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Broad welcome for ‘better regulation’ approach of new Commission Green Paper Back  
Europe’s financial services sector has widely praised a European Commission commitment not to introduce any new EU financial services proposals without prior extensive consultation and proper impact assessments.
This so-called ‘better regulation’ approach, a key feature of the Commission’s Green Paper on the future of EU financial services policy, issued in early May, will be applied to all stages of the EU regulatory process.
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Speaking to FINANCE, the European Banking Federation, the main voice of the EU’s banking community, welcomed the Commission’s ‘declarations of intent on Better Regulation’ but cautioned, ‘The proof of the pudding is in the eating’, suggesting for example that the Commission’s draft proposal on the New Legal Framework for Payments in the EU had failed in its preparation to meet the ‘better regulation’ test and, if adopted, would lead to increased costs and prices in banking.

Representing retail banks in Europe, Chris de Noose, chairman of the management committee of the European Savings Banks Group, told FINANCE, ‘The ESBG strongly supports the EC’s commitment to better regulation, and emphasizes the necessity of both ex ante and ex post evaluation of regulatory proposals.’

Introducing the Green Paper, EU Financial Services Commissioner Charlie McCreevy confirmed that there would not be a second Financial Services Action Plan (FSAP), a move welcomed by an industry suffering from legislative fatigue. Nevertheless, the Commissioner outlined a busy financial services agenda to include consolidation of existing legislation under FSAP I, effective transposition of EU rules into national laws and continuous /ex post/ evaluation to monitor the application of these rules in practice and their impact on Europe’s financial sector. In addition, applying the better regulation concept, the Commissioner added that the Commission would be considering ‘very carefully’ whether to introduce new legislation in the retail banking and asset management areas.

Consolidation of existing policy
During the period 2005 to 2010, the initial priority for the EU will be to complete unfinished business under the FSAP.

This includes:
• Adopting possible legislation on clearing and settlement, on a new insurance solvency framework and on payments
• Strengthening supervisory cooperation
• Removing barriers to cross-border investment and competition
• Deepening and developing financial services regulatory dialogues with non-EU countries including the US, Japan, China and India.
• Transposition, enforcement and evaluation

In order to ensure that the benefits from financial integration are delivered, the Commission wants to ensure that the EU institutions, supervisory authorities and market participants all play their part in ensuring that existing EU rules are properly applied and enforced. The Green Paper establishes a number of priorities, as follows:
• Preparation of initiatives: open and transparent policy making, simplifying and consolidating existing rules, ensuring legal coherence of new rules
• Transposition: renewing political commitment to implementing EU legislation within the agreed time limits, agreeing realistic deadlines for transposition, strengthening the existing EU mediation and alternative dispute settlement procedures such as SOLVIT and FIN-NET
• Ex post evaluation: the Commission will conduct a fully evaluation of FSAP during 2006-2008 as well as various reviews mandated by various FSAP legislation e.g. on large exposures, own funds and commodities dealers.

Possible new measures
Following the recommendations of four expert groups (one each on banking, securities, insurance and asset management) established two years ago to review the implementation of the FSAP, the Green Paper had identified two areas for further work and possible legislation: asset management and retail financial services.

Asset management
The Commission will publish in early July a consultation paper concerning a review of the 1985 UCITS (Undertakings for Collective Investment in Transferable Securities) Directive. The post FSAP stocktaking exercise concluded that the UCITS Directive did not provide for effective exercise of a wide range of single market freedoms or respond to fast changing business and product innovation, resulting in higher costs and more limited opportunities for investors. The July paper will outline various steps to consolidate the existing UCITS framework and will identify areas for short term action. The closing date for comments is likely to be November.

Retail financial services
EU retail financial services markets remain deeply fragmented. In general, in responding to the current problems, the Commission will explore the approach of creating pan-European passports for businesses and consumers. Nevertheless, it will also examine possible alternatives such as the so-called ‘26th regime’ for businesses and consumers wishing to operate across borders leaving aside the 25 sets of national rules. The Commission will establish Forum groups of experts to examine specific retail products. In the short term, the Green Paper identifies three specific areas for possible future action:
• Mortgage credit: a separate Green Paper is planned for this summer
• Codification and simplification of existing rules on information requirements
• Financial mediation: to permit cross-border service provision by intermediaries
• Bank accounts: in particular, reviewing obstacles to opening accounts cross-border.
• Maximising synergies with related EU policy areas

The Green Paper highlights the importance of maximizing synergies with related EU policy areas, including competition, consumer, corporate governance, company law, accounting and auditing. Although outside the scope of the post FSAP Green Paper, work in these areas will progress in line with agreed timetables and the better regulation principle.

Next steps
The Commission has set itself a busy post FSAP schedule. The Green Paper asks for specific comments in the various areas outlined above by 1 August. These comments will be taken into account in the preparation of a final policy programme to be set out in a Commission White Paper to be published in November.

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