Industry warms to financial legislation freeze

Date: 16/06/05

On 3 May Europe's banking and insurance industries breathed a collective sigh of relief when Internal Market Commissioner Charlie McCreevy announced a halt to the regulatory onslaught that the sector had seen under the Financial Services Action Plan (FSAP) of 1999.

Though convinced of the merits of a more integrated system, the sheer number of policies passed in the last five years - 39 of the FSAP's total 42 - has flummoxed member states and the transposition rates are still low.

The measures have swept the financial sector board, ranging from common EU rules on floating and trading shares, cross-border takeovers and taxing savings income and an overhaul of laws on money laundering and corporate governance.

Recognising the burden on both governments and industry of implementing the rules, McCreevy decided on a regulatory breather for the next five years in his 'post-FSAP' Green Paper, promising only to tackle EU integration in the retail banking, asset management and mortgage industries.. Green papers on the latter two are expected to be adopted within the coming weeks.

Instead the Irishman's team will concentrate on solid enforcement of the current rules by those bodies set up to do the job and evaluation of the progress of the EU financial services market.

The Commission will also set up a new review group to assess the success of the regulatory framework for financial services regulation known as the 'Lamfalussy procedure'.

This was established to speed up EU lawmaking on financial services by allowing MEPs and national governments to draw up a framework directive, the details of which are then hammered out by a special committee, while a third committee oversees the implementation process.

While the theory was good, some now fear that in practice, improvements are needed.

One example is the Markets in Financial Instruments Directive (MIFID), the implementation of which was so complex and so tardy that the Commission recently granted a 12-month extension of the timetable.

"We think [Lamfalussy] may actually have added more regulatory burden," says Stephen Haddrill, director general of the Association of British Insurers. "When dealing with a directive that will affect markets, it's important to know the effect it will have and legislate accordingly. We're not sure that the Lamfalussy process has had enough focus on how markets work."

Meanwhile, the Commission is also working on the beleaguered directive for consumer credit. Previously blocked between the executive's internal market and consumer protection departments, the law is now getting a 'better regulation' overhaul from Enterprise Commissioner Günter Verheugen, who fears that the law could have a negative administrative burden on credit industries.

But consumer protection could be increasingly important in a Europe where buying on credit is on the up. Credit cards are booming in the new member states, while credit-hungry Britons account for around 30% of personal debt in the EU25.

For some, however, Europe's financial services model is one to follow, and China's slowly reforming banking system is looking to the EU for advice about opening up to competition.

Article takes a look at the European Commission's work programme in the field of financial services, after it had announced in May 2005, to halt regulatory changes. This came in order to concentrate on solid enforcement of the current rules by those bodies set up to do the job as well as the evaluation of the progress of the EU financial services market.

European Commission: DG Internal Market and Services: Free movement of services: Financial services http://ec.europa.eu/comm/internal_market/finances/index_en.htm

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