REPORT FROM THE COMMISSION Progress on Financial Services - SECOND REPORT

REPORT FROM THE COMMISSIONProgress on Financial Services - SECOND REPORT

The Lisbon European Council - A Step Change

The Lisbon European Council took an important political step in March towards an integrated financial services and capital market in the European Union. At Lisbon, Heads of State and Government recognized the central role of efficient financial markets for long term European competitiveness and for the development of the New Economy - the strategic aim over the next decade being for the Union to become "...the most competitive and dynamic knowledge based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion...". Heads of State and Government went further by asking that the Financial Services Action Plan (FSAP) [1] should be completed by 2005, and the Risk Capital Action Plan by 2003. These target dates are now the key reference for this and all subsequent reviews of the Financial Services and Risk Capital Action Plans.

[1] Financial Services-Implementing the Framework for financial markets:Action Plan Commission Communication of 11.05.1999 COM(1999)232

The Lisbon European Council was also specific about certain near term priorities for financial services. Para 21 of the Presidency Conclusions states that "...in order to accelerate the completion of the Internal Market for Financial Services, steps should be taken in.... priority action areas such as..." :

- facilitating the widest possible access to investment capital on an EU-wide basis, including for SMEs, by means of a "single passport" for issuers;

- facilitating the successful participation of all investors in an integrated market by eliminating barriers to investment in pension funds;

- promoting further integration and better functioning of government bond markets through greater consultation and transparency on debt issuing calendars, techniques and instruments, and improved functioning of cross-border sale and repurchase ("repo") markets;

- enhancing the comparability of companies' financial statements;

- intensifying cooperation by EU financial market regulators;

- making rapid progress on the long-standing proposals on takeover bids and on the restructuring and winding-up of credit institutions and insurance companies in order to improve the functioning and stability of the European financial market.

These are also reflected in the priorities set out in the Broad Economic Policy Guidelines.

The emphasis on priority measures relating to wholesale financial markets and the call for an acceleration of their implementation reflect the important contribution they can make to economic growth and the need to keep up with rapid market developments. Similarly the European Council (para 11) called in particular on the Council and the European Parliament to adopt as rapidly as possible during 2000 pending legislation on the legal framework for electronic commerce, on e-money and on the distance selling of financial services. The Commission and Council were also asked to promote consumer confidence in e-commerce, in particular through alternative dispute resolution systems.

Particular recognition was also given to the importance of growing and nurturing small and medium sized companies, entrepreneurship and innovation in general and spreading the use of risk capital. The Council asked that, by the end of 2000, the EIB and EIF's financial instruments should be reviewed to redirect funding towards support for business start ups, high tech firms and micro-enterprises, as well as other risk capital initiatives proposed by the EIB.

Taken together, these Conclusions represent a step change. They are a clear challenge to financial services policy makers, Commission, Council, European Parliament and all other interested parties, to achieve the deadlines and meet the targets set out by Heads of State and Governments on time.

The Council invited the Commission to report on a regular basis on the progress made to assist the implementation of the FSAP. This report has been prepared with the assistance of personal representatives of ECOFIN ministers meeting in the Financial Services Policy Group. This second report to the ECOFIN Council [2] examines key developments in the financial sector that are of relevance to the policies underpinning the Action Plan (section I); provides a progress report on the implementation of the measures of the Action Plan (section II and annex); and considers those areas that require acceleration or new policy orientation (section III).

[2] First report,see:Financial Services Action Plan Progress Report,November 1999.Available on Internet:http://europa.eu.int/comm/internal_market

1. Key developments in the financial sector

Integrated European capital markets are essential for sustained growth and employment

Financial services represent about 6% of EU GDP and 2.5% of EU employment. It is a sector that underpins all economic activity and also one where the Union has the greatest potential for expansion.

