Unleashing the EU’s financial markets

Date: 16/06/05

Two MEPs give their different views on how to boost the competitiveness of the financial services sector

Obstacles to a single market are not caused by lack of legislation but by poor implementation, says Piia-Noora Kauppi

The Financial Services Action Plan (FSAP) was adopted in March 2000 with the goal of creating a genuine single market for financial services by 2005. Thanks to the combined efforts of the European Commission, the European Parliament and the Council of Ministers, we have been able to deliver most of the needed reforms by the deadline.

Most of the remaining problems and obstacles in the single market are not caused by lack of legislative action. In some cases the Commission has been too eager to produce new proposals, which have been disproportionate

to market challenges and too detailed to improve the competitiveness of European financial markets.

Delivering the FSAP is not enough if the implementation is far from perfect. The focus should now be on efficient implementation.

Member states too often fail in their task of transposition and application of financial market legislation. There is a lack of real commitment and the protection of national interests is still ranked high by national policymakers and, unfortunately, in the short term, also by voters.

There are several areas which merit our attention in the post-FSAP climate:

• We need to agree on the basic principles that will guide our choices in the future. These principles should stress that EU action must improve competitiveness and promote innovation, no action should be taken which would reduce confidence and all initiatives must be neutral regarding the competitive situation of markets;
• We have to prioritise the areas of legislative intervention, with legislation always a last resort. I strongly support the line taken by the recent Financial Services Committee report on financial integration about the "need to prioritise areas for intervention so as to focus on actions which can deliver the largest efficiency and welfare benefits";
• We must create a proper methodology for impact assessments and consultations. We should also keep in mind that the added value of impact assessments is in identifying the benefits and costs of a piece of legislation rather than in their concrete results;
• The Lamfalussy procedure must be further developed. Although a formal review is not scheduled until 2007, a critical look at the Lamfalussy procedure could yield positive improvements even before then;
• We must take an open view on the future options for financial supervision. The structure of supervision must respond to changes in financial markets;
• Europe needs a strong competition policy for the FSAP to succeed, with a more proactive role for the Commission;
• We cannot stress enough the importance of international co-operation, especially in the form of transatlantic financial services dialogue. The Commission has already made strong efforts to advance the mutual recognition of regulatory standards on both sides of the Atlantic;
• The legitimacy of the FSAP initiatives can only be reinforced through the guarantee of Parliamentary accountability, with the establishment of Parliamentary call-back powers;
• Post-FSAP policy is not created in a vacuum. The possibility of a crisis in the EU caused by problems to ratify the constitutional treaty should not be underestimated. The right policy environment is essential in order to be able to concentrate on key issues;
• Each of these objectives should be infused with flexible dynamism. Politicians do not have all the answers to problems in a rapidly changing sector. That is why all post-FSAP measures should leave enough flexibility and room for dynamism.

The FSAP's three strategic goals have been met. The European financial services sector largely shares the view that the FSAP was conducive to the aim of a single European market for financial services, but that European financial markets are still far from being truly integrated.

To paraphrase Winston Churchill's famous words, "this is not the end, it is not even the beginning of an end, but it is the end of the beginning".

• Finnish centre-right MEP Piia-Noora Kauppi is a member of the Parliament's economic and monetary affairs committee.

It is vital that potential threats to financial stability are addressed and dealt with at a legislative level, argues Pervenche Berès

Over the last 20 years, great progress has been made on the integration of financial markets in the EU. In the 1980s, the EU laid down the foundations of the single financial services market with the free movement of capital; the arrival of the euro has accelerated the integration of wholesale financial markets and finally the adoption of the Financial Services Action Plan (FSAP) measures has reinforced the framework of the EU capital market.

There is a remarkable common political understanding that the single financial market means cheaper financing for European consumers, small- and medium-sized enterprises (SMEs) and European industry, which is facing fierce global competition. An efficient and stable financial market, prudentially sound, along with the euro, is the prerequisite for growth and job creation.

The European Parliament plays a leading role in shaping the EU's financial services policy; given the important record of achievements, it is now reflecting about the five coming years and will make a distinct contribution to the debate on the way forward.

It is still too early to assess the impact of the FSAP measures. Their proper implementation and enforcement are of utmost importance for the success of this ambitious undertaking. Despite frequent calls for a regulatory pause, we should not lose the momentum for further action, as far as there are areas where legislative or non-legislative measures might help to safeguard the interests of European consumers, SMEs and industry.

The Parliament has recognised the need for more flexible legislation and endorsed the Lamfalussy procedure as well as its extension to the banking and insurance sectors. For reasons of democratic legitimacy and accountability, the Parliament has to ensure that powers used by the Commission and Lamfalussy committees are carefully monitored and it will intervene whenever necessary.

While the FSAP focused mainly on the wholesale market, the retail financial market, i.e. loans to households, remains considerably fragmented.. Access to cheap financing via consumer credit and mortgage credit is still hampered by a number of legal, tax and other obstacles. Consequently, the Parliament, as the guardian of European consumers' interests, will reflect on the measures and the method needed to open up retail markets.

Certainly, some obstacles are difficult to overcome, but others, such as differences in financial cultures, legal and administrative obstacles, information asymmetries and tax barriers, might be addressed. The financial environment should also be improved; we are looking forward to seeing a more active enforcement of competition rules in the financial sector and any other initiatives that would facilitate cross-border mergers and acquisitions, improve financial markets' infrastructure and establish a single European payments area.

Parliament will pronounce on the revision of capital adequacy rules. This crucial measure will bring into play more sophisticated rules on credit, operational and market risk. But a number of important issues should be stressed: the model of consolidating supervision accentuates the importance of co-operation and mutual trust among supervisors, the need for convergence of supervisory practices and greater co-ordination among supervisory authorities at European level as well as for clear accountability of supervisors.

We are currently witnessing a strong consolidation in the financial services industry and the creation of big financial conglomerates of pan-European scale. For this reason their impact should be assessed and potential threats to financial stability and sources of systemic risks should be highlighted. It is vital to ensure that these trends do not hamper the stability of pan-European financial markets and that appropriate crisis management measures are put in place.

More emphasis should be put on the financial stability of the European financial services market. Potential systemic risks should be identified and addressed. Consequently, policy options for further action at legislative, regulatory and supervisory level will have to be examined.

• French Socialist MEP Pervenche Berès is chairwoman of the Parliament's economic and monetary affairs committee.

Two MEPs give their different views on how to boost the competitiveness of the financial services sector.