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Frequently Asked Questions (FAQs) on EU financial services policy for the next five years

Commission Européenne - MEMO/05/465   05/12/2005

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MEMO/05/465

Brussels, 5 December 2005

Frequently Asked Questions (FAQs) on EU financial services policy for the next five years

(See also IP/05/1529)

What is the status of a White Paper and why is it important?

A White Paper sets out the Commission's final policy programme in a specific area. Before a White Paper is written, a Green Paper is published, which is a consultative document including suggestions and options for new policy. While Green Papers are open for public consultation, White Papers are not, as, in principle, a White Paper is the final say. However, each single proposal for legislation announced in a White Paper or deriving from a policy initiative announced in it will be subject to one or more rounds of open consultation and impact assessment.

What are the main differences between the content of this White Paper and the suggestions in the Green Paper published in May?

Not many. In the long and thorough consultation process that took place prior to the publication of the Green Paper (IP/05/527, MEMO/05/148), all stakeholders had been heard and all arguments expressed. From the public consultation on the Commission’s Green Paper there was broad support from all concerned on the main issues. The analysis in the Green Paper and its Annex remain valid. However, in two areas the Commission has decided to use the White Paper to clarify and explain in more detail its envisaged policies: (1) the so-called "Single Financial Services Rulebook" and (2) Supervision (see below).

Why is financial integration beneficial?

Well-functioning financial markets influence the prosperity of all European citizens and businesses and are the motor for growth and jobs. The value of savings and pensions, the cost of mortgages and the cost of capital are ultimately determined in financial markets. Deep, liquid, dynamic financial markets will ensure the most efficient allocation and provision of capital and services throughout the European economy. The economic benefits of European financial integration are beyond doubt, as has been recognised in the Lisbon strategy. Integration of financial services is more and more recognised as one of the pioneer, flagship areas for strengthening Europe's future growth and jobs.

What has been done already to integrate financial markets?

One of the biggest achievements in Europe over the last six years has been the progress made towards an integrated, open, and more competitive and efficient European financial market. This year, the legislative phase for the Financial Services Action Plan (FSAP) drew to a close.

The FSAP has been a top EU policy priority since its launch in 1999. Major political and legislative agreements for example have been found on accounting, auditing, integrity, corporate governance, prospectuses, transparency, investment services, investment funds, marketing, intermediation, capital requirements, pensions and reinsurance.

The measures foreseen in the FSAP were agreed on time and are now being put in place. From a macro-perspective, the FSAP has laid the legislative foundations for an effectively integrated market for many segments of European finance. European capital markets are expanding (e.g. corporate bonds, Initial Public Offerings, Mergers & Acquisitions). Equity markets are strong, and financial services companies' profits are healthy. Integration of the European financial market is the best way to stimulate competition within the European industry and therewith the competitiveness of our industry in a global setting.

The new strategy does not introduce many new things in terms of legislation. Is this programme ambitious enough?

It is. The Commission's programme of dynamic consolidation is a major and very ambitious task which will require enormous effort and resources from all concerned: regulators, supervisors and industry alike. What could be more ambitious than to make all the FSAP measures actually work on the ground; creating real financial integration? What is needed now is practical implementation of the agreed measures – not a swathe of new legislation. Even though some actors (albeit limited in number) would like to see more rapid developments, especially in the area of supervision, there is full support for the Commission's approach on the way forward, i.e. practical steps to make the Lamfalussy approach work to the fullest extent possible. The Commission has identified concrete tasks and actions to assist in this consolidation process and to complete unfinished business in a practical way.

What are the main actions the Commission has announced in the White Paper for the next four years?

The new strategy has a strong focus on "delivering" the benefits of European integration and on getting things done right; the focus is not on proposing new legislative measures. Only when rules are implemented on time and enforced effectively, can companies and consumers benefit. To allow the financial market to function effectively, regulatory and supervisory mechanisms need to be strengthened and joined-up across the Member States and the conditions to facilitate cross-border consolidation in the EU need to improve.

While significant progress has been achieved to integrate the business-to-business markets, financial services offered to consumers remain deeply fragmented. Some areas have been identified that could bring clear economic benefits to industry, markets and consumers. Over the next five years there will probably only be a limited number of well-targeted new initiatives, focusing on retail financial services. Here, the Commission will look at the barriers related to cross-border use of bank accounts and the need for a regulatory framework in the area of credit intermediaries. Asset management is another area of interest, as is Clearing and Settlement, where an impact assessment is underway. In all areas no decisions have yet been taken on whether to bring forward new Commission proposals.

Aren’t there too many implicit barriers to making retail integration possible?

The Commission agrees there are important implicit barriers to the integration of retail financial services markets. Integration of retail markets is complex and demanding. Product characteristics, distribution systems, consumer protection, contract law, differences in consumption culture or other economic or structural realities play a prominent role in the retail area – and create considerable complexity for cross-border supply. These barriers, however, have their origin in the fragmentation of the European market – for historic reasons. The Commission does not accept the argument that as European integration increases, this fragmentation is there to stay. Ten years from now, the retail market will look completely different compared to the market today. The role of the Commission is to anticipate and facilitate cross-border developments.

