Investment services

The European Union is liberalising access to stock-exchange membership and financial markets in host Member States for investment firms authorised to provide the services concerned in their home Member State.

ACT

Council Directive 93/22/EEC of 10 May 1993 on investment services in the securities field [See amending acts].

SUMMARY

The Directive applies to all investment firms. However, some of its provisions are not applicable to credit institutions whose authorisation covers one or more of the investment services listed in the annex.

Criteria for granting and withdrawing authorisation of investment firms in the home Member State. The competent authorities in each Member State must ensure that:

• the investment firm has sufficient initial financial resources for the proposed activities;
• the persons directing the business have sufficient professional integrity and experience;
• holders of qualifying participations are suitable persons.

Authorisation applications have to be accompanied by a programme of operations. Member States have to grant or refuse authorisation within six months of submission of a complete application.

Introduction of a procedure for reciprocity with third countries. Member States must inform the Commission of any authorisation of a direct or indirect subsidiary of one or more parent undertakings in third countries and of any holding acquired by a parent undertaking in a Community investment firm such that the latter would become its subsidiary.

Whenever it appears to the Commission that a third country is not granting Community investment firms effective market access comparable to that granted by the Community to investment firms from that country, it may initiate negotiations in order to secure comparable competitive opportunities for Community investment firms.

The competent authorities of the home Member State are responsible for the prudential supervision of an investment firm. However, responsibility for implementing the rules of conduct and for monitoring compliance with them remains within the competence of the host Member State, which, when applying the rules, has to respect the principle of the public interest.

Proposed changes in qualifying holdings in an investment firm must be notified to the supervisory authorities so as to enable them to assess the suitability of the new shareholders/members.

The investment firm is required to indicate to investors which compensation scheme applies. It is envisaged that the various compensation schemes will be harmonised as soon as possible.

An investment firm authorised in another Member State is permitted to advertise by all means of communication available in the host Member State.

Member States must permit investment firms from other Member States to carry out in their territory the activities authorised by the home country, either by establishing a branch or by providing services without a branch.

Host Member States may not make the establishment of a branch or the provision of services by an investment firm authorised by its home Member State subject to further authorisation or to a requirement to provide endowment capital or any other measure having equivalent effect.

In certain circumstances, a Member State may require that the transactions connected with investment services be carried out on an organised market. However, investment firms, irrespective of whether they are banks, may become members of such an organised market.

Rules for notification to be made and formalities to be completed when either a branch is opened or services are provided in a host Member State.

Procedures to be followed by the authorities of either the home or the host Member State where an investment firm having an established branch or providing services fails to comply with the legal provisions in force in the host Member State.

Annex defining the investment activities, other services and financial instruments coming within the scope of the Directive.

Directive 95/26/EC amends the Directive to coordinate all the provisions concerning communications between authorities for the entire financial sector.

Directive 97/9/EC amends the Directive to establish an investor compensation scheme.

Directive 2000/64/EC amends the Directive to extend the rules on the exchange of confidential information, pursuant to a cooperation agreement with a non-member country, with competent authorities or bodies which, by virtue of their duties, help to strengthen the stability of the financial system. The scope for exchanging confidential information only with the corresponding competent authorities of non-member countries proved to be too restrictive.

Directive 2002/87/EC introduces specific prudential legislation for financial conglomerates as back-up for the sectoral prudential legislation applicable to credit institutions, insurance companies and investment firms. It provides for minimum alignment of the prudential legislation for homogeneous groups active in a single sector (banking, insurance, investment) on that applicable to financial conglomerates, both with a view to protecting consumers, depositors and investors and with a view to strengthening the European financial market.

With effect from 1 November 2007, Directive 2004/39/EC will repeal Directive 93/22/EEC (see Directive 2006/31/EC). References to Directive 93/22/EEC will then be construed as references to Directive 2004/39/EC.

RELATED ACTS

Commission communication of 14 November 2000 on the application of conduct-of-business rules under Article 11 of Directive 93/22/EEC [COM(2000) 722 final - Not published in the Official Journal]. This text is the response to one of the objectives set by the Financial Services Action Plan. One of the practical obstacles to the smooth operation of the securities markets stems from the uncertainty in the application of the rules of conduct laid down by Article 11, which governs the relationship between service providers and their customers. It is therefore the Commission's view that it is necessary to facilitate cross-border provision of services and to apprise Parliament, national authorities, supervisory bodies and operators of the nature of future revisions of Directive 93/22/EEC.

The context in which Article 11 is applicable has changed as new types of investors are present on the market and firms are developing new technologies. Account must also be taken of the adoption of the e-commerce Directive, which establishes the "home country" principle in relation to the electronic supply of investment services to professionals.

As regards the implementation of Directive 93/22/EEC, the Commission notes that all the Member States have complied with the general obligation to differentiate between professional investors and retail investors, but the way in which the distinction is made varies considerably. The services supplied to professional investors should be covered by the rules of conduct of the country of the service provider (home country). Retail investors for their part could be required by the host-country authorities to comply with local rules of conduct. It would also be logical if it were the authority of the country in which the branch of the firm was located that was competent to supervise relations between the branch and its customers, whether professional or retail. The Commission also considers that it is necessary to introduce the common template for categorising professional investors adopted by the national securities supervisors meeting within FESCO (Forum for European Securities Commissions).

At present, the Member States use different criteria to determine "where the service is provided", even though that is where the rules of conduct are verified. They apply their own standards to cross-frontier investment services, even though the home country of the service provider already provides an equivalent level of protection.

Commission communication of 15 November 2000 on upgrading the Investment Services Directive [COM(2000) 729 final - Not published in the Official Journal]. The Commission considers that it is necessary to update the legislative framework because of the technical changes to exchanges and clearing systems and the arrival of the euro and new technologies. The communication launches extensive consultations with all the parties concerned on the best way of updating Directive 93/22/EEC. For example, the "single passport" for investment firms should be sufficient for inter-professional business and could be progressively extended to cover services to retail investors. As regards the organisation of exchanges and clearing systems, it would be useful to apply common principles to trading systems, including new electronic arrangements.

On 3 April 2001 Parliament transmitted a resolution on this communication [Official Journal C 21 of 24.01.2002].

On 22 April 2002 the Commission launched a second round of consultation on this initiative.

Last updated: 09.08.2006