Financial services: Commission presents measures to improve regulation of banking, insurance and investment funds - Main contents

The European Commission has launched a package of seven measures a proposal for a Directive and six Commission Decisions to allow the EU to respond far more quickly to developments in the financial sector. The package would create a modern and streamlined decision-making structure for financial services with the aim of improved regulatory and supervisory co-operation. The package aims to extend the committee structure and approach already used in the securities sector since 2002 (see IP/02/195) to banking, insurance and investment funds (UCITS). Once agreed and implemented, the measures will produce real benefits by allowing greater and more detailed co-operation between supervisors and much greater convergence in day-to-day regulation and supervision.

Internal Market Commissioner Frits Bolkestein said: "European legislators and regulators in the banking, insurance and mutual fund industry are saddled with a system ill-suited to an EU of twenty five Member States and to the modern financial world. We have to do better. The Commission has put forward a balanced package which would enable the EU to respond quickly and effectively to developments, and help to ensure consistent implementation and enforcement of rules across the EU. The result would be real improvements in the way European financial markets work, a boost for integration and better protection for investors."

Under the new approach applied to the securities sector since 2002,framework Directives agreed by co-decision - such as those on Market Abuse and on Prospectuses - set out clear principles to be followed. They also define the scope for technical implementing measures to be decided by the Commission, with the assistance of the European Securities Committee (ESC) made up of Member State representatives, and. taking into account technical advice received from the Committee of European Securities Regulators (CESR), composed of national supervisory authorities. CESR also aims to ensure the consistent implementation of EU securities law in the Member States.

The package would extend this approach to banking, insurance and collective investment funds. To do so, it would create four new committees. The first two, the European Banking Committee (EBC) and European Insurance and Occupational Pensions Committee (EIOPC) would like the ESC for securities - assist the Commission in adopting implementing measures for EU Directives.

The EBC and EIOPC would replace the existing Banking Advisory Committee (BAC) and the Insurance Committee (IC). Meanwhile, responsibility for overseeing the implementation of EU law on collective investment funds - so-called UCITS⁽¹⁾ - would be transferred from the UCITS Contact Committee to the existing European Securities Committee (ESC) and Committee of European Securities Regulators (CESR).

To avoid duplication of committees and to avoid pre-empting the views of both the European Parliament and the EU's Council of Ministers, the Commission Decisions establishing the EBC and EIOPC and transferring responsibility for UCITS to the ESC and CESR would be suspended until the proposed Directive replacing references to existing committees in current financial services legislation was adopted by the European Parliament and the Council.

In addition, the package establishes two committees bringing together national supervisors, the Committee of European Banking Supervisors (CEBS) and the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) with effect from 1^st January 2004 and 24th November 2003 respectively. Like the CESR for securities Directives, these new bodies would aim to improve the practical implementation of EU law in their respective fields in the Member States.

The effect of the package will be to create a new financial services committee organisational structure as follows:

The package is needed urgently if the Financial Services Action Plan (FSAP) is to be delivered by the 2005 deadline, set by the 2000 Lisbon European Council and reiterated many times by heads of State and Government since then, and if the EU's overall economic objectives are to be met. An emerging complaint from financial markets is that the legislative ambitions of the FSAP can be undermined by poor and inconsistent implementation across Member States and that an integrated European financial market is impossible without tackling this issue.

Whilst these complaints are already being addressed in the securities field by the introduction of the new legislative approach, this needs to be extended to the banking, insurance and collective investment funds, especially given the forthcoming CAD III and Solvency II proposals on capital adequacy rules.

The successful implementation of these new rules in Member States will rely on close co-operation not just between Member State supervisors but also between Member State regulators. This work needs to begin as soon as possible and can only effectively be achieved if the new committee structure is in place.

Looking beyond co-operation to ensure common implementation, the timeframe for the adoption and implementation of these two capital adequacy proposals is very short. Guidance on supervisory approaches will be needed from early 2004 onwards, ahead of the adoption of the proposals and well ahead of the deadline for their implementation.

Furthermore, there is a real deadline imposed by the dissolution of the European Parliament in April 2004 prior to elections in June. If these measures are not adopted by then, there is likely to be a significant delay before they can be reconsidered by the new Parliament. This would penalise European businesses and investors, and hinder the integration of markets.

Background

Given the scale and economic importance of the FSAP, it has become increasingly clear that the financial services committee structure itself has and will increasingly come under pressure.

This first became clear in the securities sector and led to the establishment of the ESC and CESR, under a new four-level approach to European securities regulation (see IP/02/195), agreed by the European Parliament, the Council and the Commission, on the basis of proposals by the Committee of Wise Men on the Regulation of European Securities Markets, chaired by Alexandre Lamfalussy

In December 2002, the Council invited the Commission to extend the committee structure applied in the securities sector to banking, insurance and UCITS, by establishing new committees in each sector by Decisions of the Commission.

The situation is complicated by the presence of existing committees (the BAC, IC and UCITS Contact Committee) established by, and referred to in, existing European Parliament and Council Directives, and acting in both advisory and "comitology" modes. In coming forward with a package of measures therefore, the Commission has been careful to take an approach that:

• is institutionally and legally consistent with the approach used in the securities sector, and across the range of Community activities

• avoids the risk of unnecessary complexity and duplication due to the overlap between existing and newly established committees

• is consistent with the requests of the Council for committees to be set up in advisory capacity as soon as possible

• is mindful of the concerns raised by European Parliament Resolutions and gives the Parliament as co-legislator an equal right to decide on the move to a new financial service committee architecture.

  ^{(1) Harmonised collective investment undertakings that can operate throughout the EU.}

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