It doesn’t rain but it pours. Right now there’s several pieces of legislation on the slate at the European level that could have some sort of impact on the institutional investment marketplace, however indirect. At issue are moves on investment services, takeovers, prospectuses and corporate governance.
They share the themes of investor protection and greater transparency. They are seen as vital to the so-called Financial Services Action Plan, a framework for making Europe the world’s most competitive economy by 2010.
The Investment Services Directive is intended to aid investors – though the rapporteur to the European Parliament’s Economic and Monetary Affairs Committee Theresa Villiers MEP warns that it may mean the end of low-cost, ‘execution only’ share dealing.
“One of our most important objectives must be to produce an ISD framework which encourages savings,” Villiers says. “The goal of the ISD should be to create the conditions for high quality competitive, integrated, liquid, transparent, orderly and efficient markets, responsive to the needs of their users.”
Villiers adds: “In seeking to protect investors, we should not deprive them of the freedom to make their own decisions about their investments.” She adds that the end of execution-only services would deprive consumers of a “low cost, simple method of saving”.
Villiers has tabled amendments to the ISD to lift the threat to execution-only business and confine suitability tests to advice services.
Another shareholder-specific piece of legislation in the – very long – pipeline is the Takeover Directive. In the words of the Commission, this was designed to “create a pan-EU framework for takeovers laying down certain basic principles and a limited number of general requirements”. The directive was first proposed back in 1989.
But late in May the long-awaited directive hit the buffers. Ministers had failed to find common ground, which raised the prospect the project may miss a 2005 deadline or even collapse. The fate of the directive currently hangs in the balance.
Chris Huhne MEP, the parliament’s rapporteur on the Takeover Directive, says the directive is a “key priority” of the Financial Services Action Plan. “Without it, many of the potential gains of the euro will not be realised,” Huhne says.
The Commission has proposed the removal of key barriers to takeovers such as voting caps or restrictions on share transfers. It had wanted to give shareholders more say in mergers. But Germany and Scandinavian nations resisted, to preserve national defences to hostile bids.
Internal markets commissioner Frits Bolkestein says that a “minimalist takeover directive would not be worth the paper it’s written on”.
As Peter Montagnon, head of investment affairs at the Association of British Insurers says: “The European Commission deserves heartfelt sympathy for the way in which member states seem determined to undermine its efforts to introduce an effective takeover directive.”
He calls the European Council’s stance a “hollow joke” in the context of the Financial Services Action Plan.
“The Directive represents an essential step towards the objective of fully integrating European capital markets by 2005; and is a key element in the drive to make Europe the most competitive economy in the world by 2010,” Bolkestein stresses.
The Prospectus Directive is also on the legislative conveyor belt at the European Parliament. “The Prospectus Directive is a central plank in the Financial Services Action Plan,” says the Parliament’s rapporteur, Chris Huhne again. “It will contribute to the creation of a legal framework which enhances the conditions for raising of capital via Europe’s financial markets and improves disclosure standards for investors.” He broadly welcomes a Common Position on the directive put forward by the European Commission, which has taken on board most of the amendments the Parliament made in its first reading.
Last but not least, the Commission has unveiled a wide-ranging set of proposals on corporate governance. The action plan is aimed at strengthening shareholders rights and protecting employees and creditors. “Company law and corporate governance are right at the heart of the political agenda, on both sides of the Atlantic,” says Bolkestein. The plan is the Commission’s response a report by a committee headed by law expert Jaap Winter. One element of the plan is that it seeks better information on the role of institutional investors in corporate governance. It will now be considered by the European Parliament and the Council.

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