Devil in detail of financial services plan

Date: 07/10/1999

By Renée Cordes

DURING his audition at the European Parliament, Internal Market Commissioner Frits Bolkestein stressed that ensuring a well-functioning single market would be one of his top priorities.

The Dutch Liberal pledged to keep tabs on member states' progress in putting EU single market legislation onto their national statute books, and to continue 'naming and shaming' countries which were lax in doing so by publishing a regular single market scoreboard.

But financial experts warn that he will also have to be vigilant to ensure governments abide by the strategy drawn up by his predecessor Mario Monti aimed at shaping a true single market for financial services.

One of the kay tasks facing Bolkestein and his team is to follow up on Monti's financial services action plan, unveiled in May, not only by producing concrete proposals for legislation but also by keeping a close watch on whether member states are acting on them.

The plan has been praised by key players in the financial sector, but many are waiting to see the final shape of the legislation before celebrating. "We welcome this action plan, which emphasises that financial markets in different countries have to more or less have the same rules," said Nikolaus Bömcke, secretary-general of the European Banking Federation, after the plan was announced. But he stressed the importance of setting a timetable for removing obstacles both in the medium and short-term and warned that the devil would lie in the detail.

Both the European Commission and member states are taking this issue "very seriously", according to Karel Lannoo, a financial services expert at the Centre for European Policy Studies who points out that governments are, for example, already discussing ways of improving the 1993 investment services directive and other measures aimed at encouraging securities trading across borders.

However, experts fear that there are not enough incentives for member states to make good on another key component of the plan - improving cooperation in supervising several securities markets simultaneously. Lannoo says that although member states are talking about coordinating their supervisory efforts, "there is no cooperation going on in cross-sector matters" .

The initiative launched by Monti is aimed at enabling the EU's financial services sector to take full advantage of the euro. The plan, and a parallel pension reform package, were rushed through the Santer Commission while it was serving in a caretaker capacity following its mass resignation, despite a pledge to refrain from launching new proposals.

Monti's report stated that member states should agree Union-wide legislation to tackle "market manipulation" such as insider trading or illegal share-support operations, update a ten-year-old law governing public stock sales and fine-tune definitions of securities which can be used as collateral against cross-border loans.

"It is crucial that the single market for financial services delivers its full potential for consumers, in terms of a broad range of safe, competitive products," said Monti when he unveiled his reform proposals. He also stressed the importance of offering industry easier access to rich, liquid market for investment capital.

In addition, the report called for a "more balanced application of local consumer protection rules", which would prevent "sophisticated investors" from benefiting from generous provisions in some member states.

The Commission argues that unless investor protection schemes are targeted at small-scale savers, they can encourage the idea that risky investment are underwritten by the state.

The move to integrate financial services laws across the Union is also seen by many as key to pave the way for the inevitable arrival of a pan-EU stock and bond market.

In his paper, Monti urged national officials to conduct an audit of key EU-level financial services laws, including the capital adequacy and prospectuses directive governing stock listings, to look for loopholes. But he suggested that some of these inadequacies could be overcome through mutual recognition of existing national laws rather than EU-wide legislation.

Part of a survey 'Challenges for industry', p13-20.