate supervision. The securities report meanwhile raises for further reflection the regulation of credit rating agencies, securitisation and netting. The Commission needs to give more detailed consideration to these specific recommendations before commenting on the pros and cons of any particular course of action.

Statistical indicators

A Commission working document published simultaneously with the expert reports (see IP/04/601) provides statistical indicators that integration is progressing, though progress is uneven across the different sectors and the working document does not attempt to assess how much of it is directly attributable to the early effects of the FSAP. There is strong evidence that an integrated, dynamic and competitive financial marketplace can drive investment-led growth and job-creation. For example, a 2002 study ordered by the Commission (see IP/02/1649) estimated that the integration of EU financial markets will bring an increase in EU-wide real GDP of about 1.1% - or €130 billion in 2002 prices - over a decade or so and an increase in total employment of 0.5%.

Next steps – call for reactions to the reports

The next stage of the process is a period of consultation and open exchange of views with all interested parties and stakeholders on the four expert group reports. The deadline for written comments on the four reports is 10th September 2004. Thereafter, the Commission will analyse the feedback received and a document synthesising responses will be published as soon as possible after the end of the consultation process.

The new College of Commissioners, taking office in November 2004, will then be in a position to consider early in its mandate the results of the stock-taking exercise and the subsequent way forward.
The four reports are available in full at:

To facilitate the preparation, reception and processing of responses, the Commission services encourage respondents to make use of the Interactive Policy Making (IPM) online consultation facility when submitting their comments (link available at the same address as above). IPM (see IP/01/519) aims to improve EU policies by using the Internet for collecting and analysing stakeholders' views.
For further information in the form of frequently asked questions see MEMO/04/106

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