| Author (Person) | Davies, Eric | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Publisher | ProQuest Information and Learning | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series Title | In Focus | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Series Details | 24.5.04 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Publication Date | 24/05/2004 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Content Type | News, Overview, Topic Guide | In Focus | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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The Financial Services Action Plan was published in May 1999 and endorsed in March 2000. Of the 42 measures it proposed, 39 have now been adopted at EU level. A review of progress towards financial integration was published by the Commission in May 2004 in the form of the first 'Financial Integration Monitor' (FIM). Internal Market Commissioner Frits Bolkestein said: 'Much of the legislation agreed under the FSAP is still being implemented and its impact on integration is only beginning. To ensure the proper enforcement of that legislation, so that it can make markets in 25 Member States more efficient, we need to monitor the implementation process on the ground. That means keeping track not only of the way the process is experienced by market operators but also of economic indicators on market integration, which is what this first FIM report is for'. At the same time, the Commission released four sectoral reports, compiled by independent experts, which 'provide a comprehensive assessment of the extent to which different types of financial business can be undertaken on a pan-European basis.' Stakeholders' views on the reports are invited by 10 September. Background The Cardiff European Council in June 1998 invited the European Commission to put forward proposals for improving the single market in financial services. The following year, in October 1998, the Commission issued a Communication 'Financial Services: Building a framework for action', which was followed in May 1999 by 'Financial Services: Implementing the framework for financial markets: Action Plan - which became known as the Financial Services Action Plan (FSAP). The FSAP was endorsed by the March 2000 Lisbon Strategy, which promoted the development of 'Efficient and transparent financial markets [to] foster growth and employment.' Implementing the FSAP by 2005 was one of a number of actions required under the Lisbon Strategy to 'accelerate completion of the internal market for financial services'. With most FSAP measures now adopted at European level, and the new framework of financial legislation therefore almost complete, the Commission decided to initiate a review of progress towards financial integration. In particular, the Commission wishes to identify the strengths and weaknesses of the new framework. Four expert groups were therefore set up in October 2003, focusing on: banking, insurance, securities and asset management. A Background document to the FIM, published in April 2004, stated that it was intended 'to serve as a policy guidance tool for identifying bottlenecks in the financial integration process and prioritising areas for further consideration by policy makers'. The Background document also explained the meaning of 'financial integration':
According to a Commission press release, the main conclusion of the 'Financial Integration Monitor' is that 'integration of EU financial markets is progressing across the board, albeit at a very different pace depending on the product, the end-user and the market' (see: Financial services: Commission report shows progress in integrating European markets). The FIM examines EU financial markets from a number of different perspectives: price convergence, provision of cross-border intra-EU services, cross-border intra-EU establishment, emergence of pan-European infrastructures, and developments in product availability. The report found that 'full or close to full integration has been established in the euro-denominated unsecured money and government bond markets' and that 'Most of the other wholesale markets, involving securities, are becoming more integrated.' It also found that 'financial institutions operate in the most integrated markets where cross-border operations represent an important share of total volume' and that 'Non-financial companies now have access to a wider range of products and cross-border operations are possible.' However, markets such as that for consumer loans to households, which cater for retail customers, 'have kept their local character', with 'Direct cross-border activity first and foremost tak[ing] place in markets characterised by “big volumes per individual transaction”.' Whilst the fledgling FSAP might have contributed to whatever degree of financial integration has so far been identified, other factors have been at least as - if not more - important. Amongst these are the single currency, the creation of 'common pan-European infrastructures' due to market forces, 'global trends', and 'the search for consolidation-based efficiency gains.' Overall, the reports of the expert groups on banking, insurance, securities and asset management concluded that it is too early to draw conclusions 'on the impact/effectiveness of FSAP measures', although recent legislation does not yet appear to have brought about 'improvements in market access or easier organisation of cross-border financial business' and 'it is clear that the importance of the different categories of finance still remains largely determined by local factors and therefore can vary considerably across member states.' The reports also agree that new legislation should not be introduced unless it is deemed 'indispensable' for solving problems related to the way in which the Single Market works. Emphasis should instead be placed on ensuring that existing legislation is applied effectively. The publication of the sectoral reports will be followed by a period of consultation with interested parties and stakeholders, with a deadline of 10 September 2004. In Autumn 2003, a committee of senior Finance Ministry officials from the Member States, known as the Financial Services Committee (FSC), was also asked to prepare a report examining progress on financial integration. The first Financial Integration Monitor and sectoral reports will therefore be closely followed by a submission from the FSC, which is scheduled to submit its own report to EU Finance Ministers on 2 June. Concerns over the impact and effectiveness of the FSAP have also been expressed elsewhere. An article in the Financial Times argued that the strategy of the Financial Services Action Plan must be accompanied by 'a common philosophy that reflects the interests of a liberal market place' (see: There are concerns that, because it is up to individual Member States to implement the aims of Directives via their own national legislation, there is the danger of creating 'new obstacles to cross-border trade in financial services in place of those that the FSAP is supposed to eliminate' (see Financial Times: The FSAP involves a novel method of legislating - the Lamfalussy approach - in which 'parliament delegat[es] its powers for drawing up detailed legislation to powerful committees of EU security regulators and finance ministry officials' (see Financial Times: In March 2004 the UK Treasury published a report in which it identified five priority areas in the FSAP which it wants addressed:
Meanwhile, the Association of Private Client Investment Managers and Stockbrokers warned UK legislators not to indulge in 'gold-plating'. In The Gilded Cage - gold plating EU legislation into UK law and regulation, the Association identifies four types of 'gold plating':
'The potential benefits of a single market in financial services are huge, but only if they are implemented evenly and fairly, and if the UK watches and learns from what our peers are doing' argued the Association, which wants the UK to be 'pragmatic' in its implementation, 'rather than perfect'. Despite such criticisms and concerns, the Union's 'remarkable achievement' in introducing in five years 'what individual member states and the US took decades to achieve' has also been recognised (see Financial Times: The Commission itself is aware of the criticisms levelled at the FSAP. Speaking in January 2004, Commissioner Bolkestein characterised the FSAP as:
Further information within European Sources Online European Sources Online: In Focus
European Sources Online: Financial Times
European Sources Online: European Voice
Further information can be seen in these external links: EU Institutions European Commission DG Press and Communication DG Internal Market
Government HM Treasury
Other organisations Association of Private Client Investment Managers and Stockbrokers
Eric Davies Background and reporting on the week's main stories in the European Union and the wider Europe. |
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| Subject Categories | Business and Industry, Internal Markets | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