An integrated European securities market and a dynamic financial sector are now within reach. Companies will benefit from raising capital across the European Union; cheaper and more flexible financing arrangements for corporate borrowers will emerge; innovative start-up companies will find more appropriate funding for its needs, such as as seed- and risk capital. Investors will see improved returns: existing savings will be able to work more productively, freeing up resources for other uses. Private sector savings in Europe amount to some 20% of GDP - a valuable asset, if efficiently used, to stimulate growth and job-creation. Against a backdrop of low interest rates, new ways must be found to make this pool of savings yield higher returns for investors and savers. This is particularly important to overcome the medium term public sector debt overhang.

Box 1 How financial markets contribute to job-creation

Modern financial markets which are widely accessible to all companies can contribute to the emergence of a new generation of entrepreneur and job creation: the companies quoted on Europe's small company exchanges recorded average employment growth of 40% (Neuer Markt) and 47% (Nouveau Marché) in the period 96- beginning 99. However, the number of companies served by these markets remains small - a total of 785 companies were listed on EASDAQ, AIM and Euro.NM in March 2000 compared to 4800 companies listed on NASDAQ. Market capitalisation of these 3 markets was 1/17 of NASDAQ levels. European venture capital investment, , was also far outstripped by levels in US - some 7 billion Euro in venture capital, compared to 12 billion in US. The gap widened further in 1999. Creating and funding fast growing small companies is essential for job creation (see the Risk Capital Action Plan).

EU capital markets are rapidly changing...

The euro has made its mark on international capital markets. It has already captured approximately 40% of the international bond market

The market value of private sector bond issues continues to increase in all Member States (on average by 1.5% per year). For example, early in 1999, the market value of listed private sector bond issues represented more than 110% of GDP in Denmark, almost 70% in Germany and over 40% in the Netherlands.

Stock market capitalisation in the EU continues to grow...

The stock market capitalisation of EU Member States is still only around one half of the US level, but there are signs of renewed growth. In 1999, newly admitted companies raised over 130 billion euro in European markets, more than doubled compared to 1998.

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Source : Eurostat

Implementing the FSAP will help these markets grow more. The Action Plan contains a series of key measures to eliminate the mass of barriers that remain. Those measures will respond to rapid changes to the infrastructure of EU securities markets : over 20 new trading platforms have emerged and "traditional" exchanges and regulated markets have responded by seeking alliances and mergers, notably the "Euronext" and "IX" projects. Work is underway and has been accelerated on common rules for integrated securities and derivatives markets, streamlined procedures for raising capital on an EU-wide basis, and a single set of financial reporting standards for listed companies (see below).

Financial markets are becoming a more popular way of raising finance for European companies. The trend decline in the debt to equity ratio of European companies confirms this. The large increases in stock market capitalisation of all EU member States (with the exceptions of Austria and Luxembourg) since 1997 point to a sea-change in corporate financing strategy. Despite these encouraging developments, universal banks still account for lion's share of corporate financing (in 1999, EU-11 bank assets amounted to 212% of GDP compared with a corresponding figure of 47.9% for equities: almost the inverse of the US where equities amount to 160% of GDP and bank assets correspond to 62.5%°).

The growing importance of institutions for occupational retirement provision for an ageing Europe

By providing a ready source of long-term capital, pension funds, subject to strict prudential supervision providing for a high of level of protection to ensure the security of pension fund beneficiaries, can improve the flow of funds for private sector investment. This will stimulate employment creation by lowering non-wage labour costs and alleviate the growing burden of financing old age pensions due to demographic change. Pension fund assets could grow from around 2,000 billion euro (half of total bank deposits in the EU) to 3,000 billion euro by end 2005. If, in relative terms, the Member States had as many assets in pension funds as the Netherlands there could be nearly 3-5 trillion euro more available in European capital markets.

Graph 2 How long-term equity investments outperform bonds

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Source : Rebuilding Pensions - European Commission 1999

With the introduction of the euro, currency matching rules within the euro zone have disappeared for both institutions for occupational retirement provision and life assurers. Asset allocation rules must not be over restrictive, in order to allow long term investors such as pension funds to invest in the real economy and make optimum use of the savings that are entrusted to them. Effective asset diversification will help provide the highest possible returns, whilst maintaining the security of retirement provision. Institutions for occupational retirement provision. should be allowed to select assets that better and simultaneously match the real, long term nature of their liabilities and reduce risk. Taking fully into account the different approaches in the Member States, agreeing sensible, prudential rules to give pension funds the possibility to optimise their portfolio structures could have significant benefits. As announced in the Action Plan the Commission will propose this summer a proposal for a directive to meet these challenges.