What can the Commission do to improve transposition and enforcement at Member State level?

Regrettably, the rate of transposition of Community law by Member States within agreed deadlines is weak. As a result, companies cannot benefit fully from pan-European access. Member States need to demonstrate real commitment and deliver proper implementation on time. Enforcement mechanisms need to be strengthened and joined-up across the Member States. The Commission will work intensively with Member States to monitor progress, ensure accurate implementation and avoid regulatory additions, so-called ‘goldplating’. Some practical processes (transposition matrices including hyperlinks to Member States’ own implementing texts, transposition workshops) will facilitate effective monitoring. In the event of faulty implementation, the Commission will be swift in launching infringement proceedings.

How do the Commission's planned initiatives in the area of financial services fit in to the culture of "Better Regulation"?

Each possible new legislative initiative will have to follow the “better regulation principles”, be evidence based and comply with the subsidiarity and proportionality principles of the Treaty. Consultation will be crucial and impact assessments will accompany all new proposals. These assessments will scope each issue and determine the most appropriate option. However, better regulation is a shared responsibility; impact assessments should take place at all levels involved in the policy-making process and be applied by all actors: (i) the Commission, (ii) the European Parliament and Council (when tabling substantive amendments to Commission proposals) and supervisors (when they give advice to the Commission).

The cycle of good policy making, in order, is:

  • Open a consultation with interested parties;
  • Ex-ante impact assessments;
  • Examination of options based on evidence gathered;
  • Where necessary, in line with the subsidiarity/ proportionality principles of the Treaty, a Commission proposal;
  • Ex-post evaluation, normally around four years after the implementation deadline;
  • If needed, evaluation could be followed up by simplification, codification and clarification;
  • If specific legal texts have not worked, they will be modified or repealed.

Does the White Paper elaborate further on the ideas to develop a Single European Rulebook as suggested in the Green Paper?

In the Green Paper, the Commission suggested that work should be set in hand to simplify and consolidate all relevant financial services rules. This was elaborated further in Annex I to the Green Paper. The reference to the term "Rulebook" in the Green Paper without further clarification created confusion. It was not clear where the Commission stood on two main distinctions, namely between: (i) action at the level of Community law versus action at the level of national law; and (ii) a comprehensive consolidation of law into one single code of rules (thus, literally a single rulebook) versus pinpointed measures aimed at specific problems.

The White Paper clarifies this. The key idea is to get rid of regulatory overlaps, conflicts, duplication and ambiguities; in other words, to introduce an overall legal consistency check, "reading-across" Community directives and regulations. This will be carried out in areas where there are difficulties in implementing legislation because of successive amendments, overlapping or conflicting requirements, or where there is potential legal uncertainty resulting from inconsistent definitions or terminology. A first sectoral consistency check will be carried out in the securities area. Furthermore, a broad study will be carried out to review the appropriateness of information requirements and to signal possible inconsistencies. Also, clarification is needed on marketing rules in the area of collective investments.

Does the Commission envisage any further reinforcement of the interaction with other policy areas?

Yes. Exploiting policy synergies between financial services and other policy areas is key. Over the next 5 years, close cooperation with other policy areas, particularly competition (sectoral enquiries), consumer policy (consumer protection, contract law), trade, external policy and taxation will be further strengthened.

To what extent are consumer / user interests represented in the White Paper?

Representatives of consumers and shareholder organisations were invited to participate in the first step of the consultation exercise, the work of the expert groups. Despite a conscious effort to ensure effective representation of consumers/ shareholders in the expert groups, it remains difficult to get input from this perspective on the nuts and bolts of financial regulation. Unfortunately, only a few consumer organisations responded to the Green Paper's consultation, including the FIN-USE forum comprising twelve financial services experts conveying the user perspective about EU policy development.

How does the Commission intend to include the users and consumers of financial service more strongly in its future policy preparation?

The Commission will endeavour to ensure proportionate representation of users in all future advisory groups. Furthermore, to spread awareness of developments in financial services among consumers, the Commission intends to publish a periodic newsletter emphasising the most relevant user/consumer aspects of its ongoing work.

A permanent group of consumer representatives from the Member States is also planned, within which financial services issues of particular relevance to consumers will be discussed. The co-operation with UNI-Europa, grouping together trade unions of financial services employees, will also continue. FIN-NET plays an important role by providing users and consumers with easy access to out-of-court complaint procedures in cross-border cases.

Does the Commission have any plans in the area of consumer literacy and financial education?

Yes. We are aware of the need for increased awareness and direct involvement of citizens in financial issues, partly owing to the public sector's gradual disintermediation from financing some aspects of the social system. In order to promote good investment choices, e.g. for pensions, it is essential to increase transparency and comparability and to help consumers understand financial products. Although consumer education is the Member States’ responsibility, the Commission wants to stimulate a pan-EU exchange of views on financial education, consumer literacy and best practice and plans to organise a conference on this subject in early 2007.

