Monti bids to end barriers to cross-border bank services

Date: 28/03/1996

BANKS from around the Union have welcomed European Commission moves to close a loophole in the EU's banking rules which has allowed member states to keep foreign banks out of their markets.

Although, under the so-called Second Banking Directive adopted in 1989, financial institutions authorised to provide services in one member state may also operate in every other EU country, few do.

The Commission suspects that this is because national governments, which may subject foreign banks to domestic laws if the public's interest is at stake, strew so many obstacles in the way of cross-border financial trade as to make it impracticable.

What all of these measures add up to is a huge deterrent to banks thinking of branching out into new markets.

Anxious to stamp out protectionism in this area, Internal Market Commissioner Mario Monti published a draft set of guidelines last November spelling out how member states should interpret the directive.

But before turning those guidelines into proposals for new laws, he asked the financial sector for its comments.

Those are still being sifted through by DGXV (the Directorate-General responsible for the single market) but certain trends have already emerged.

According to Commission sources, a majority of banks, for instance, agree with Monti that rules passed in the name of the general good must be non-discriminatory, objectively necessary and in proportion to their goal.

But most would not like to see draft rules adopted governing the soliciting of new business. These, outlined in the November draft communication, would force companies whose advertisements could bring in new clients from abroad to notify their intention to provide cross-border banking services to the relevant authorities.

“They seem to think that we went down the wrong route on canvassing. We have no problem with that, we are very happy to receive criticism as well as praise,” said one Commission official.

“We thought that since these rules vary so much from country to country, and since the Second Banking Directive did not address advertising, that maybe we should issue some guidelines. But most banks believe rules such as these would be difficult to apply in practice.”

There is a strong consensus among financial institutions that the current notification procedure, which obliges national authorities to warn their counterparts of a bank's intention to do business abroad, is too cumbersome and should be scrapped.

But the 40 or so institutions which replied were divided over whether the Commission should make it difficult for countries, such as France, to force foreign banks to set up a pied à terre on French soil in order to sell services in its territory.

The Commission is due to propose concrete legislation clarifying the existing banking law before the summer break.