The changing landscape of Europe's Financial sector

The continuing trend towards financial conglomeration is changing the dividing-lines between different financial activities (banking, insurance, asset management, investment services).

Box 4 More than 250 Financial Conglomerates have been created since 1995

Since 1995, more than 1.300 new cases of domestic groups engaged in banking, securities and insurance activities have been reported. These cases are predominantly domestic affairs although cross-border conglomerates have emerged in Scandinavia and the Benelux In five Member States (Belgium, Spain, Netherlands, Portugal and Sweden), more than two thirds of domestic banking assets are held banks that are part of a bank/insurance financial conglomerate. In four Member States (France, Finland, Spain and Ireland) more than 50% of life assurance products are provided by insurance companies that are part of banking groups.

Commission, April 2000

The rapid pace of concentration and consolidation of the European financial industry also continues. These developments raise issues of efficient prudential supervision and require a further policy refinement (see below).

Box 5 Consolidation in the EU banking Market

The share of bank assets accounted for by the top 20 European banks has risen from 35% in 1997 to 41% beginning 1999). Mergers and acquisitions in the EU are largely domestic affairs: 24 of the 190 M&A's in the EU banking sector that occurred during the first half of 1999 involved a foreign bank (19 of which involved third country banks)

City University Business School December 1999 and ECB April 2000

The E-commerce, and Alternative Trading Systems

The rapid emergence of e-commerce is beginning to change the financial services landscape.For example, over 20 Alternative Trading Systems in Europe are having a considerable impact on wholesale securities trading. Seizing the opportunity of e-commerce will be a crucial test of the Union's capacity to create - and adapt to - new business opportunities. It depends on creating a regulatory and institutional framework at European level which stimulates innovation, investment and economic efficiency.

The Action Plan develops a dual approach: protecting consumers against unfair trading practices but helping them to seek the best offers on the market. Crucial in this process is to build confidence and to have at hand alternative redress procedures that are fair and efficient throughout the Union. The obstacles to cross-border sales of retail financial products are becoming more evident as the new electronic technologies bring retail financial products to the reach of any internet user.

Box 6 EU internet banking is growing rapidly

UK financial institutions have 18 internet banking sites, followed by Germany with 16; Spain with 12; Austria with 9; Sweden with 7; and Portugal, France and Italy with 5. Finland, Ireland and the Netherlands had 3 sites; Denmark 2. This overview includes 'virtual banks'. The number of Europeans using internet banking is predicted to grow by 30% to more than 20 million by 2004. The first virtual bank has already been set up which has its head office in France, but runs its operations from Dublin. Two other virtual banks also recently received banking licenses in France and in Germany.

Source: Datamonitor April 2000

Although the internet widely used for online trading of stocks and shares in the US (the number of households engaged in online trading jumped 30% between May 1999 and January 2000, from 2.7 million to 3.5 million) online EU brokerages are only recent entrants to e-financial commerce. 65% of online brokerage firms started business less than 2 years' ago and only 20% have more than two years' experience). The number of online European trading accounts is expected to increase by ten times or more in the next four years.

The emergence of new electronic trading systems (at present around 25 across the EU, relatively small and engaged in niche activities) raise new challenges for regulators and supervisors, in particular whether these systems constitute regulated markets or investment firms and sufficiently safeguard investors and orderly markets.

These developments raise new supervisory and prudential issues for authorities. The Commission will publish this summer a Green Paper the purpose of which is to establish whether the provisions of existing financial legislation are sufficient to provide a propitious prudential and legal environment in which e-commerce based financial services business can thrive, while ensuring that consumers' interests are fully safeguarded.

