EUROPE - The European Commission has proposed a new directive addressing transparency, competition and securities trading which could allow investment firms to operate across the European Union effectively. The move would replace legislation dating back to 1993.

Says internal market commissioner Frits Bolkestein in remarks posted to the EU website: “If we want a true internal market in financial services, we need investors large and small to be able to invest across borders easily and with confidence.

“That in turn means we need investment firms to be able to work anywhere in the EU, under supervision rigorous enough to weed out the cheats and charlatans, and flexible enough to liberate reputable operators from the headache of 15 different sets of regulations.

“What is more, we need to increase liquidity, make European markets more competitive and raise overall investment by helping people to trade securities at maximum efficiency and at minimum cost. That means making the most of new ways of trading."

Structural changes in EU financial markets, such as greater participation of retail investors, increased competition between exchanges and trading systems, and the growth of cross-border equity transactions, have made new legislation necessary, the Commission says.

The current directive is not seen as being robust enough in practice to ensure investment firms can operate EU-wide on the basis of approval in their home country.

By reinforcing and extending the principle that authorised and supervised firms should have the right to operate anywhere in the EU, it is hoped that the new proposal will enhance the practical application of the “single passport” for investment firms.

In terms of regulatory conditions, the proposed new directive seeks to update and harmonise the disciplines that “investment firms must respect when acting on behalf of their clients”. These regulations tackle areas such as: conduct of business; handling clients’ orders, managing conflicts of interest, transparency, and execution.

The directive would also broaden the range of investment services for which authorisation is required. Investment advice, financial analysis and research would be subject to provisions regarding conflicts of interest and conduct of business.

Comments Robin Clark, acting secretary general for the European Asset Management Association: “to date, in European single market terms, the European Commission, although effective in introducing regulations, has not been effective in ensuring that these regulations are complied with by all member states. “

Clark, however, is confident about the new proposal. “The new director general of the Internal Markets Directorate at the European Commission, Alexander Schaub, seems more in tune with enforcing compliance - having come from the competition directorate - and the Commission will most likely be more pro-active in the future."

The new proposal follows two periods of extensive consultation, including an open hearing in Brussels in April this year. The proposal will now be forwarded to the European Parliament and the EU’s Council of Ministers for adoption under the so-called co-decision procedure.