Deadline for single financial market ‘tight’, says regulator

Date: 21/03/02

By Peter Chapman

THE European Union will struggle to meet its timetable for completing the single market for financial services, one of Europe's most influential regulators warned this week.

Sir Howard Davies, chairman of the UK's Financial Services Authority and a member of the new Committee of European Securities Regulators (CESR), said the European Commission's plan was already under pressure.

'You would have to say it is on the tight side because there are some very difficult directives ahead,' he told European Voice.

However, he believes the new fast-track 'Lamfalussy approach', under which financial experts like Davies are responsible for the getting the fine print right in technical laws, was 'working well'.

His comments came after EU leaders in Barcelona gave their endorsement to creation of a single securities market by 2003 and a fully integrated financial services market by 2005. Davies said it was important that the Commission stuck to its timetable: 'I think the Commission is right to keep the deadlines in place because if you were to abandon them you would never get anywhere,' he added.

If it failed to keep up the pace, the Commission would 'lose in terms of credibility'. The difficulties ahead include a Commission consultation due next week on revisions to the investment services directive, the linchpin of EU financial services rules. 'It is the most fundamental one,' said the FSA chief. 'It has the biggest overall impact on the market because it defines the basic parameters of financial regulation,' he continued, adding that attention would focus on the definition of 'core services' in the new directive.

Other major issues include how national rules on stock exchanges would be affected by the updated EU law: 'At the moment there is something called a concentrations rule that some countries have that requires all transactions in equities to be routed back through the domestic stock exchange. What will be the future of that?'

Davies said there were still potential pitfalls on rules on prospectuses, market abuse and pension funds, which have recently been examined by MEPs, but await final adoption by member states.

However, he expects concerns over how prospectus proposals would have hurt the euro-bond market and small firms to be overcome, following amendments from Parliament.

On pensions, Davies said the FSA opposed Commission proposals that would have put severe quantitative controls on the types of investments that fund managers can make in company pensions.

This would have forced London, which enjoys 55 of the EU pension market, to totally change its practice of allowing any investments that could reasonably have been made by a 'prudent person'.

But he said a new proposal emerging in the Council of Ministers - the so-called 'prudent person plus' approach - would give more freedom to investors. Davies also rebutted calls for the European Central Bank to take more of a leading role in banking supervision.

Some senior members of the ECB's banking supervision committee, such as Bundesbank President Ernst Welteke, have stated they want it to be the 'main organ of banking supervision in Europe', usurping the role of national regulators.

'We think [a greater ECB role] is right for the macro stuff - the overall economic stuff and the overall state of the system, but not right for the micro regulation of banks,' said Davies.

The European Union will struggle to meet its timetable for completing the single market for financial services, according to Sir Howard Davies, chairman of the UK's Financial Services Authority and a member of the new Committee of European Securities Regulators (CESR).