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Report from the Commission to the Council and the European Parliament - Sixth Progress Report on the Financial Services Action Plan

/* COM/2002/0267 final */
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Report from the Commission to the Council and the European Parliament - Sixth Progress Report on the Financial Services Action Plan /* COM/2002/0267 final */


Financial Services

An improving climate

- but quite some way to go

Sixth Progress Report

Introduction - The Political Climate Has Changed

The Financial Services Action Plan (FSAP) is now halfway through its timetable for implementation. The last progress report [1] called for real and tangible progress. This sixth report, prepared with the Financial Services Policy Group (FSPG) comprising personal representatives of the EU's finance ministers, concludes that there has been a positive response. The climate in financial services has improved; a number of agreements have been struck, but significant challenges remain to complete the Plan by 2003/5.

[1] Fifth Report : « Europe Must Deliver on Time » November 2001 COM(2001)712 final, available on /finances/actionplan/index.htm

The Belgian and Spanish Presidencies have helped create the necessary political momentum. Progress is being made in the Council and the Parliament on many proposals. The mid-term review of progress of 22 February 2002 on the Action Plan [2] underlined strongly that financial integration will bring real benefits for European citizens in terms of economic growth, more jobs and sustained prosperity.

[2] Information available on DG Markt's website:

In March, the Barcelona European Council reaffirmed the objectives of the Action Plan as a key priority of the Lisbon economic reform agenda, and set clear deadlines for the adoption of eight specific measures. The informal meeting of ECOFIN ministers in Oviedo on 13 April 2002 gave further impetus to the process and recognised the need to step up its own efforts in order to complete the Action Plan on time (Box 1).


The Barcelona Priorities (European Council)

- the FSAP must be implemented by 2005, and by 2003 for the securities and risk capital markets;

- the Council and the European Parliament should approve in 2002 the Directives on market abuse, collateral, distance marketing of financial services, insurance intermediaries, prospectuses, financial conglomerates and pension funds, and the Regulation on International Accounting Standards.

The Oviedo agreement (Informal Ecofin)

- On financial integration the Council expressed its wish to step up efforts to complete the Financial Services Action Plan (FSAP) by 2005, including the adoption in 2002 of 8 important legal measures as stated in the Conclusions of the Barcelona European Council. Furthermore, they agreed that individual measures should meet the objectives of integration and efficiency. The Council invited the Commission to propose arrangements facilitating a consistent implementation of EU legislation (see also Objective 3 -Prudential Rules and Supervision- in the section Overall state of play of the Action Plan); called for a strict application of EU competition rules; insisted on the need for increased endeavours in favour of consumer confidence and protection.

- On policy issues related to Enron: noted that most of the regulatory issues highlighted by Enron are already being tackled in the context of the FSAP (International Accounting Standards, Regulatory Reporting) and welcomed further Commission work on auditor independence, priority for the EU auditing strategy, financial analysts and credit rating agencies. Ministers expressed their wish to extend the mandate of the High Level Group of Company Law Experts to recommend best practices in corporate governance and auditing practices.

A further significant milestone is the greater awareness and acceptance of the major benefits that financial integration can bring. A study commissioned by the European Financial Services Round Table estimated that integration could add 0,5 - 0,7 per cent annually to EU GDP [3] - equivalent to 43 billion Euro on an annual basis. These potential benefits underline the urgent need for FSAP to be completed on time and need to be explained more efficiently to businesses and citizens [4]. The Commission will report later this year on further micro- and macroeconomic estimates of economic benefits.

[3] Report to European Financial Services Round Table : « the Benefits of a Working European Retail Market for Financial Services,

[4] The Danish Council Presidency intends to discuss the benefits of financial integration on the basis of studies organised by the Commission. These will be reported to the Council in the next progress report.

real progress is being made to meet european council deadlines

After nearly a year of negotiation, a compromise on how to implement the recommendations of the Lamfalussy report on securities regulation has been struck with the Parliament.

