top stories

David Doyle discusses the progress of the EU Financial Services Action Plan over the past year and looks at developments coming up in 2003.

In 1999 The European Commission produced the Financial Services Action Plan (FSAP) aimed at creating a single market for risk capital by 2003 and for all financial services by 2005. It is widely acknowledged that a fully integrated financial market would bring tangible benefits to consumers, financial service providers and corporate Europe, in terms of lower investment costs, enhanced entrepreneurship and improved economic growth.

The stakes are high. It is estimated that a unified set of rules for all investors and consumers would add at least 0.5% p.a. to EU economic growth, representing €43bn based on 2000 figures, according to the European Round Table of Financial Services. Moreover, by removing the tax barriers to foreign fund managers – which force them to create locally domiciled funds – savings representing 0.4% of running costs or $4bn per annum could be generated according to Fidelity Investment estimates.

Progress made
The FSAP is now more than halfway towards implementing the 42 measures earmarked in the 1999 timetable: 30 measures have been finalised, including ten legislative instruments, nine communications and eight reports or recommendations that have to be adopted in conformity with the time-table. Specific progress over 2002 included:

• the Regulation requiring all listed companies to prepare their consolidated accounts in conformity with International Accounting Standards (IAS) from 2005 onwards was adopted in June
• a common position on the EC’s proposed Pension Funds Directive was reached during the Danish presidency
• a political agreement on the proposed Prospectuses Directive, enabling a “single passport for issuers” thereby facilitating Initial Public Offerings, was secured during the Danish presidency with final adoption expected in 2003
• Council and the European Parliament adopted the Directives on Collateral in June, Insurance Intermediaries in July, Distance Marketing in September and Financial Conglomerates in September
• the Council of Economics and Finance Ministers adopted the Market Abuse Directive in December, aimed at protecting markets and investors from both insider dealing (trades based on information that is not accessible to the public) and market manipulation (covering misleading trades and information).

Two developments over 2002 triggered perhaps the biggest changes seen in a long time in the quest to create a single financial services market.

The first related to the EC’s proposed provision in the Investment Services Directive allowing banks to compete on an equal footing with stock exchanges in trading shares directly with investors. This puts an end to the practice in some EU states that forced investors to buy and sell shares exclusively through stock exchanges. Resulting high costs, and the panoply of different rules across the 15 EU states, have significantly restrained cross-border trading of EU securities. Investment banks will be required to disclose prices of in-house trades to the market prior to execution.

The second development related to the European Court of Justice’s (ECJ) ruling on 3 October 2002 that tax breaks on pension schemes should be consistently applied across the EU. The ECJ ruled that, on the basis of the case of a dual Finnish/German national living in Finland and contributing to pension schemes in Germany “restricting or disallowing [tax breaks] of contributions to voluntary pension schemes paid to pension providers in other member states” should not be imposed by governments.

It is widely believed in financial circles that this case will facilitate EC proposals to create a pan-European pension regime, whereby workers in any EU state could continue to pay into the pension scheme of their choice without losing their tax benefits.

Progress to be made
However, much remains to be done. Certain important measures, such as the revised Takeover Code, are behind schedule. Structural barriers across the EU still impede the scope of risk capital operators because of the more favourable tax treatment attributed to debt than equity financing. By the end of 2003, all legislative mechanisms must be complete, while the harmonisation of national rules for other aspects, such as insurance and pensions, must be in place by 2005. The FSAP legislative programme planned for 2003 is shown in the table below.

For more information on the FSAP see www.europa.eu.int/comm/internal_market/en/finances/actionplan

David Doyle – Head of European Affairs, ACCA

Back to top