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Commission to focus on retail market integration until 2010 Back  
The European Commission’s White Paper on Financial Services Policy 2005 ‑ 2010, identifies retail market integration as being the focal point of the Commission’s approach, writes Brian Binchy, which will see the following being discussed - the development of a lead supervisor, the discussion around the 26th Regime, the greater inclusion of consumer organisations in policy preparation and the EU approach at global level to regulatory dialogue.
The Irish Bankers Federation has welcomed the publication of the European Commission’s White
Brian Binchy

Paper on Financial Services Policy 2005-2010. This paper sets out the Commission’s policy priorities in the fields of banking, insurance, securities and asset management up to 2010. The paper is based upon the broad support received from the industry and consumer groups to the Green Paper published in May 2005. Consolidation is the leitmotif of the Commission’s approach and while the Financial Services Action Plan 1999-2005 (FSAP) focussed mainly on the wholesale market, retail market integration is the focal point from now until 2010.
The primary objective of the White Paper, like the FSAP, is financial market integration. This is not an end in itself but the best way to stimulate competition within the EU, ensuring that the European industry is competitive on a global scale. The paper recognises that competitive proper functioning financial markets influence the prosperity of all citizens and businesses and are the driver for growth and jobs. The Commission carried out an impact assessment which stresses that quantifying the costs and benefits of financial integration is difficult and subject to uncertainty but notes that several economic studies have calculated the economic benefits of EU financial integration as an increase in GDP of 0.5 per cent to 1.1 per cent over time. At the moment, the full economic benefits of integration remain untapped due to the constraints on the financial services market and the White Paper sets out to dismantle these final barriers.

The White Paper sets out the consultative steps (e.g. prior impact assessments, establishment of expert groups and launch of studies) which it plans to take rather than decisions on general or specific legislative action. New measures or legislation do not feature strongly, instead delivering practical implementation of all 42 FSAP measures is seen as the solution to completing real financial market integration. In order to establish the ‘best financial framework in the world’, it clearly sets out five priorities:

1. Dynamically consolidate progress and ensure sound implementation and enforcement of existing rules.
2. Drive through the better regulation principles into all policy making.
3. Enhance supervisory convergence.
4. To create more competition between service providers, especially those active in retail markets.
5. To expand EU’s external influence in globalizing capital markets.

The approach outlined above means that the regulatory burden and adjustment costs which have impacted institutions over the past few years should not be added to unnecessarily.

Dynamic consolidation of financial services
The Commission has committed to building upon the success of the FSAP and completing unfinished business through enhancing supervisory cooperation and removing the remaining barriers. The Lamfalussy process which has had a baptism of fire meeting the deadlines outlined in the FSAP will be supported and developed over the next 5 years to reach its full potential. Cooperation and timely exchange of information between supervisors will be strengthened by clarifying home-host responsibilities, exploring the delegation of tasks and avoiding duplicative reporting and information requirements. Especially welcome is the replacement of multiple reporting requirements by streamlined common reporting, without national ‘add-ons’. By 2009, all EU banks, insurance and major investment companies should be able to fulfil their reporting requirements by sending one reporting package to the competent supervisor.

Better regulation
In line with the Commission’s commitment in March 2005 to ensure that the regulatory environment is simple and of high quality, the ‘better regulation principles’ are ingrained in the White Paper. This approach coupled with the Irish Government’s White Paper ‘Regulating Better’ should ensure that the regulatory burden is not unnecessarily increased. The development of sound policy over the next five years will involve the following steps:

• Open and transparent consultation with stakeholders, publishing responses and summaries where possible
• Ex-ante impact assessments focussing on costs and benefits across the broad economic, social and environmental dimensions, including financial stability, proper functioning of markets and consumer protection
• Initiatives should be evidence based and in line with the subsidiarity and proportionality principles of the Treaty
• Ex-post evaluation of the FSAP and any further legislative measures will take place around 4 years after the implementation deadline of each measure.
• Simplification, codification and clarification play an important role. The Commission will undertake consistency checks, reading across the relevant law to ensure coherence of terminology and effect. The Commission also commits to reviewing possible inconsistencies and appropriateness of information requirements in 2008
• Implementation and enforcement is paramount. While Ireland is near the top of the class as regards the rate of transposition of FSAP Directives, the Commission has threatened infringement proceedings for those lagging behind. ‘Goldplating’ is to be avoided. Transposition workshops and adequate transposition timetables are to ease the burden

Bank accounts
Over the next five years, the Commission aims to open up the retail financial services markets, by adopting a bottom up consultative approach. The Irish Bankers Federation supports this approach and looks forward to fully engaging in the process, given the successful launch in 2005 of the personal account switching code. The first step identified by the Commission is the establishment of an expert group that will examine ‘problems associated with user mobility (e.g. cross-border account opening (including online), closing fees and transfers between banks) and consider the usefulness of an optional standard bank account’. The report to be published by the group in early 2007 will be used alongside ongoing sector enquiries to study the potential business case for taking initiatives.

As noted in the White Paper, the publication of the White Paper on Investment Funds in late 2006 and the Report on the E-Money Directive in early 2006 will be of interest to observers. Other topics which will be monitored with interest include the development of a lead supervisor, the discussion around the 26th Regime, the greater inclusion of consumer organisations in policy preparation and the EU approach at global level to regulatory dialogue. The White Paper also lists a number of areas where no further legislation is envisaged: rating agencies; financial analysts; level-2 measures for the Takeover Bids Directive on requirements in the offer document; and capital requirements for regulated markets.

Support for the Commission’s White Paper has been strong and the effective regulatory pause following the FSAP is welcome. The Commission has set 2010 as the completion date which coincides with the Lisbon Agenda goal for the EU to become the most dynamic and competitive knowledge-based economy in the world. The policy for the next five years has now been agreed and it will take the ambition and effort of the legislators, regulators, industry and stakeholders to realise the goals therein.

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