What is the Commission’s view on Europe’s future supervisory structure?

The Commission wants the Lamfalussy process to deepen and deliver its enormous potential. The supervisory committees in banking and insurance started their work at the beginning of 2004. For the moment, we therefore want to give the current supervisory structure the chance to demonstrate the strength of the new structure and prove that it can be used to its maximum potential.

However, supervisory and enforcement mechanisms need to be strengthened and joined-up across the Member States. Further convergence of supervisory practices is needed. The White Paper has set some clear goals on which the supervisors need to deliver: Existing and very costly duplicative supervisory reporting requirements should be eliminated by 2008. The level-3 committees should speed up their work in earnest to devise simplified common data and reporting templates, underpinned by real information sharing between national supervisors. A real European supervisory culture should develop, with mutual trust and confidence as a baseline condition for success. This will ensure more consistent supervisory practice. Supervisors should not only exchange information, they should also exchange personnel; and train staff together.

Is this a first step towards the introduction of a "Lead Supervisor"?

No. A major step forward has been made recently by the adoption of the Capital Requirements Directive in the banking area and the expansion of the consolidating supervisor concept. The Commission is aware of the call for more centralised supervisory structures coming from large financial groups operating cross-border. The latter represent only a small proportion of total financial institutions in the EU, but a significant proportion of financial sector assets.

Before considering any further fundamental changes to the present supervisory arrangements (such as the "lead supervisor" concept) consideration must be given to a number of important issues such as:

  • developments in Member States' financial sector and in particular the emergence of important branch operations and markets with high 'foreign' presence; and
  • Implications of the division of responsibilities between supervisors for cross-border crisis management and other inter-related issues such as liquidity, lender of last resort and deposit guarantee arrangements or winding-up proceedings.

What are the Commission's plans on the external dimension?

The external dimension is another priority in the White Paper. Standards and best practices are increasingly set and defined at the global level. Here, the EU must have a leading role. Over the last years, good progress has been made in building open, ex-ante regulatory dialogues - exchanging information, identifying potential regulatory problems upstream and seeking mutually acceptable solutions. There is much support for the Commission’s approach to these dialogues. Cooperation with our main trading partners – particularly the US – will therefore be further deepened.

The Commission is committed to an ambitious opening of global financial services markets, as modern and efficient financial markets are a prerequisite for further economic development in these countries. This commitment will therefore be reflected in the WTO negotiations on financial services. Financial relations with the emerging capital markets in Asia and other parts of the world become more important.

Furthermore, the EU needs to be represented more strongly in international bodies. And the European views need to be coordinated on the international scene. This makes Europe - and our case – much stronger.

For internationally mobile consumers, special ‘pan-European’ financial products may present an attractive option. Are you still sceptical on "26th regimes"?

Yes. The so-called 26th regime may sound attractive in its simplicity, but in practice it will require harmonisation across the board (legal, tax, language etc.). The benefits of the "26th regime" approach remain to be proven and reaching agreement on optional European standards designed only for certain products, might be very difficult. Furthermore, it is considered far too restrictive to focus exclusively on the expatriates / frontier workers business model. The benefits of financial integration are far broader. Access to a pan-EU market and increased competition leads to pressure on pricing, even in markets dominated by local players. The approach of creating pan-European passports for businesses and consumers seems to be still the most beneficial one. Also, consultation has shown widespread scepticism about the feasibility and usefulness of "26th regimes" in the area of financial services. The Commission, however, will listen to all arguments on the subject.

What about important initiatives on corporate governance, auditing, accounting, asset management and mortgages? Are they included in the White Paper?

Other horizontal and complementary policy areas (corporate governance, company law reform, accounting, statutory auditing) are also of immense importance in building confidence and transparency in European financial markets. Significant progress has been made. Although outside the scope of this Paper, work in these areas will progress in line with the agreed timetables and the “better regulation” principle-based and simplification approach.

The White Paper simply refers to asset management and mortgage credit. Initiatives in these areas have already advanced and do not require further reflection in this new strategy. The Commission published its Green Paper on enhancing the framework for investment funds in July 2005.

This Green Paper assesses the existing UCITS framework in the light of current developments in the funds industry. The Commission’s views will be outlined in a White Paper, to be published by the second half of 2006. In addition, the Commission already spelled out its ideas on mortgage credit in a separate Green Paper, which was also published in July 2005. An exchange of views with all stakeholders on the way forward will take place on 7 December. The follow-up of these Green Papers will proceed in parallel with the White Paper's strategy, applying the same principles.

Will progress continue to be monitored, as the Commission used to do with the FSAP?

Yes. Detailed reports covering progress and developments in the areas outlined in this Paper will be published by the Commission on an annual basis.

Why is the White Paper only being made available in English, French and German – and the Annexes only in English?

The Commission regrets that it is unavailable to make translations available in other official languages due to the tremendous pressure on its translation services arising from the accession of ten new Member States. However, translations of the White Paper in the other EU languages will follow in the coming month.


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