VideoKeeping the Faith
Plenty of others, meanwhile, prefer to reserve judgement. They stress that CESR must be given time to see if it can indeed provide the supervisory framework that will enable a single market to flourish. "Observers should not look too critically at something that's that new," says Ethiopis Tafara, director of international affairs at the SEC. "You have to give it time to live and breathe, and see whether it will accomplish what it is designed to accomplish."
For his part, Docters van Leeuwen bristles at attempts to plot CESR's future. Trying to guess what kind of body will be needed to regulate an integrated market is missing the point, he maintains: "It's not so much a question of how CESR will develop, as how the fundamentals in the markets will develop." For example, he says, Europe does not have a large mass of retail investors who think in terms of cross-border transactions—if that changes, CESR will have to be able to respond. "I'm a man of a practical bent. We should adapt to what the markets ask from us, rather than the other way around."
Whether such a wait-and-see philosophy is at odds with the kind of leadership demanded by an integrated market, only time will tell. One thing's for sure—in the months and years ahead, CESR is going to have to do more than rely on that reservoir of good faith to win over the sceptics.
Four Steps to Heaven
A single, integrated market in financial services in the EU has been a long time coming. Way back in 1957, the Treaty of Rome dreamed up a market with the free movement of capital and services. Since then, we've seen an enquiry into why an EU-wide securities market has not developed at least once every decade.
But Baron Lamfalussy's Committee of Wise Men look to have changed all that. By recommending a four-stage process for financial services reform, they've sped up the process of agreeing directives while improving the effectiveness of consultation. "Before Lamfalussy, there was a terrible sense that things took three to five years to get through," notes Jonathan Marsh, head of financial services and markets group at Hammonds, a UK-based law firm. "Things have moved on a lot since."
CESR's role in the process is critical. At Level 1, the Commission puts forward a broad proposal for a directive or regulation, and the European Council and Parliament then decide whether to adopt it. Level 2 is the "comitology" procedure, where CESR, having consulted with market players, advises the Commission on any detailed implementing measures required. The Commission then makes a formal proposal to the European Securities Committee (ESC), a group of representatives from EU economic and finance ministries, which has three months to vote on it. Level 3 is implementation—CESR works with member state regulators to ensure a consistent interpretation and implementation of Level 1 and Level 2 measures. Enforcement comes at Level 4, where the Commission checks the compliance of each member state, and takes legal action where necessary.
CESR's Salad
Here's a progress check on five of the key elements of the Financial Services Action Plan, and on market reaction to date.
Market Abuse Directive
Establishes common EU-wide standards against insider dealing and market manipulation, and ways to handle the disclosure of price-sensitive information. Adopted by Parliament in December 2002, it came into force in April 2003 and is due to be implemented in member states in October 2004.
Most observers are satisfied with the content of the directive, and the way in which it was steered by rapporteur Robert Goebbels, socialist MEP for Luxembourg. The only gripes have been to do with the time allowed by CESR for consultation with market practitioners. A second consultation in late 2002, for example, gave industry exactly four days to react to a revised draft. Granted, notes Lachlan Burn, a partner at law firm Linklaters in London, CESR's hands are often tied by delayed delivery of mandates by the Commission, which in turn is kept waiting by Council and Parliament. But that's led to compressed timetables. The IIMG, a group set up to monitor working relations within the Lamfalussy project, now recommends that CESR allocate three months to market consultation for each given mandate.
Prospectus Directive
Aims to establish information requirements for equity and bond issuers in Europe, so that once a company's prospectus is approved in one member state, it will be able to market to investors in all member states. Adopted in July last year, it came into force in December. Member states have until July 2005 to implement.
Ambitiously billed as a "maximum harmonisation" directive in order to achieve the goal of common standards, this directive has had a troubled history in the hands of Liberal Democrat MEP for southeast England, Chris Huhne. And reaction to the finished article has been lukewarm at best. Paul Arlman, secretary general of FESE, the Federation of European Securities Exchanges, doesn't mince his words: "It's a brick". He bemoans what he calls an entassement—a disorderly accumulation of national standards resulting in an unwieldy mess. "It was a case of too many people involved who wanted to keep all kinds of national particularities in the common text," he says. He notes that early drafts contained a separate section of special provisions for shipping companies, for example, inserted at the insistence of Greeks and Norwegians.
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