The future regulation of European securities markets

Speaking at the Frankfurt European Banking Congress, Mr Davies said that the FSA shared the Committees analysis of the problems holding back the full development of Europes securities markets and broadly supported the general lines of the Committees preliminary conclusions. However, he noted that the FSA will need to look carefully at the detailed proposals as they evolve.

He said:

We agree, in particular, on the need for more speed and energy in the legislative process, which only a firm political commitment can deliver. And the four tiered cake which the Wise Men have baked seems to us to include many of the necessary ingredients. Nonetheless, we have a number of suggestions for further improvement, and a few reservations about what has been proposed so far.

At the top tier, we support the idea that securities regulation in Europe should hang off a number of framework directives which can be amplified and amended from time to time at a lower level.

As for the institutions which should carry out the intentions in these directives, we agree that a network solution is the only realistic option at present. The report explained well why a single European securities regulator is not feasible, and will not be feasible withoutmore extensive harmonisation of legal and judicial systems across the Union. There is little point in a single regulator which cannot enforce its rules. In our view, too, the network solution might well be the right one for the longer term, though we accept that its effectiveness should be reviewed from time to time.

Mr Davies offered some suggestions for further improvements to the approach outlined in the Committees report:

• A European set of objectives and principles of good regulation that defines what a regulator is there for, supported by a robust accountability framework to include the European Parliament;

• Greater convergence in the responsibilities and powers of national securities regulators to ensure that members of the proposed Committee of EU Regulators can implement and enforce EU legislation effectively;

• A mechanism to check that implementation and enforcement is happening in an even way across the EU: this may require a quality assurance function at the centre, perhaps with European Commission involvement;

• More emphasis to be placed on obtaining input from investors and capital raisers, as well as financial intermediaries, to the deliberations of EU regulatory authorities and to develop further the proposal for appropriate and user friendly mediation procedures in the event of disputes.
  

Notes for editors

1. Howard Davies was speaking at the Frankfurt European Banking Congress as a member of a panel discussing EU financial markets regulation. The panel also included Alexandre Lamfalussy, Chairman of the Committee of Wise Men.

2. The Committee of Wise Men was established by the EU Council of Economic and Finance Ministers on 17 July with a mandate to assess the implementation of securities market regulation in Europe. The ECOFIN Council will discuss the Committee's initial report on 27 November. The Committee is due to present a final report in February 2001.

3. The full text of the Wise Mens initial report is available from the European Commissions website (www.europa.eu.int/comm). The Committees preliminary proposal is for an EU regulatory system comprising 4 levels:

   LEVEL 1 - Broad framework principles of securities regulation (rather than detail) enacted in accordance with normal EU legislative procedures.

   LEVEL 2 Implementation of these principles and changes to them in response to market developments delegated to a new EU Securities Committee, supported by a Committee of EU Regulators.

   LEVEL 3 - Member States implement Community law within the framework of strengthened co-operation and networking between national regulators to ensure consistent implementation.

   LEVEL 4 - Strengthened enforcement of Community rules through more vigorous action by the Commission and enhanced co-operation between Member States and their regulators.

4. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the protection of consumers; and fighting financial crime.

5. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.

Appended information

This speech is available from the publications section of our web site. The direct URL is http://www.fsa.gov.uk/Pages/Library/Communication/Speeches/2000/sp64.shtml.