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Framework for action

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Framework for action

The following communication sets out a strategy for improving the operation of the single market in financial services, based on the effective application of current legislation and amendment of the legislation where it is ineffective or incomplete.


Commission communication of 28 October 1998 entitled " Financial services: building a framework for action "


The communication responds to the invitation, issued by the European Council at its meeting in Cardiff, to prepare a "framework for action" for financial services. It sets out the conclusions of a consultation process involving Member State experts, users of financial services and market practitioners.

The communication calls for discussion of a range of important issues with a view to ensuring that the single market in financial services is competitive at world level and meets the needs of the main players (investors, businesses and consumers) while maintaining high standards of consumer protection. The financial services market should also make it possible to take full advantage of the single currency and should be capable of weathering international instability and ensuring long-term growth, competitiveness and employment.

The Commission takes the view that prudential legislation for the single financial services market does not require radical surgery. It does, however, need to be kept under constant review in order to see that it acts as an effective bulwark against financial instability and serves job creation and increased competitiveness. This calls for the adoption of faster, more streamlined legislative procedures and for timely and effective implementation of existing legislation. Checks will therefore have to be stepped up in the Member States. There is also a need for clear and uniform interpretation of the rules, for example through interpretative communications and by encouraging the supervisory authorities to cooperate more closely.

The prospect of the single currency is spurring a market-driven modernisation of wholesale financial markets in the EU. On the demand side, issuers should enjoy easy access to capital markets on competitive terms, in particular by:

  • adopting new, more flexible rules on prospectuses (particularly for prospectuses that have to be published where public offers are made involving securities);
  • taking effective action to assist unlisted innovative start-up companies;
  • achieving some harmonisation of the regulatory framework for corporate governance (among the harmonisation proposals requiring progress, the European company statute is given priority in the single market action plan).

On the supply side, investors should be free to invest their assets without encountering legal, administrative or information barriers. This requires:

  • further harmonisation of accounting rules to ensure greater transparency and better comparability of accounts;
  • eliminating restrictions on investments by supplementary pension and life assurance funds (unless justified on grounds of prudential soundness);
  • a level playing field for similar financial products, such as pension funds, life assurance and some UCITS, while harmonising the prudential and tax aspects of the regulatory framework.

The existing legislation relating to investment service providers needs to be revised. In this context, the Commission undertakes to determine the best way of making the Investment Services Directive more effective with a view to promoting greater convergence of national approaches to conduct of business rules. Supervisory authorities are urged to cooperate more closely.

A truly single market for retail financial services still remains to be achieved. The need to protect consumers allows Member States to use their prerogative of applying their own legislation, provided that it is proportionate to the objective sought (the principle of the general good). Nevertheless, application of this principle should not create further obstacles to cross-border business. There is therefore a need to develop pragmatic ways of reconciling the aim of effective financial market integration with that of ensuring high levels of consumer protection. To that end, the Commission will:

  • clarify the distinction between professional and non-professional users of financial services;
  • identify the main differences between existing national measures that justify the application of home-country rules (to check whether they are proportionate);
  • promote the convergence of national practices towards a high standard of consumer protection.

The communication sees a need for developing structured cooperation between national supervisory authorities. In this connection, it would be desirable to draw up a "supervisors cooperation charter" which would assign responsibilities for different tasks and establish machinery for coordination between the different authorities responsible for prudential supervision. The communication also calls for international cooperation on regulatory and supervisory matters, as well as review and updating of the existing rules on prudential supervision.

The general conditions for a fully integrated EU financial market require coordinated action by the public authorities responsible for regulation, supervision and competition. This should result in an integrated infrastructure enabling cross-border transactions to be settled as smoothly and efficiently as those within national borders. It is also necessary to close legal loopholes in payment and securities settlement systems and in retail payment systems (in the case of the latter, by scaling back the obstacles that arise from statistical reporting).

Another important factor in the integration of financial services is the need to secure a level playing field for financial operators. This calls for strict application of the Treaty rules on competition and state aid, which often causes major distortions of competition. The Commission also undertakes to present the Ecofin Council with a report on "services of general economic interest in the banking sector" and the application of Article 90(2) of the Treaty (concerning undertakings entrusted with the operation of services of general economic interest or having the character of a revenue-producing monopoly).

It will not be possible to achieve an integrated financial market without ironing out disparities in the tax treatment of income from private savings. Adoption of the proposed Directive on the taxation of income from savings is a priority objective here. Other measures need to be taken in the tax field, in particular:

  • limiting harmful tax competition between financial centres;
  • removing tax obstacles to cross-border membership of pension funds, thereby encouraging labour mobility;
  • eliminating differences in the tax treatment of debt and equity (dividend income from shareholdings is usually subject to higher levels of taxation, which penalises investment in assets representing a higher risk).

The communication outlines a number of issues on which political discussions could lead to concrete measures that are feasible in the long term. The Council and the European Parliament are invited to join the Commission in this debate. It is also proposed that a Financial Services Policy Group be set up, to be composed of personal representatives of the Finance Ministers and to be chaired by the Commission. The Group, which would also be responsible for monitoring the application of financial services legislation, should pursue the following objectives:

  • to identify and prioritise a set of actions to be carried out over a three-year period (the programme should be presented to the European Council during the first half of 1999);
  • during the period prior to June 1999, to address a number of immediate priorities indicated by the Finance Ministers and the European Council at its meeting in Vienna.

A high-level consultation mechanism will be established to ensure that both market practitioners and users of financial services are able to make an effective contribution to the framing of policy in this area.


Commission Communication of 11 May 1999 entitled " Implementing the framework for financial markets: action plan " [COM(1999 232 final - Not published in the Official Journal].

Last updated: 08.08.2006