Uphill struggle to open up financial services

Date: 04/05/2000

By Renée Cordes

AT FIRST glance, the merger mania among Europe's largest stock exchanges would seem to indicate that the Union's financial services and capital markets have been fully liberalised. That is not yet the case.

The London Stock Exchange and Deutsche Börse are putting the finishing touches on their planned merger, potentially paving the way for the largest source of capital on the continent. But even if they do clear all the anticipated regulatory hurdles, it could take years to establish a record of reliability and credibility.

The European Commission also has its work cut out as it seeks to liberalise the EU's financial and capital markets to ensure both companies and investors, from amateur day traders who dabble in dotcom shares to savvy London investment bankers juggling huge portfolios, can take full advantage of the euro.

During his confirmation hearing before MEPs last autumn, Internal Market Commissioner Frits Bolkestein vowed to make creating a genuine single market in financial services one of his top priorities. But he faces a challenge to follow up on the action plan unveiled by his predecessor Mario Monti nearly a year ago, which outlined several initiatives for liberalising the sector.

The plan, and a parallel pensions reform package, were rushed through the Santer Commission while it was acting in a care-taker capacity because of pressure from some member states.

The action plan urged governments to agree EU-wide legislation to tackle 'market manipulation' such as insider trading, update a decade-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," said Monti when he unveiled his blueprint. He also stressed the importance of giving industry easier access to rich, liquid markets for investment capital and called for a more balanced application of local consumer protection rules to stop "sophisticated investors" benefiting from generous provisions in some member states.

But in the daunting area of pensions reform, the Commission has scaled back its ambitions. Bolkestein has made it clear he will shy away from calling for full harmonisation of regulations across the Union when he unveils his proposals in June.

Article forms part of a survey, 'Industrial liberalisation'