Enlargement and institution building

In a context of increasing globalisation, guarding financial stability is essential within the EU Financial Services Market. The pre-adhesion policies of the Union, especially in the perspective of its impending enlargement to Central and Eastern European Countries (CEECs), Cyprus and Malta should help to achieve these goals.

Box 7 The interdependency between EU financial markets and institutions and their counterparts in CEEC's is growing

The exposure of EU banks towards East European countries increased by 2% between 1997 and 1999; overall flows of direct investment from the EU into CEECs tripled annually between 1992 and 1998 (over EUR 8 billio in 1998); more than 70% of the 1999 bond issues in CEECs were denominated in euro.

Source: BIS

Only pervasive and precise rules on prudential supervision, in line with EU standards, can lay adequate foundations for a wider Internal Market for financial services as it will exist after enlargement. Transposition of the EU's financial services legislative framework is not sufficient to make enlargement a success in this field As the single license and home country control principles will be part and parcel of the wider Internal Market for financial services, the efficiency of supervision in the accession countries will be as decisive as the existence of legislation itself. Greater emphasis is being placed on institution-building and supervisory assistance in the context of preparations for accession. Member States' own authorities have a key role to play in judging whether appropriate supervisory institutions with adequate administra tive capacities are in place. The Commission, in co-operation with national experts, is thus preparing proposals for a "peer review" process for end 2000.

2. Progress on Implementation of the Action Plan for Financial Services

Progress has been made....

Following Lisbon, the Financial Services Action Plan needs to be implemented by 2005. The first year has already seen good progress (the annex to this report contains a detailed overview). The Commission has already issued its Communication on Pension Funds and is preparing a draft directive for this summer. It has also adopted a proposal for a directive to amend the Money Laundering Directive and proposals to amend the 4th and 7th Company Law Directives to allow fair value accounting. A Commission Communication on the freedom to provide services in insurance was issued beginning 2000, as was its Communication on payment systems.

With regard to wholesale markets work is well underway within the Forum of European Securities Commissions (FESCO) and the Accounting Contact Committee to meet the timeframe set out in the Action Plan. Political agreement has been reached on the proposal for a Take Over Bids Directive. A Commission Communication on the definition of 'sophisticated' investors should be available before the summer. The Commission's Communication on the Investment Services Directive (ISD) will be presented this autumn, alongside a Communication on 'market manipulation'. A Commission Communication on the Union's future accounting strategy, will be issued shortly.

Progress to achieve open and secure retail markets is also satisfactory. Discussions in the Council and the European Parliament on the distance selling proposal for financial services are continuing. The legislative proposal for insurance intermediaries will be presented this summer. The work on a Communication on consumer information and a Green Paper on E-Commerce and financial services is on track. Work on prudential rules has also advanced. The proposal for a E-Money Directive is advancing through Council and European Parliament.

Political agreement has been reached on the proposed directives on the winding-up and reorganisation of credit institutions and of insurance undertakings. The review of bank capital rules in parallel with the G-10 Basel Committee on Banking Supervision, proposals for new insurance solvency requirements will be made this summer, and work on the supervision of financial conglomerates is on schedule.

Finally, work on the wider conditions for a single market is continuing notably on direct taxation. Work is continuing in the High level Group and in Ecofin to reach agreement on the Commission's proposal on a minimum taxation of savings income on the basis of the conclusions of the Helsinki Council. Work in the group on the implementation of the Code of Conduct on business taxation is also continuing. In the Taxation Policy group, work on the taxation of supplementary pensions and financial services in general will be continued as a priority in 2000.

The Risk Capital Action Plan is advancing.....

The Commission's April 1998 Communication sets out six sets of barriers that need to be removed in order to accelerate the growth of risk capital in the EU which is so important for job creation. The barriers listed fell under 6 headings: market fragmentation, regulatory, fiscal, cultural, paucity of high tech companies and insufficiently qualified human resources. Together the removal of these barriers formed the Risk Capital Action Plan that was broadly endorsed at the Cardiff European Council and now has to be implemented by 2003, according to Lisbon.

