Advocates of the so-called 26th regime structure for pan-European pension structure have been seeking to clarify its core benefits in the face of heightened sceptism from the European Commission and market participants.
In December, the European Financial Services Round Table (EFR), one of the biggest voices calling for pan-European Pension Plans (EPP), issued a second report on the subject, which added more detail to the skeleton proposals put forward in September 2004.
But despite the EFR’s best efforts, the Commission does not seem inclined to lend its support to the 26th regime. In a white paper on the future shape of its financial services policy, published on December 5, the Commission said that it “remains open, but is yet to be convinced that the 26th_regime can bring significant benefits to market participants”. It also called on the promoters of this concept to “explain their ideas and the legal and practical feasibility and advantages of such optional instruments in more detail”.
This is the motivation behind the latest EFR report. Sebastian Fairhurst, manager of EU affairs at EFR, admitted that the initial proposal that was put forward for a 26th regime was a little too broad. He said that more detailed work should now be done to a rather skinnier set of priorities.
“The feedback that we have received so far on our working documents is that there is a lot of interest in the 26th regime, but that perhaps we’ve been a little bit too far-reaching,” said Fairhurst. “We want to be able to trigger the debate, not dictate our version of what the new rules should look like.”
Fairhurst also believes that there is a great deal of misunderstanding about the concept of a 26th regime, and that much more needs to be done to chisel out a common definition of what the idea entails.
Given the complexity of the issue, and because it impinges on several different work areas of the Commission, feelings are mixed about how to proceed. One of the more sceptical voices in the Commission told IPE: “There is no legal basis for initiating such an ambitious proposal, as having member states agreeing on a pension regime which would be common to all, even if complementary to the basic national system, would be almost_impossible.”
There is a certain feeling, even among members of the EFR, that the discussions about a 26th regime have come rather too late for any committed action over the next few years. Recent comments made by internal market commissioner Charlie McCreevy, as well as the proposals outlined in his financial services white paper, show little appetite for any new legislative proposals, apart from in a select few sectors such as retail banking.
But Fairhurst holds out hope that, sooner or later, the Commission will get round to studying the issue. It is already looking at integration of European contract law – an investigation that Fairhurst thinks could also yield some ideas of how to bring European pension funds closer together without meddling in national interests.
The Commission has given its clearest indication yet that it intends to impose the Markets in Financial Instruments Directive (MiFID) on all member states, rather than let them decide for themselves how to implement it.
MiFID, which is due to become law in November 2007, seeks to make it easier for investment funds to operate between member states. A framework text has already been agreed by member states and the European Parliament, but it is up to the Commission to fill in the details.
In a recent speech, McCreevy said that he would present the bulk of the MIFID measures in the form of a regulation rather than as a directive.
This decision is more than just a technicality. Unlike directives, which have to be implemented in national law, regulations can be directly applied without change in all member states. Regulations can both speed up adoption of EU law and aid consistent application across the board.
McCreevy says that the main reason for his decision is to avoid market fragmentation, which could lead to investment firms which want to do business across Europe facing a myriad of different rules and requirements.
“I want to limit the possibility for member states to impose useless extra burdens on them through ‘gold plating’”, said McCreevy. “I want our consumers to benefit from the same level of protection whether they choose a foreign investment services provider or a domestic one.”
The Commission had intended to unveil its latest MiFID proposals before the end of last year, but a heavy pre-Christmas workload meant that this date had to be pushed back to early 2006. The proposal will have to be approved by the European Securities Committee, representing member states, and will be carefully monitored by the European Parliament.