A half-finished job: the EU’s financial services action plan By Alasdair Murray ★ The EU’s financial services action plan (FSAP) is reaching a critical phase with a raft of contentious legislation due to be completed in 2003. The EU should not let global stock market problems, or a diminishing appetite for economic reform, distract it from the goal of creating a single market in financial services by 2005. ★ The effective implementation of the Lamfalussy proposals should accelerate EU decision-making on financial services rules. The EU should enshrine the Lamfalussy principles in its new constitutional treaty and ensure that the European Parliament can play a proper scrutiny role. ★ It is premature to talk about a second FSAP. Some obstacles to cross-border trade in financial services are likely to remain after the completion of the existing plan. However, the EU’s priority, particularly after enlargement, must be the effective implementation and enforcement of already agreed measures. At the Lisbon summit in March 2000, EU heads of government signed up to an ambitious programme designed to achieve a viable single market in financial services by 2005. The financial services action plan (FSAP) is an attempt to reduce the legal obstacles which still prevent businesses – whether retail banks, insurance companies or stock exchanges – from selling their wares seamlessly across the EU. A well-functioning financial services sector is vital for the competitiveness of the European economy. It ensures the efficient allocation of capital, mobilises savings and helps to discipline management. Access to low cost capital promotes the growth of new and innovative businesses, which the EU desperately needs if it is to reach its goal of becoming the world’s most competitive economy by 2010. A single market in financial services would also help European countries to overhaul their pensions systems, as ageing populations become a rising burden on state finances. Most EU member-states are likely to need to encourage the growth of equity-based private pension funds. Private pension funds will further stimulate the development of European equity markets, boosting liquidity and lowering the cost of capital. The recent European Financial Services Round Table report on the integration of European financial
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services – including banking, capital markets and insurance funds – estimates that the creation of a functioning single market in financial services would add around T43 billion annually to the EU economy. The EU would then raise its underlying economic growth by up to 0.7 percentage points each year. The EU has so far signed off just over half of the financial services action plan’s 44 measures – including important legislation such as the EU company statute and common rules on the distance selling of financial services. Moreover, EU heads of government underlined their commitment to completing the FSAP on time at the Barcelona summit in March 2002. However, the vast majority of the action points already completed are straightforward non-legislative measures, such as a review of corporate governance provisions in EU member-states. The Council of Ministers and the European Parliament are yet to begin discussions on many of the most complex – and politically controversial – aspects of the FSAP, such as the investment services directive, which establishes the ground-rules for investment banks and stock exchanges which trade across the EU (see box). The coming year (2003) will show whether Europe can establish an efficient and flexible regulatory regime for the financial services sector. The
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