The Commission has always emphasized that whilst some parts of the Risk Capital Action Plan required action at Community level - the majority were exclusively the responsibility of the Member States. On the regulatory side, the Commission is well advanced on its work on issues like modernizing the prospectus directive, common accounting standards, "prudent man" rules in the context of pension reform and a single Community patent.

A review of the Risk Capital Action Plan was sent to ECOFIN in autumn 1999, which led to the ECOFIN Council requesting the Commission to set up a risk capital benchmarking processThe Commission is finalising its proposal to develop some key indicators such as : venture capital/GDP ratio; number of companies obtaining seed capital, number of new IPO's etc. Secondly, in the context of the Commission's e-Europe, a initiative which the Commission proposed setting a target of tripling early stage finance by 2003, the Commission subsequently tabled a working paper to the Economic & Finance Committee on improving the coherence of all the Community's financial instruments to facilitate the growth of risk capital and fast growing companies. This led in turn to some new EIB/EIF ideas taken up in the Conclusions. In particular the European Council has requested the Council and the Commission to report by the end of 2000 on the on-going review of EIB and EIF financial instruments in order to redirect funding towards support for business start ups, high tech firms and micro enterprises as well as other risk capital initiatives proposed by the EIB.

.. But there is a need for greater effort

Whilst good progress has been made in some areas, in others further effort is required. Lack of progress is noticeable in particular in the following areas:

* Despite successive political commitments at the most senior level, there is little progress on the European Company Statute. This has had implications for two other measures in the field of company law (10th Company Law Directive and the 14th Company Law Directive).

* The Commission Communication on Fraud and Counterfeiting in Payment Systems and its Recommendation on disclosure of financial instruments will be presented before the summer.

* Three Member States (FR, IT, LUX) are late in transposing the Settlement Finality Directive and are urged to adopt the national transposition measures as soon as possible.

3. policy areas and measures under the Action Plan requiring further policy consideration or refinement

Since the adoption of the Financial Services Action Plan of May 1999, the scale and speed of structural change in Europe's financial markets has intensified. Two key policy areas require further consideration or refinement:

* faciliting access to capital markets

* improving financial stability

Five EU priorities for efficient financial markets and facilitating access to equity financing

The Lisbon European Summit has singled out a number of priority actions relating to the functioning of securities and wholesale markets where accelerated progress needs to be made quickly to reach the overall 2005 deadline.

1. A "single passport" for issuers

EU legislation on listing particular and public offer prospectus Directive was intended to facilitate access to partner country markets on the basis of the same statutory information required by their domestic authorities. However, this legislation has not worked. Multiple listing and cross-border share offers are rare. The obstacles to mutual recognition are:

* national authorities tend to limit its scope to narrowly defined classes of securities;

* demands for additional requirements are frequent;

* concerns that the minimum disclosure requirements are insufficient;

* traditional systems for listings and public offer prospectus are ill-adapted for those issuers wishing to raise successive instalments of share capital; and

* investor needs for regular updating of market information are not covered.

The Commission is now preparing a new legislative proposal for market information. This overhaul of the existing rules will probably centre on the introduction of shelf-registration techniques for all companies whose securities are publicly traded.

2. Enhancing the comparability of companies financial statements:

Discussions with personal representatives of Finance Ministers have revealed near consensus on the need for rapid progress towards a single financial reporting framework (for consolidated accounts) for all listed/publicly traded companies. A single set of reporting standards for publicly traded companies is the best means of securing the transparency and disclosure needed to underpin cross-border securities trading. As envisaged in the Commission's 1995 Strategy, International Accounting Standards (IAS) should form the basis for comparable financial reporting in Europe. The commitment to IAS has been validated by the strong support expressed for IAS recently in IOSCO. Enforcement issues and common guidance will also be covered in the Commission's forthcoming Communication on Financial Reporting Strategy to be issued in June. A legislative proposal that requires listed companies to apply IAS will be made by the end of this year. Subsequently, in 2001, the Commission will set out its thinking on the modernization of the EU's accounting directives.

