31 October 2005

October 2005

Graham Bishop’s Personal Overview. 


Progress on financial services reform continues apace –with important formal steps during October, as well as ideas surfacing about the likely shape of the White Paper on financial services policy that is due in November. However, the round of top-level meetings continues to re-iterate the role of this sector.

The paper submitted by the Commission to the Hampton Court informal meeting of the European Council set the first task at EU level “Complete the internal market, including for … financial services.” Another key task is to “Assure the proper functioning of EMU as a key precondition to creating growth and jobs.” At the national level, there is a call to “Implement the agreed structural reforms and policies within the renewed Lisbon Strategy” and pension provision looms large in that.

So the focus on financial services is unlikely to abate, especially given the concerns about globalisation as a threat. In this area, the EU is more than holding its own – as IFSL has documented - so this remains an area of opportunity for EU-based firms.

The formal steps included final “political” ratification of the Capital Requirements Directive, Re-insurance Directive and Statutory Audit. With these measures out of the way at least at level 1, legislator attention can now turn to the next generation of proposals – paying more attention to the retail markets for consumer credit, mortgages, and asset management. But the Commission’s White Paper is also going to “underscore the importance of supervisory convergence and of the reduction of compliance costs for firms operating in several Member States. Concrete tools must be delivered for cost- effective supervision of cross-border groups.”

That may well signal the intensification of the political debate about national sovereignty and the structure of financial regulation that flows directly, inexorably and logically from a single market. For example, CEBS has now offered its advice on deposit guarantee schemes – recognising it is only preliminary in a fast changing environment. CEIOPS will also have to address this for insurance protection schemes. The underlying issue is which set of taxpayers have to pay for problems that may not have occurred in their state and not been supervised by their nationals – under the control of their Parliament. This debate will be highly technical but will go the heart of the political evolution of the EU.

The Commission is also stepping up its campaign of enforcement – as requested frequently and vigorously by market participants. But it may turn out to be unfortunate that action is taken on the Insurance Mediation Directive just as there is a growing chorus of calls to review its operation, given the difficulties that are appearing. The insurance world also faces change from Solvency II but CEIOPS has published preliminary findings that suggest a significant number of companies may find themselves under-resourced. Moreover the Quantitative Impact Studies (QIS) could throw up problems that need to be addressed by revisiting legislative proposals – thus delaying the enactment of Solvency II.


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Graham Bishop

© Graham Bishop