Room for improvement in EU consultation on financial services legislation

In a speech delivered on his behalf at a Paris conference, he said:

In the UK we are obliged by law to consult with the industry on any new regulatory obligation to be placed on firms. This is a very helpful discipline which has contributed greatly to ensuring that our new regime is proportionate and appropriate to achieving its intended aims.

By contrast the European Commission this summer issued two directives, on prospectuses and on market abuse, without industry pre-consultation. And it is already clear that those directives have suffered accordingly, with the prospectuses directive coming in for particularly strong criticism from trade associations for its potentially damaging impact on capital raising in Europe.

I have a lot of sympathy for the European Commission in its attempts to complete the Financial Services Action Plan by 2004 - the very ambitious timetable to which all European governments are formally committed. And I am entirely behind the principle of a single financial market. But you do not always create the best kind of free market by introducing hasty one-size fits all solutions which can have a damaging effect on some life-forms in the market. Market practitioners have argued that the Prospectuses directive will damage the efficiency of the Eurobond market, one financial market which already operates efficiently as a pan-European system.

Howard Davies highlighted two other elements of the UK regulatory set-up statutory principles of good regulation and the inclusion of industry representatives on a statutory Practitioner Panel.

I believe that these elements together with mandatory consultation should be incorporated into the regulatory regime in the EU as a whole. The Lamfalussy Wise Men Report earlier this year gave some support to this point of view. Lamfalussy himself argued that there should be principles governing the overall shape of regulation in Europe, and the principles he recommended were rather like the ones we have in London. But they have not yet become an automatic part of the European system. There is no formal practitioner committee in place, and the consultation practices in Europe certainly do not yet, in my view, match best practice in London.

Notes for editors

1. Mr Davies remained in London today following the tragic events in the USA yesterday.

2. 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.

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