A four-pronged approach to regulation of European securities markets should be adopted by Europe’s policymakers if barriers of “Kafkaesque inefficiency” to financial market development are to be broken down, says the final report from the Committee of Wise Men, chaired by Alexandre Lamfalussy, on the regulation of European Securities Markets.
In the report, the committee recommends that a four level system of legislation be set up between the various regulatory European bodies to ensure that laws are implemented in the most open, transparent and systematic fashion possible.
This it says will help surmount Europe’s fragmented legal structures – including those for clearing and settlement of securities – and overcome the slow, rigid mature of current regulatory systems, which it says are “ill-adapted” to the needs of modern financial markets.
Level one legislative acts, the committee says, should concentrate on the ‘essential elements’ of each directive or regulation – meaning that the Council of Ministers/European Parliament acting on a proposal from the Commission in level one would agree the key political orientation and direction for each subject.
Significantly, for each level one proposal, the Council and the European Parliament would then agree on the nature and extent of the implementing measures to be decided at the second level.
This level two would be composed of a network of national regulators, the European Commission and a new European Securities Committee, to define, propose and decide on the implementing details of level one directives.
Two new committees would be created within level two; an EU securities regulatory committee (ESC), and an EU securities regulators committee (ESRC) – with advisory functions.
The wise men make three provisos at this point; firstly that the European Parliament be kept informed at all stages of the process. Secondly that European securities regulators must consult in a professional, open and transparent way, and thirdly that both the ESC and ESRC must be high level committees.
Level three would consist of European regulators networking to ensure consistent transposition and
implementation of level one and two legislations, with the emphasis of the committee on the eventual convergence of European regulators.
Finally, level four concerns the implementation of community law by the European Commission – as guardian of the treaties. However, here the committee comments that it is “staggered” by the lack of resources in the Commission to do the necessary research and take the required steps that it says are “vital” in the building of an integrated financial market.
The committee also notes that the four-tier structure must be transparent from top to bottom, to breakdown what it dubs the “secrecy shibboleths” of the past.
Fixed deadlines should be placed on legislation changes with six monthly reports made to all institutions involved on where the various processes are in terms of ratification, the report adds. Agreement on the proposals, the committee hopes, will be reached before the Stockholm European Council in March.
The report’s publication has been welcomed by European internal market commissioner Frits Bolkestein: “This report constitutes an essential contribution to necessary reform of the regulatory framework for European
financial markets.
“Community legislation must respond rapidly and flexibly to developments in financial markets in order to achieve greater market integration and improved competitiveness.
“Their report contains, while respecting the institutional balance, precise and innovative recommendations which EU institutions and industry should consider adopting as quickly as possible. These recommendations open the way to more open, secure and efficient European financial markets.”
Per Kent, executive chairman of the European Securities Forum (ESF), the group of 24 of Europe’s largest investment banks, also embraced the proposals, noting particularly the committee’s “strong direction” towards an efficient infrastructure for the European capital market. He ended by saying that the ESF would strive to urge the private sector to act quickly in its own capacity to the same end.
Earlier this year, the ESF published a blueprint outlining a target model for introducing a single, pan-European central counterparty by the end of the year. The form is trying to convince existing clearing houses to work together in creating a single counterparty after the breakdown of talks last year between them.