Policies

THE EU FINANCIAL SECTOR : FINANCIAL SERVICE ACTION PLAN (1999-2004)

The EPP-ED Group in the European Parliament gives particular attention to the financial services sector of the economy because of the number of jobs involved, the potential for future growth, the need for a level playing field for all the interests involved, and the need of agreed rules on an international level.

The financial services play a crucial role in the EU's economy. The EU's financial services sector accounts for more than 6% of GDP, and offers essential financial products to industry, notably investment capital, and individual consumers, such as mortgages, pensions and insurance. Financial services already account for 2.45% of EU employment and there is considerable potential for job creation. An efficient financial services sector improves the competitiveness in the economy as a whole by assisting optimum allocation of investment capital.

The latest research conducted by the European Commission shows the significant benefits that the integration of financial markets will bring to business, investors and consumers. This research predicts that European Union real GDP will increase by 1.1% or € 130 billion in 2002 prices over a decade. Total employment will increase by 0.5%. Business will be able to get cheaper finance: integration of equity markets will reduce the cost of equity capital by 0.5% and a 0.4% decrease in the cost of corporate bond finance is expected to follow. Investors will benefit from higher risk-adjusted returns on savings.

Bearing in mind these considerations and in response to European Parliament and Council requests, the European Commission adopted on 11 May 1999 the Financial Services Action Plan.

The Action plan is organised under four headings: wholesale markets; retail markets, sound supervisory structures and taxation. The Action Plan contains 43 legislative and non-legislative measures. More than 25 Directives are adopted through the co-decision procedure. In September 2003, 34 measures have been completed. The European Parliament has played a central role in the adoption of these directives. The EPP-ED Group has worked very hard in order to conciliate the interest of the single market with the highest possible standards of consumer protection.


1. Wholesale market

The Euro is the catalyst for a market driven modernisation of EU securities and derivatives markets. Actions are considered under five chapters:

1.1. Common rules for integrated securities and derivatives markets. The upgrading of the Investment Service Directive (ISD) is a cornerstone in the integration process of the securities markets. The ISD will create the conditions for high quality competitive, integrated, liquid, transparent and efficient markets that will ensure proper protection for retail investors.

1.2. Raising capital on an EU-wider basis. The prospectuses Directive has overcome obstacles to the effective mutual recognition of prospectuses, so that a prospectus or offer document approved in one Member state will be accepted in all.

1.3. Financial reporting. More frequent and better quality information will enhance market confidence and attract capital.

1.4. A single market framework for supplementary pension funds. It is the competence of Member States to organise pension provisions in the light of national circumstances and requirements. However, where they exist supplementary pension funds, employment related, should be able to operate in a coherent single market framework. The EPP-ED Group has played a central role in the discussion of this Directive working to provide security of pension fund beneficiaries without hampering the consolidation of a single market in this vital area.

1.5. A secure and transparent environment for cross-border restructuring. The EU is currently in a process of industrial restructuring. The financial sector is to the forefront of this development. Early adoption of the Take-over Bids Directive will provide legal backing for the protection of minority shareholdings.


2. Retail markets

Cross frontier trading will only flourish if consumers are confident about the integrity of the services being provided and the selling methods used by suppliers; the credentials of the supplier, the availability and efficacy of redress procedures in the event of a dispute. The Action plan identifies different areas for action:

2.1. Information and transparency. The EPP-ED Group will continue developing actions to equip consumers with the necessary instruments, information, and clear safeguards to permit their full participation in the single financial market.

2.2. E-commerce based retail financial services. The conditions have been created,
Directive on Distance Selling of Financial Services, to put on a pan-European scale the new distribution channels and distance technologies.

2.3. Insurance intermediaries. The Directive on insurance intermediaries allows the free provision of services by insurance intermediaries and enhanced consumer protection by updating and introducing safeguards on professionalism and competence.

2.4. Cross-border retail payments. The Action Plan promotes the emergence of cost-effective and secure payment systems which enable citizens to effect small-value crossborder payments without incurring exorbitant charges.


3. Sound supervisory structures

The EU's supervisory and regulatory regime has provided a sound basis for the emergence of a true single financial market which goes hand in hand with prudent soundness and financial stability. However measures contained in the Action Plan in this field aim to :

3.1. Eliminate any lacunae in EU prudential framework, arising from new forms of financial business or globalisation.

3.2. Set rigorous and appropriate standards so that the EU banking sector can successfully manage intensification of competitive pressures.

3.3. Enable the EU to assume a key role in setting high global standards for regulation and supervision.

Six Directives have been adopted since 1999 in areas relating to the winding-up and liquidation of insurance undertakings and banks, the money laundering directive and the supervision of financial conglomerates.

Work on a review of the bank capital framework to reflect market developments is running in parallel with that of the G-10 Basel Committee on Banking supervision. The new Basel Accord on minimum capital requirements for banks (Basel II), which is due to be completed by the end of 2003, will provide a global framework for internationally active banks. The Commission plans to present a proposal for a directive incorporating Basel II into the EU legislation in 2004.


4. Taxation

The advantages of open and competitive financial markets can be offset by harmful tax competition on financial activity. The Directive on Savings Taxation remove disparities in tax treatment of private savings to complement the removal of obstacles to the free movement of capital and financial services. The ECOFIN Council reached this historical political agreement on January 2003. The EPP-ED Group has insisted on obtaining equivalent measures from non-EU key countries -such as the USA and Switzerland.

At the same time the Code of Conduct on business taxation will remove the harmful tax competition which may unfairly affect the location of business activity in the Union. A report identifying the harmful tax measures was adopted by ECOFIN in November 1999 and a detailed timetable for dismantling those measures was agreed one year later.

An ongoing process

To update all this new financial legislation to the rapid market developments a new four-level approach based on two new committees has been introduced. The EPP-ED Group has played a central role in the negotiations to adopt this new procedure. The so called Lamfalussy process guarantees the rights of co-legislators, Council and Parliament, but introduce more speed and flexibility to adapt the legislation to market developments.


José Botella