Furthermore, and building on the successful work of the Belgian presidency, legislative agreements in line with the Barcelona conclusions are currently being sought by the Spanish presidency in respect of the following:

- final adoption in a single reading of the Regulation on International Accounting Standards [5] from 2005. This would be a major achievement particularly after so short a period of negotiation;

[5] COM(2001)80 - 13/02/2001

- the Directives on Distance Marketing [6], Collateral [7] and Insurance Intermediaries [8] are all targeted for adoption by June 2002;

[6] COM(1999)385 - 23/07/1999

[7] COM(2001)168 - 27/03/2001

[8] COM(2000)511 - 20/09/2000

- political agreement in the Council has been reached on 7 May 2002 on the proposed Directives on Market Abuse [9] and Financial Conglomerates [10], with the aim of adopting the proposals as early as possible in 2002;

[9] COM(2001)281 - 30/05/2001

[10] COM(2001)213 - 24/04/2001

- political agreement on the Directives on Supplementary Pension Funds [11] and Prospectuses [12] could be achieved in the Spanish presidency with final adoption by the end of the year for Supplementary Pension Funds and in 2003 for Prospectuses.

[11] COM(2000)507 - 11/10/2000

[12] COM(2001)280 - 30/05/2001

The FSPG has contributed significantly towards the progress made since the last progress report notably by identifying key political obstacles in a number of specific proposals where deadlines are under threat. But Member States must continue to demonstrate the necessary political will to compromise during the discussions themselves. The closest possible co-operation between the EU Institutions is also essential in order to obtain as many single reading agreements or accelerated second readings as possible.

some concerns remain

Three concerns were identified in the Fifth Progress Report: on the overall pace of delivery; on the take-over bids proposal and on pension funds.

- Concerns about the general pace of the legislative process have eased somewhat.

- Taking into account the recommendations of the High Level Group of Company Law Experts, the proposal on take over bids will address the three principal concerns of the European Parliament: the issue of the "level playing field", a definition of an "equitable price" and the possibility for a majority shareholder to buy out a minority shareholder ("squeeze-out"). The Commission will bring forward its proposal as soon as possible following discussion with many interested parties.

- Progress on Supplementary Pension Funds remains of concern [13]. However, the Spanish presidency is pressing hard to reach an agreement in Council before mid-2002.

[13] It has been identified as of major concern in successive progress reports: Fourth Progress Report: "Political Challenges" COM (2001)286 final, and Fifth Progress Report: "Europe Must Deliver on Time" COM(2001) 712 final. Available on:

Concerns remain on a number of other proposals. Many important issues need to be resolved if the Prospectuses Directive is to be adopted without delay, particularly those related to the specific needs of SMEs. The Distance Marketing of Financial Services Directive has now reached a critical stage in the Parliament where it is undergoing a second reading. A vote is due during the May 2002 plenary session which could either pave the way for rapid adoption of the Directive or lead into a difficult conciliation procedure.

overall state of play of the action plan

An Annex [14] to this report indicates the state of play on individual measures in the Action Plan that are still being negotiated (those measures that have been agreed no longer appear but are summarised for the last time at the beginning of the annex).

[14] As in the past the Annex will be available on the internet and updated regularly Available on :

Objective 1 : A Single EU Wholesale Market.

The Action Plan's first strategic objective is to establish a common legal framework for integrated securities and derivatives markets. Financial integrity is a cornerstone of that objective. The Enron collapse has prompted the Commission to examine to what extent the Action Plan already deals with the regulatory issues arising from the case and whether new initiatives are needed. A working document of the services of the Commission [15] was tabled at the informal ECOFIN meeting in Oviedo and was well received by ministers. This paper outlines a global and coherent strategy to help preventing a similar collapse in the EU. It focuses on five areas: financial reporting, statutory audit, corporate governance, transparency in the international financial system, financial analysts and credit rating agencies.

[15] The paper is available on DG Markt's website :

As a result of the International Accounting Standards (IAS) Regulation, listed EU companies will have to prepare their consolidated financial statements in accordance with IAS by 2005. The application of high quality accounting standards is thereby ensured. In order to enable Member States to adapt their accounting legislation so as to make it compatible with IAS, the Commission will soon come forward with its proposal for a directive to modernise the Fourth and Seventh Accounting Directives [16].

