While the national authorities of the EU will be busy throughout 2007 implementing numerous financial services-related European directives (with the most significant being the Markets in Financial Instruments Directive, due for implementation in November 2007), the European legislator is already looking to introduce new regulations.
This will ultimately result in new national regulations for the financial services industry in a number of areas. Many will have a substantial impact on consumers of financial services and products. Others will aim to improve the supervision of institutions, which ultimately will also benefit consumers.
The initiatives were announced in a European Commission white paper published on 5 December 2005, in which it presented the financial services policy for 2005-10. The paper set forth a number of initiatives necessary to complete the Financial Services Action Plan (FSAP), which since its launch in May 1999 has been the major driver for the adoption of a large number of European legislative measures for the financial services industry.
As well as executing the white paper policies, there is an evaluation of the FSAP that provides for a two-phase approach. First, the evaluation of the manner in which all the FSAP measures have been implemented, and second to provide for “a thorough economic and legal analysis of the impact of the FSAP”. The second phase of the FSAP evaluation started only recently, while the Commission published the initial outcome of the first phase evaluation on 24 January.
There are three pending initiatives in retail banking. The proposal for a Payments Services Directive that aims to support the creation of a single European payments area (Sepa) particularly catches the eye. (The two other measures are a revised framework for consumer credit and harmonised rules for mortgage credit.)
This directive is due for adoption in 2007. It aims to create improved and harmonised rules for the various means of payment on a cross-border basis. After the adoption some years ago of the first harmonised rules for cross-border payments through electronic transfers, the rules for automatic collection and electronic settlement of payments at merchants locations will also be subject to more regulation. The cross-border electronic payments rules will also be harmonised further. The fundamental aim of this directive is to bring together the costs charged to retail customers and to match settlement procedures within the EU.
While many of the Northern European countries aim to have the legislation supporting Sepa in place during 2007, several Southern European countries have raised objections that are likely to delay its adoption.
After the adoption of the Second Basel Capital Accord (Basel II) for banks in 2004, the European legislative measures have been set forth in the banking and capital adequacy directives of June 2006. These directives were due to be implemented in the EU on 1 January 2007.
Building on the major improvements of Basel II, similar conventions regarding the prudential supervision for insurance companies will be set forth in a framework called ‘Solvency II’, introducing, among other things, risk-orientated calculations of solvency requirements.
This new framework will mean a complete overhaul of the existing solvency requirements legislation. Solvency II’s impact will be as substantial for the insurance industry as Basel II’s was for banks.
The objective of the Commission as expressed in the 2005 white paper is to introduce a level-one proposal for a Solvency II directive in mid-2007, while level-two measures will be adopted at a later stage. Solvency II will result in 16 European directives for the insurance industry being recast into one single insurance directive. This will require a similar process as was undertaken for the integration of the banking directives.
Qualifying holdings in financial companies
On 12 September 2006 the Commission presented a first-draft proposal for a directive on procedural rules and evaluation criteria for the prudential assessment of acquisitions and the increase of shareholdings in the financial sector. The proposed directive aims to amend existing directives for banks, insurance companies, investment institutions and institutions for collective investment in transferable securities. The amendments aim to improve the existing policies on the authorisation process for the acquisition and increase of qualifying holdings in the aforementioned companies.
In a September 2006 proposal, the Commission has laid down detailed rules aiming to reduce the period in which the authorities may assess the requested approval for the acquisition and increase the qualifying holdings in financial services companies. The overall period for the assessment should be set at a maximum of 30 days with restricted possibilities to extend the period. The proposal also aims to harmonise the criteria that may be applied when assessing the requested approval, so as to avoid national regulators applying their own criteria when considering a potential acquisition in their country. It is unclear whether the proposal will be adopted in 2007.
There is a large number of other areas that may also face new legislative measures in the near future. Various topics are currently subject to study by the Commission.
These include: measures to introduce harmonised rules for cross-border clearing and settlement in the securities markets; the evaluation of the E-Money Directive to test its effectiveness in view of some developments in practice (such as payment infrastructures for public transport); enhancing measures for the investment funds industry; and the reinforcement of initiatives to introduce measures on conflicts of law regulations for securities depositary schemes.
The completion of the FSAP and the ongoing evaluation of its effectiveness will ultimately support the objective of the Commission to open the European financial markets for companies operating increasingly internationally. It will also improve the regulations for the protection of consumers when being offered financial services on a cross-border basis.
Bart Joosen is a finance partner in the Amsterdam office of DLA Piper