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EU securities market regulation: Adapting to the needs of a single capital market


But harmonisation did not ... of harmonisation? Danger of too much harmonisation, weakens market ... Desirability of minimal harmonisation of SSS. No need ... – PowerPoint PPT presentation

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Title: EU securities market regulation: Adapting to the needs of a single capital market

EU securities market regulationAdapting to the
needs of a single capital market
  • University of Toronto, CMI, 7 March 2002
  • Karel Lannoo,Centre for European Policy Studies

  • gt 10 years of financial sector de/re-regulation
  • Perception that single financial market is not
    working, need for more Brussels in financial
  • Heavy regulatory agenda
  • FSAP
  • Lamfalussy report
  • Action on CSDs
  • Implementation of Basel Review
  • Taxation of savings
  • ECB is taking a more active role in financial
  • Trend towards FSAs at national level

The European financial system
Strongly bank-based
But not so healthy
European Capital markets
  • Capital markets are becoming truly European as
    compared to fragmented markets of the past
  • Strong competition between financial centres
    geographic and functional specialisation
  • Market infrastructure is changing drastically
    from vertical national to horizontal European, or
    mixture of both
  • Exchanges go public
  • But vested interests and regulations hamper
    market integration they maintain home bias or
    make cross-border investments more costly

What is securities market regulation?
  • In essence about disclosure and enforcement, over
    a complex set of institutions and intermediaries
  • Not only matter of legislation, but also
    stimulating competition btw intermediaries
  • Structure cannot be copied easily, takes year to
    be in place
  • Best run system will have cheapest cost of
    raising capital
  • Regulatory competition enhances standards

Layers of securities market regulation
EU securities market regulation
  • Substantial body of EU legislation in securities
    markets (from 80s to early 90s) based upon home
    country rule and covering
  • Issues on capital markets
  • Stock exchange admission and listing
  • Disclosure and trading rules
  • Intermediaries and markets (ISD, CAD)
  • Unit trusts (UCITS)
  • Main successes are ISD and UCITS
  • But harmonisation did not go sufficiently far
  • too much reliance on mutual recognition has
    hampered market integration, insufficient
  • limited experience with capital market regulation

Securities market supervision in EU
  • In general late (end 80s - early 90s, compared to
    1933 in US), EU legislation was instrumental,
    before mainly self-regulation
  • Institutional set-up, dividing line between
    regulation and self-regulation, and powers of
    enforcement differ, very complex set-up
  • Very limited cooperation at European level led to
    creation of FESCO (Forum of European Securities
    Commissions) in 1998

Supervisory structure in EU
Lamfalussy report
  • Basis overcome fragmentation of European capital
    markets, realise benefits of EMU
  • Strong regulatory bias overemphasis on what is
    not working
  • Heavy and bureaucratic procedure central role
    for Brussels, and big role for committees
  • 4 levels of regulation
  • Framework directives or regulations
  • High-level Securities Committee
  • FESCO becomes CESR
  • Stricter enforcement
  • But no attention for self-regulation
  • Problem with European Parliament (EP) solved
    after one year

EU Committee Structure
Lamfalussy Proposals
  • Commission has respected timetable, issued series
    of proposals and consultative papers, did not
    wait for EP agreement
  • Single prospectus proposal
  • Market abuse proposal
  • Discussion paper on investment services directive
  • Disclosure obligations of companies
  • Framework for regulatory cooperation ECS and
  • But reaction of market has been lukewarm, issuers
    are resisting more rules, prefer lighter
  • EP has put forward plenty of amendments will
    end-product be workable?

  • EU Securities Committee finally installed
  • embryonic SEC, can decide with qualified majority
  • but will remain de-centralised in its operations
  • CESR (former FESCO) will do preparatory work
  • ESC-CESR co-opetition!
  • Trust of new proposals
  • Raising of awareness
  • Strengthening of disclosure
  • De-coupling of listing from trading
  • If structure works, will impact on other areas of
    financial regulation and supervision
  • No need for EU FSA

  • What is framework vs technical detail?
  • What degree of harmonisation? Danger of too much
    harmonisation, weakens market mechanisms
  • e.g. ISD Review
  • How to support degree of self-regulation?
  • Desirability of minimal harmonisation of SSS
  • No need for European monopoly
  • Stay away from price regulation
  • Will committee structure work in 1510 member
  • Need for an infrastructure to strengthen
  • European EDGAR or SEDAR

Other issues on agenda
  • IAS for listed companies in 2005
  • Final adoption of European company statute
  • New draft take-over bids directive?
  • Adaptation of EU directives to Basel review
    similar mechanisms as Lamfalussy?
  • Problems on retail side of the agenda
    interaction minimal and maximal harmonisation?
  • Home country vs country of origin rule
  • Savings taxation will end-2002 deadline be met?

Why no European SEC?
  • Basis of EUs single market is regulatory
    competition minimal harmonisation of rules and
    mutual recognition, should lead to gradual
    convergence over time
  • This is even more so or securities market
  • No consensus on basic principles definitions
  • Importance of self-regulation
  • Rapidly evolving markets
  • This is why an SEC as not the solution for an EU
    context A centralised solution can only be
    considered if decentralisation leads to
    distortions, e.g. systemic stability, food safety

  • European capital markets are gradually adapting
    and become more European
  • Structure for regulatory cooperation and quick
    adaptations to law in place ESC-CESR
  • By 2005-7, EU securities market regulatory
    framework will be adapted. Whether it will be
    effective will depend on ongoing discussions
  • Most important in a Canadian context in full
    mutual recognition and strong regulatory