Key Notes

The integration of EU financial services sector

Background:

The financial services play a crucial role in the EU's economy. The EU's financial services sector accounts more than 6% of EU's GDP, and offers essential financial products to both industry, notably investment capital, and individual consumers, such as mortgages, pensions, insurance. Financial services account for 2.45% of EU employment and there is big potential for job creation.

An efficient financial services sector improves the competitiveness in the economy as a whole by assisting optimum allocation of capital. Research conducted by the Commission predicts that the integration of the financial markets will bring significant benefits for consumers, business and investors. Conservative estimates conclude that EU-wide real GDP will increase by 1.1 % 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.


I. What does the European Union do?

The European Commission launched the Financial Services Action Plan in May 1999. At the Lisbon European Council in March 2000 Heads of State and Government set a target date of 2005 for the FSAP to be completed. More than 25 Directives have been adopted through the co-decision procedure. In January 2004, 36 measures have been completed. The European Parliament has played a central role in the adoption of these directives.


II. What has the EPP-ED Group achieved ?

The EPP-ED Group has contributed in a responsible way in order to conciliate the integration of the financial markets with the highest possible standards of consumer protection.

1. Wholesale market
EPP-ED Group work has been focused on different chapters:

• 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 EPP-ED position in Parliament will provide a Directive to create conditions for high quality competitive, integrated, liquid, transparent and efficient markets that will ensure proper protection for retail investors.
• Raising capital on an EU-wide basis. The prospectuses Directive has overcome the 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. More frequent and better quality information will enhance market confidence and attract capital.
• 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 funds beneficiaries without hampering the consolidation of the single market.
• 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 underpinning for protection of minority shareholdings the EPP-ED Group will continue working in this direction.

2. Retail markets
The EPP-ED Group believes that 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. Identify and roll back unjustified insistence on non harmonised rules as an obstacle to cross-border provision of services is essential. The EPP-ED Group has focused on these areas of action:

• Information and transparency. The EPP-ED Group will continue for developing the actions to equip consumers with the necessary instruments -information- and clear safeguards to permit their full participation in the single financial market. The conditions have been created to put on a pan-European scale the new distribution channels and distance technologies have been created through the Directive on Distance Selling of Financial Services
• Insurance intermediaries. The Directive on insurance intermediation allows the free provision of services by insurance intermediaries and enhanced consumer protection by updating and introducing safeguards on professionalism and competence.
• 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 prudential soundness and financial stability. The EPP-ED input in the European Parliament has been crucial on the six Directives this have been adopted since 1999 in these area.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.

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 removes disparities in tax treatment of private savings to complement the removal of obstacles to the free movement of capital and financial services. The EPP-ED Group has worked to obtain equivalent measures from non-EU key countries -such as USA and Switzerland.


III. Our goals for the next legislative period

The EPP-ED Group will work in order to get a common implementation and enforcement of the Financial services legislation. We must ensure that the new markets after enlargement will be absorbed smoothly into the EU regulatory system. The new Basel Accord on minimum capital requirements for banks (Basel II), which is due to be completed in 2004, will provide a global framework for internationally active banks. The next legislative period the Basel Accord will be incorporated in the EU legislation. The EPP-ED Group will work in order to protect the SME interest and our competitiveness in relation to the USA and other areas.