No pain, no gain

Businesses and national regulators are supposed to be working hard to achieve the European Commission’s ambition of a single market for financial services. But after seven long years of toil, they are clearly flagging. Keeping the faith is a challenge while the long-awaited rewards remain just out of reach.

In Monte Carlo last week (12 September), John Tiner, chief executive of the Financial Services Authority, the UK regulator, asked: "Are we heading towards over-regulation?" Pointing out the possible detrimental effects on growth and stability, he singled out EU insurance legislation for particular criticism. Many of the assembled executives would have nodded in agreement for the burden has been great.

The Financial Services Action Plan (FSAP), introduced in 1999 to achieve the Commission’s vision of a single market, comprised 42 measures covering sectors such as banking (page 25), securities (page 25), insurance (page 27) and mortgages (page 27). First there was the work of keeping up with the successive waves of new directives. Now comes the painful task of putting the implementing measures in place.

Internal Market Commissioner Charlie McCreevy has some familiar words of comfort for the beleaguered. "If we have a truly integrated financial market in Europe, that is going to bring enormous benefits to the major players," he says. "So [although] there will be an up-front cost, there will also be a first mover advantage. Those that implement quickly [and] look at new market opportunities…should do better.

"Yes, there has been a lot imposed on the financial industry in a relatively short period of time and, yes, it has created a fair amount of indigestion, but very early on in my time here I said I was not going to embark upon a FSAP Mark II. That was my general philosophy: that less is more."

The Committee of European Securities Regulators, which works on developing the implementing rules, adopts a less sympathetic ‘no pain, no gain’ attitude towards potential complainers. "All the measures in the FSAP were highly supported by government and industry. Industry was heavily consulted and involved in the process of developing the legislation in a way that has never taken place before. Nobody can say today that they are surprised by the final result," says Secretary-General Fabrice Demarigny.

Demarigny points out that, once, industry was more enthusiastic about the FSAP because it was aware of the cost of lack of harmonisation in various sectors. "In effect, financial services providers were severely hamstrung by outmoded legislation which was no longer in step with the realities of financial services markets and this hindered them in delivering the services they wished to offer. Under these circumstances, radical and comprehensive action needed to be taken in the form of the FSAP to ensure the EU economy could continue to grow in a healthy…manner."

Industry, which has invested considerable amounts of time, effort and money in the various legislative processes that fall under the FSAP umbrella, is keen to ensure that measures are implemented properly across borders. Without proper harmonisation, much of the hard work will have been in vain.

"I hope people are going to be looking at how they implement it in a better way, looking at the cost, effect and impact of regulation," says Michael

Snyder, chairman of the policy and resources committee at the Corporation of London.

Snyder would be particularly keen to see more objective analysis of the effects of new legislation, with an outside body reviewing the impact assessments that are carried out by the Commission. "Forty-two directives have had to be introduced in a very short period of time in a changing global marketplace where we’ve got to stay competitive," he says. "What one wants is an independent, thorough, external evaluation, so we have very rigorous impact assessments rather than routine impact assessments."

Businesses and national regulators are supposed to be working hard to achieve the European Commission’s ambition of a single market for financial services. But after seven long years of toil, they are clearly flagging. Keeping the faith is a challenge while the long-awaited rewards remain just out of reach.