EU promise more integration but with better regulation

The European Commission has today presented its financial services strategy for the next five years. With it comes the proposal to further integrate the EU financial services industry but to do so with less intensive regulatory activity than has characterised recent years during the implementation of the Financial Services Action Plan.

The Financial Services Action Plan (FSAP) was launched in 1999 with the aim of providing a five year package of measures to encourage progress towards an integrated, open, and more competitive and efficient European financial market. In all, 42 measures were targeted for adoption by mid-2004, with 39 being adopted on time. Two further measures, including the Capital Requirements Directive for implementing Basel II, were adopted in 2005.

The Commission has said that the new five-year plan will aim to further develop the strong untapped economic and employment growth potential of the EU financial services industry. In doing so, the new strategy will explore the best ways to effectively deliver further benefits of financial integration to industry and consumers alike. The Commission’s priorities are to:

• Dynamically consolidate progress and ensure sound implementation and enforcement of existing rules
• Drive through the better regulation principles into all policy making
• Enhance supervisory convergence
• Create more competition between service providers, especially those active in retail markets
• Expand the EU's external influence in globalizing capital markets

Commenting on the new strategy, European Commissioner for Internal Market and Services, Charlie McCreevy said, "European financial integration has really moved forward in the last five years. The challenge now is to consolidate progress and work together on applying the better regulatory disciplines. Our aim should be to create the best financial framework in the world. It means creating real, tangible benefits for the citizens and businesses of Europe through lower capital costs, better pensions, and cheaper, safer retail financial products. Our new strategy is practical, economics driven and citizen focused. Only in a few, targeted areas are new initiatives foreseen."

In a speech on Friday to the European Association of Co-operative Banks, Commissioner McCreevy highlighted the need for the new plan to be characterised by less intensive regulatory activity.

"It is clear that there is no appetite – nor a need I would say - for many new regulatory initiatives beyond those already on the drawing board. There is large support for the Commission's suggestion to consolidate progress and complete unfinished business in a practical way."

"Any future initiative should be evidence based. EU-level action should only be taken where national initiatives or alternative approaches cannot provide an adequate solution. I am reinforcing the tests, beginning with consultation, economic cost/benefit and impact analysis. Furthermore, the new strategy will have a strong focus on implementation, enforcement and evaluation."

The plan for more considered, less intensive regulation will be broadly welcomed across the EU, not least the FSA. They have been critical of the increasing regulatory burden of EU legislation, described recently by their CEO John Tiner as "highly prescriptive" and typified by many in the Markets in Financial Instruments Directive (MiFID).