[16] Directives 78/660/EEC and 83/349/EEC

Proper enforcement will be one of the main subjects of the Communication which the Commission will soon be drawing up on priorities in the field of auditing. This Communication will address issues such as the application of International Standards on Auditing, the public oversight of the auditing profession, the role of audit committees and ethics. Moreover, the Commission has recently issued a Recommendation on Auditor Independence [17]. This Recommendation will particularly aim at avoiding that the statutory auditor finds himself in a position which could have a negative impact on his objective assessment of the financial statements. Rather than introducing a list of interdictions, the Commission has opted for a principles based approach which puts much of the responsibility in the hands of the profession. Should this approach not work in practice, the Commission might reassess the situation and come forward with legislative proposals. The Commission will also continue its discussions with the Committee of European Securities Regulators on proper supervision of financial statements published by listed companies.

[17] Commission Recommendation 2001/6942 of 16 May 2002 on Statutory Auditors' Independence in the EU: A Set of Fundamental Principles (C(2002)1873)

The High Level Group of Company Law Experts came forward in January with its first Report on issues related to take over bids [18]. The recommendations contained in this Report should help the Commission in preparing its new proposal for a Directive on Take over bids. In its second Report, the Group will provide recommendations for modernising the EU's company law framework [19]. At the informal ECOFIN Council in Oviedo, the Group was asked to include in its review (which already includes corporate governance as a general theme) a number of corporate governance issues, such as the role of non-executive directors, management remuneration and the responsibility of management for the preparation of financial information. Preliminary views on these issues will be presented to ECOFIN in June. Final conclusions should be available for the ECOFIN Council in September. The Group will address other company law issues such as the creation and functioning of companies, shareholders' rights; corporate restructuring and the possible need for new corporate legal forms at EU level. The Group will present its final Report on these issues in September. In conformity with the Action Plan, the Commission will also shortly bring forward its proposal for a directive on Cross Border Mergers (10th Company Law Directive).

[18] Available on DG Markt's website:

[19] Consultation paper available on DG Markt's website :

The Commission will also bring forward before the end of 2002, proposals for an update of the Investment Services Directive [20] and a proposal on Regular Reporting [21]. Responses to the Commission on a revision to the Investment Services Directive consultations underlined the need for further work on clearing and settlement. A Communication on Clearing and Settlement will be issued shortly.

[20] More information available on DG Markt's website:

[21] More information available on DG Markt's website:

Objective 2 : Open and Secure Retail Markets

The mid-term review demonstrated the need to make further efforts towards a truly integrated retail financial market for all, based on the Action Plan's original policy initiatives. Building Consumer confidence is key to progress in this field. The involvement of consumer representatives in the financial integration process is essential to create that confidence and awareness. The Retail Financial Services Road Map [22] sets out key actions on which progress has to be made:

[22] Communication from the Commission to the Council and the EP « E-Commerce and Financial Services » COM(2001)66 final - 07/02/2001

- the Communication on a single market for payments [23] will be followed up in 2003 by a proposal for a legislative framework for payments as the cornerstone of a single payments area;

[23] COM(2000)36 - 31/01/2000

- the Action Plan to combat fraud and counterfeiting in non-cash payments [24] is being implemented with the national authorities;

[24] COM(2001)11 - 09/02/2001

- the Commission has adopted a Recommendation [25] inviting all lenders to comply by 30 September 2002 with the provisions of the European Voluntary Agreement on pre-contractual information to be given to consumers by lenders offering home loans. The implementation of the code is being closely monitored by the Commission.

[25] COM(2001)477 - 01/03/2001

- the Communication on E-Commerce and Financial Services is being followed-up with the Member States to ensure a clear and coherent implementation throughout the EU;

- the existence of insurance guarantee schemes for policyholders in the case of a winding-up of an insurance undertaking are being examined in order to determine whether an EU-wide response is required (legislative or otherwise);

- the success of the FIN-NET consumer out-of-court redress initiative [26] will be followed up in order to ensure increased awareness and efficiency. Generally, there is a need for more structured and effective European consumer investor input into Community decision making.

[26] Information available on DG Markt's website:

Objective 3 : Prudential Rules and Supervision

The Action Plan's third strategic objective, state-of-the-art prudential rules and supervision, will contribute to the stability of Europe's financial sector. It includes the following:

- the initial review of insurance solvency rules [27] has demonstrated the need for a more fundamental overhaul of the present approach ('solvency II') and a framework for reinsurance supervision;

[27] Directives 2002/12/EC and 2002/13/EC

- an important step to reinforce the EU's anti-money laundering policy was taken by the rapid adoption of the amendment to the Money Laundering Directive [28]. Following the events of September 11, the legal framework to combat money laundering may need further strengthening by a third Money Laundering Directive in 2003;

[28] Directive 2001/97/EC

- an ambitious timetable underpins the implementation of the revised capital framework for banks and investment firms by 2006, following discussions in the G10-Basle Committee.

