In early February, the European Commission (EC) published a communication on its strategy to create an integrated market in retail financial services by 2005, in accordance with its 1998 Financial Services Action Plan. The reception given to the strategy was muted, particularly in comparison with the Final Report by the Lamfalussy Committee of ‘Wise Men’ on the regulation of European securities markets, published at about the same time.
Such a response was unfortunate. The communication is a key statement of the EC’s
developing vision of how the legal and regulatory framework must be structured to break down barriers to the provision of cross-border
e-financial services in Europe. If this vision is realised, and regulatory neutrality between technologies achieved and maintained, it will change the regulation of traditional, as well as online, financial services.
Single market incomplete
Existing European Union (EU) financial services legislation is largely geared towards providing financial institutions with access to markets on the basis of the European passport. The theory is that firms wishing to operate in other member states (‘host’ states) outside their ‘home’ state may do so by giving appropriate notifications to their home regulator, rather than needing to seek separate authorisation in a number of member states.
In practice, firms operating in several member states tend to do so through branches that have to comply with certain regulatory requirements of the member state in which the branch is based. The result is that financial institutions often have to contend with the differing local requirements in each jurisdiction where they want to do business.
This lack of cohesion helps to explain the continuing absence of a fully integrated market in financial services in Europe, particularly at the retail level. Following the release of the Financial Services Action Plan, the EC set a 2005 deadline for the creation of such a market. At the same time, the EC has been developing its e-commerce policy. In terms of infrastructure and logistics, e-commerce – particularly e-financial services – is extremely suited to cross-border provision.
