05 March 2002

Forthcoming plenary votes on Key Directives

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During the following week the votes in Parliament on several key Directives of the Financial Services Action plan will take place. All Commission proposals of the Directives are subject to a number of amendments. According to the rapporteur Chris Huhne particularly the Directive on Prospectuses is supposed to enter into the second reading.

Prospectus Directive
The Commission's proposal introduces a 'single passport' for issuers with the aim of ensuring that once a prospectus is approved in one Member State, it will have to be accepted by the others, without imposing any extra conditions. Investor protection is improved by the introduction of internationally accepted disclosure standards as laid down by IOSCO (International Organisation Securities Commission).

Parliament is particularly concerned that it could have an adverse impact on small businesses, especially those who only want to raise funds on the domestic market and wants to allow exemptions for companies with a market capitalisation of less than euro 350 million and wishing to raise funds only in the home state.

Another cause for concern is the cost of complying with rules on shelf registration and updating information as proposed by the Commission, so EMAC is recommending to make this optional rather than obligatory.

A further amendment aims to maintain current market practice, allowing the issuer the choice of competent regulatory authority, where appropriate, while another amendment seeks to bring local and regional authorities raising funds under the scope of the directive.

Other amendments seek to introduce an element of flexibility on the language question to take account of market practice, extend the scope of the definition of a 'qualified investor' and bring debt securities within the scope of the directive. Parliament also wants to exclude Eurobonds and other kinds of investments traded between professional investors from the directive.

Market Abuse
EMAC proposed several amendments, including one laying down a precise definition of 'inside information'. Another amendment is designed to extend the scope of the directive to include individual transactions carried out by management staff.

The aim is also to ensure the proposal does not affect press freedom and confidential sources. Journalists not deliberately disclosing financial information for gain would be protected.

Other amendments concern punishments for breaching the rules, but given the different national legal systems there is little chance of imposing a harmonised system of European sanctions. One amendment, therefore, seeks to clarify the legal situation and the Commission is asked to draw up an indicative list of measures and sanctions as a guidance for national authorities.

The committee also supports the Commission's proposal to set up a single competent authority in each Member State to oversee the new legislation. Other detailed technical amendments are also being proposed.

Financial conglomerates
The proposal introduces supplementary prudential supervision rules for credit institutions, insurance undertakings and investment firms that have their head office in the EU and are part of a financial conglomerate. The objective is to limit the risk of those conglomerates and protect investors.

The committee is recommending a change to the definition of financial conglomerates to include those groups where at least 40% of their assets are financial sector entities, instead of the 50% proposed by the Commission. With the change of this threshold, more groups will fall under the scope of the directive.

International Accounting Standards
This proposal introduces the requirement that, from 2005 onwards, certain EU companies prepare their consolidated accounts in accordance with international accounting standards laid down by the International Accounting Standards Committee and other international bodies. It leaves the Member States free to extend the scope of the regulation. One problem is that the USA uses a separate system (GAAP) which takes on a new light following the collapse of ENRON.

Numerous amendments were tabled including one designed to ensure that the Commission takes account of the need to maintain the competitive position of European companies in any international negotiations.

Another amendment seeks to ensure that the international standards can only come into force if they are in line with the basic principles defined in existing EU accounting directives, are conducive to the 'EU public good' and provide for a high quality of financial information.

Taxation on Savings Income
The idea of a common withholding tax has been abandoned and the focus is now on the exchange of information between Member States. The intention is that Member States will have the right to tax the European income of domestic residents at their own tax rates.

Parliament supports the proposal although it no longer introduces a minimum withholding tax. It takes the view that it will mean the end of banking secrecy for fiscal purposes and will help in the fight against harmful tax competition.

An amendment stresses that, at the end of the transitional period, the move to the exchange of information system will be automatic and does not require any other decision than the entry into force of this directive. The withholding tax in those three countries will be 15% during the first three years and 20% for the rest of the transition period.

An amendment states that the Community shall negotiate with its main third country commercial parties to ensure that interest paid by third country entities to residents in the EU is treated in an equivalent fiscal way to that paid by European agents. Another amendment calls on Member States to ensure that the directive also applies to interest paid by agents in their associated or dependant territories.

Several non-binding amendments have been tabled including one to ensure that the directive also applies to associated or dependent territories such as the Channel Islands. Last week Jersey and Guernsey agreed to cooperate with the OECD on a separate move to stamp out 'harmful tax practices'. The Isle of Man has already reached agreement with the OECD.

© European Parliament