The Action Plan sets as its goal to "enable the EU to assume a key role in setting high global standards for regulation and supervision", and to "contribute to the developing of EU supervisory structures which can sustain stability and confidence in an era of changing market structures and globalisation". The rapid implementation of legislation and its adaptation to market developments together with a much-needed convergence of supervisory practices are the key objectives. Concrete steps have already been taken, in particular in the securities markets sector where the implementation of the recommendations of the Lamfalussy Committee is already taking place [29]. The first requests for technical advice on implementing measures (in the prospectus and market abuse areas) have recently been sent to the Committee of European Securities Regulators (CESR). New processes to ensure a full consultation of the market and consumers are also underway at both CESR and the Commission itself (e.g. 2nd Investment Services Directive (ISD) consultations/hearings).

[29] Commission Decisions of 6 June 2001 establishing: the European Securities Committee COM 2001(1493) final, and the Committee of European Securities Regulators COM 2001(1501) final.

In its Report to the ECOFIN Council on Financial Integration, the Economic and Financial Committee concluded that the 4-level regulatory approach for securities markets, proposed by the Lamfalussy Report and endorsed by the Council, has an important role to play in the field of supervisory convergence. The ECOFIN meeting on 7 May 2002 invited the Commission "having involved relevant supervisory authorities and Ministries of Finance and taking account of the views of the industry and consumers, to bring forward as soon as possible its report on the appropriate arrangements that are needed to facilitate the consistent implementation and enforcement of regulation including supervisory practices, in line with the recommendations of the Economic and Financial Committee's report on financial integration, to allow its use by the EFC" as a basis for EFC's own report.

External dimension/ globalisation/enlargement

An integrated well-functioning home market will also improve EU financial service providers' global competitiveness and attract more foreign investors. A more efficient and larger scale EU financial sector will strengthen the international role of the euro. A common external dimension issue is the EU enlargement process. Negotiations with the first countries are expected to be finalised in 2002. The Commission will invite representatives of Finance Ministers in the candidate countries to a special meeting of the FSPG before the end of 2002 to discuss developments in the financial sector and the process of European financial integration.

Multilateral GATS (General Agreement on Trade in Services) negotiations embedded in the broader Doha Development Agenda are expected to accelerate. Further steps in the integration and liberalisation of the EU market should be matched by adequate market opening commitments by all third-countries. Technical discussions between the Commission and the US authorities are underway, including exchanges of view with the Securities and Exchange Commission (SEC) on trading screens and accounting standards. The Commission and Member States authorities have also discussed with the SEC and the Federal Reserve Board supervisory practices for financial conglomerates.


The Barcelona European Council, the informal ECOFIN meeting in Oviedo and the mid term review have all stressed the vital importance and benefits of integrated capital markets in achieving economic growth and job creation, for financial stability and to enable consumers and businesses alike to reap the full benefits of the euro. Recent progress in the Council and the European Parliament on a number of proposals demonstrate that the political commitment to implement the FSAP on time is beginning to be translated into firm political agreements. The agreement on the Lamfalussy process was a key development in this process.

But the rhythm of recent successes needs to be continued if the 2005 deadlines are to be met. All measures must be agreed by mid-2004 at the latest to allow adequate time for implementation by Member States. The next Progress report will be sent to the ECOFIN Council at the end of this year. The 8 Barcelona-listed agreements should have been successfully concluded by then. If so, the FSAP will be well on the way to completion. Even if not all barriers have been removed, significant and irreversible progress towards a strong integrated European financial sector by 2005 is achievable - it is a prize that is now within our grasp.


Progress on the Financial Services Action Plan

This table provides an overview of progress on the individual actions in the Financial Services Action Plan (COM(1999) 232). It shows the present state of play and provides the Commission's assessment of the degree to which Community institutions and Member States are achieving the objectives set out in the Action Plan. Of the 42 original measures 26 have now been completed: they are listed at the beginning of this Annex.

