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III. Financial Market Regulation in the Post-Financial Services Action Plan Era

Published online by Cambridge University Press:  17 January 2008

Joe McMahon  and
Niamh Moloney
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Extract

After a hectic period of law reform, which has also provoked major governance reforms in the form of significantly increased levels of transparency and market consultation and major institutional innovations (with allied accountability and governance risks), the 1999 Financial Services Action Plan (FSAP)1 has now been completed. It has radically transformed the regulatory landscape for financial services in the EC, and set a seal on the recharacterization of EC financial services law from a minimum harmonization-based market construction regime to a highly interventionist and increasingly sophisti-cated market regulation system. In particular, the coincidence of legislative reform under the FSAP with the development of a new institutional process for law-making, which has rapidly become embedded in the financial market architecture (the Lamfalussy process),2 produced a reform agenda of immense depth and range. The FSAP period has also seen the use and development of a wide range of regulatory tools in EC financial services policy in line with the growing sophistication of the regulatory regime. While disclosure has long been a key policy tool of EC financial services law, the FSAP saw a closer focus on conflict of interest management across the financial sector, on more interventionist controls such as transparency, suitability, and best execution requirements, and on calibrating regulation to different investor profiles and different market risks. This article considers a selection of key recent developments.

Type
Current Developments: European Union Law
Information
International & Comparative Law Quarterly , Volume 55 , Issue 4 , October 2006 , pp. 982 - 992
Copyright
Copyright © British Institute of International and Comparative Law 2006

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References

1 COM(1999)232 final, Financial Services: Implementing the Framework for Financial Markets: Action Plan.

2 Under the Lamfalussy process (proposed in the Final Report of the Committee of Wise Men on the Regulation of European Securities Markets, 02 2001Google Scholar (the Lamfalussy Report), the Commission adopts ‘level 2’ detailed rules in the securities and investment services sphere based on mandates in the related ‘level 1’ directive or regulation (adopted under normal inter-institutional procedures), advised by the Committee of European Securities Regulators (CESR, composed of national regulators) and supervised by European Securities Committee (ESC, composed of Member State representatives).

3 Directive 2004/39 (OJ (2004) L145/1).Google Scholar

4 Directive 2003/71 (EC OJ 2003 L345/64).Google Scholar

5 Commission Regulation 2004/809 (OJ 2004 L149/1)Google Scholar

6 Directive 2004/109 (OJ 2004 L390/38).Google Scholar

7 IAS Regulation 1606/2002 (OJ 2002 L243/1).Google Scholar

8 Directive 2004/25 (OJ 2004 L142/12).Google Scholar

9 See, eg, the Asset Management Expert Group Report, Financial Services Action Plan: Progress and Prospects, Final Report, 05 2004Google Scholar, available at europa.eu.int/comm/internal_market/finances/actionplan. Assets under management in three of the largest new Member States (Poland, Hungary, and the Czech Republic) amount to only 0.4 per cent of the total assets under management by UCITS alone in the EU and EEA.

10 Directive 2001/107 (OJ 2002 L41/20Google Scholar) and Directive 2001/108 (OJ 2002 L41/35).Google Scholar

11 Commission Recommendation 2004/384 on the UCITS summary prospectus (OJ 2004 L199/30Google Scholar) and Commission Recommendation 2004/383 on financial derivatives (OJ 2004 L199/24Google Scholar). COM(2005) 314 final, Green Paper on the Enhancement of the EU Framework for Investment Funds.

12 Commission Directive 2003/125 (OJ (2003) L339/73Google Scholar) on Investment Recommendations and Disclosure of Conflicts of Interests.

13 IOSCO, Code of Conduct for Rating Agencies, 2004.Google Scholar

14 COM(2002)625, Explanatory Memorandum to the MIFID Proposal, 5.

15 See, eg, Securities Expert Group Report Financial Services Action Plan: Progress and Prospects, Final Report (05 2004) available at europa.eu.int/comm/internal_market/finances/actionplan.Google Scholar

16 eg the Securities, Asset Management, Banking, and Insurance Expert Group Reports on the FSAP (05 2004)Google Scholar, all available at europa.eu.int/comm/internal_market/finances/actionplan; the Commission's 06 2004Google Scholar conference on European Financial Integration: Progress and Prospects, speeches available at europa.eu.int/comm/internal_market/speeches; Inter-Institutional Monitoring Group Third Report Monitoring the Lamfalussy Process (11 2004)Google Scholar; Commission Working Document on Application of the Lamfalussy Process to EU Securities Market Legislation (11 2004)Google Scholar; and European Parliament Report on current state of integration of EU Financial Markets (04 2005) A6–0097/2005.Google Scholar

17 A current major school of analysis in securities regulation and corporate theory examines the relationship between law and markets. See, eg, Choi, S ‘Law, Finance, and Path Dependence:Developing Strong Securities Markets’ (2002) Texas Law Review 1657.Google Scholar

18 COM(2005)629 final, Financial Services Policy, 2005–2010 (12 2005). It followed the earlier Green Paper (COM (2005) 177, Green Paper on Financial Services, 2005–2010).Google Scholar

19 White Paper (n 18).

20 FIN-USE has emerged as a robust actor in policy-making, if somewhat of a lone voice among the dominant market interests. See, eg, FIN-USE The Consumers' Voice in the European Financial Services Sector (2006)Google Scholar and FIN-USE Financial Services, Consumers and Small Business: A User Perspective on the Reports on Banking, Asset Management, Securities and Insurance of the Post FSAP Stocktaking Groups (2004).Google Scholar

21 See, eg, the Securities Expert Group Report (n 15).

22 Directive 93/22 (OJ (1993) L141/27).Google Scholar

23 Draft Commission Directive implementing Directive 2004/39 (Draft MiFid Level 2 Directive) and Draft Commission Regulation implementing Directive 2004/39, 6 Feb 2006 (Draft MiFid Level 2 Regulation). Revised versions were approved by the ESC in June 2006 and adoption is expected in September 2006.

24 Directive 2000/31 (OJ 2000 L178/1).Google Scholar

25 Directive 2002/65 (OJ 2002 L271/16).Google Scholar

26 CESR Preliminary Progress Report, Which Supervisory Tools for the EU Securities Market? An Analytical Paper by CESR (10 2004).Google Scholar