A further five measures have also been prepared in response to wider market developments over the past three years. These measures, which are not included in the original Action Plan, are mentioned separately in the Annex under each of its four strategic objectives. They are included to provide a complete overview of the Union's present workload.

The progress reports remain available on the following web-page : + Plus sign: progress has been achieved in meeting the targets set in the Action Plan

- Minus sign: indicates no progress


(Legislative proposals in bold)

(1) Commission Communication on the Application of Conduct of Business Rules Under Article 11 of the Investment Services Directive (ISD) (distinction between professional and retail investors). Issued on 14 November 2000, COM(2000)722

(2) Commission Communication on upgrading the ISD. Issued on 15 November 2000, COM(2000)729

(3) Amendments to the 4th and 7th Company Law Directives to allow fair value accounting: Directive 2001/65/EC adopted on 31 May 2001

(4) Commission Communication updating the EU accounting strategy. Issued on 13 June 2000, COM(2000) 359

(5) Recommendation on quality assurance. Issued on 21 November 2000, C(2000) 3304

(6) Political agreement on the European Company Statute. Directive 2001/86/EC and Regulation (EC)2157/2001 adopted on 8 October 2001

(7) Review of EU corporate governance practices The final report of the Comparative Study was published on 27 March 2002 (available on DG Markt's website :

(8) Commission Communication on Funded pension Schemes. Issued on 11 May 1999 Com (1999)134

(9) Adoption of the two Directives on UCITS. Directives 2001/107/EC and 2001/108/EC adopted on 21 January 2002.

(10) Commission Communication on clear and comprehensible information for purchasers. The work on the communication has been integrated in the context of the Commission Communication on an e-commerce policy for financial services (COM(2001)66 - 07/02/2001).

(11) Recommendation to support best practice in respect of information provision (mortgage credit). Issued on 1 March 2001, COM(2001)477

(12) Commission report on substantive differences between national arrangements relating to consumer-business transactions. Discussions with industry ('Forum Group') and consumers are concluded. Information gathered is used for further Commission initiatives in the field of retail financial services.

(13) Interpretative Communication on the freedom to provide services and the general good in insurance. Issued on 2 February 2000, C (1999)5046

(14) Commission Communication on a single market for payments. Issued on 31 January 2000, COM(2000)36 final

(15) Commission Action Plan to prevent fraud and counterfeiting in payment systems. Issued on 9 February 2001, COM(2001)11

(16) Commission Communication on an e-commerce policy for financial services. Issued on 7 February 2001, COM(2001) 66

(17) Adoption of the proposed Directive on the Reorganisation and Winding-up of Insurance undertakings. Directive 2001/17/EC adopted on 19 March 2001

(18) Adoption of the proposed Directive on the Winding-up and Liquidation of Banks. Directive 2001/24/EC adopted on 4 April 2001

(19) Adoption of the proposal for an Electronic Money directive. Directive 2000/46/EC adopted on 18 September 2000

(20) Amendment to the Money Laundering Directive. Directive 2001/97/EC adopted on 4 December 2001

(21) Commission Recommendation on disclosure of financial instruments. Issued on 23 June 2000, C(2000) 1372

(22) Amendments to the solvency margin requirements in the Insurance Directives. Directives 2002/12/EC and 2002/13/EC adopted on 5 March 2002

(23) Amendment of the Insurance Directives and the Investment Services Directive to permit information exchange with third countries. Directive 2000/64/EC adopted 7 November 2000

(24) Creation of two Securities Committees. Decision of 6 June 2001 setting up the European Securities Committee - ESC (C(2001)1493) and Decision of 6 June 2001 setting up the Committee of European Securities Regulators - CESR (C(2001)1501)

(25) Commission Recommendation 2001/6942 of 16 May 2002 on Statutory auditors' independence in the EU: A set of fundamental principles (C(2002)1873)

(26) Review of taxation of financial service products. This action has been taken care of in the context of the initiative on taxation on supplementary pension funds as set out below







(measures in response to wider market developments since the adoption of the Action Plan, but not included in the original Plan)



(measures in response to wider market developments since the adoption of the Action Plan, but not included in the original Plan)



(measures in response to wider market developments since the adoption of the Action Plan, but not included in the original Plan)