3. Eliminating barriers to investment by pension funds and UCITS

The Commission's proposal for a Directive on occupational pension funds will be ready this summer. Subject to strict prudential supervision, it will propose easing quantitative restrictions on the proportion of assets which can be placed in securities or private equity. Given the volume of funds which are widely expected to be at the disposal of these funds, freeing-up their investment options could secure large increases in investment for different categories of security [3]. Two related proposals for UCITS, under negotiation in the Council and EP, will broaden the range of investment that can be undertaken by unit trusts which wish to sell units of their fund on a cross-border basis.

[3] In the US,pension funds allocate 0.3% of their assets in venture capital.This minimal level of exposure to venture capital still amounts to 47% of US venture capital.

4. Improved functioning of cross-border sale and repurchase markets

The Commission is currently preparing a proposal for a Directive on collateral to facilitate cross-border collateralistaion techniques, and so eliminate an important source of legal uncertainty that unnecessarily increases counterparty and settlement risk. The Commission will take forward the debate on the basis of a consultation paper so as to be ready to make the necessary legislative proposals at the beginning of next year. This proposal will be of particular benefit to sale and repurchase agreements as it will clarify the legal situation in respect of title transfer which underpins repo activity. It will also resolve uncertainty about the location of collateral for the purposes of settlement.

5. Fundamental review of the Investment Services Directive

The changes sweeping through EU securities markets call for a wider review of EU policy relating to securities markets. The Investment Services Directive - the cornerstone of the EUinvestment services regulatory framework- inter alia aimed to open up membership of national exchanges by introducing a "single passport" for investment service providers on the basis of home country authorisation. However, this framework is of limited relevance to securities markets characterised by the multiplication of trading platforms and the blurring of functions between exchanges and firms. The implications of the erosion of the pivotal role of exchanges in the future and the responses of exchanges to that development through demutualisation and the shedding of regulatory functions, require detailed reflection.

Clear guidance is also needed on the distinction between 'sophisticated' investors and 'retail' investors in the ISD.Attention needs to be given to new sources of systemic risk which may reside in the electronic order-matching systems or in clearing and settlement systems. In particular the latter have a key role in maintaining systemic stability. The Commission will launch this summer a wide-ranging consultation on the nature and significance of these developments and on the need to upgrade the Investment Services Directive.

Common approaches to regulation of securities markets cannot be divorced from the way such regulation is enforced, in particular as the pace of change accelerates towards the emergence of European securities networks.

Regulatory and supervisory contributions to financial stability

The Financial Services Action Plan recognizes that co-operation between national supervisors must be strengthened in order to respond to cross-border problems and to develop common supervisory approaches in tackling new forms of prudential risk in banking, insurance and securities markets. Increased co-operation among supervisory authorities is key in the management of institutional/prudential risk. This approach is shared and supported by the Economic Finance Committee (EFC) in its report on Financial Stability, which was endorsed and published by the Ecofin Council at its informal meeting in Lisbon. The exchange of information among different supervisory authorities, and between supervisory authorities and central banks, on the major financial institutions and market trends is seen as a key feature in the strengthened co-operation between the authorities involved.The cooperation between supervisors and central banks needs to be strengthened. In addition, as regards crisis management further reflection may be needed to enhance the co-operation between Finance Ministries in view of their specific responsibilities for systemic stability.

Further efforts are therefore required by the institutions and supervisory bodies to improve the practical functioning of the system.The Commission shares this analysis and will bring forward a number of measures :

* a legislative proposal to regulate urgent prudential supervisory issues related to financial conglomerates will be presented beginning next year;

* as financial institutions reorganise themselves on a cross-border basis their nationality and the identification of their responsible supervisory authority is becoming more difficult. Following the proposal, Authorities will be required to appoint a co-ordinating supervisor for large financial groups;

* closer co-operation between the cross-sector supervisory and regulatory groups has been ensured by establishing an informal roundtable of regulators to identify issues of common concern and take appropriate action. Its first tasks should be to review practical co-operation arrangements in each sector. If necessary, a "supervisors co-operation charter" will be elaborated to assign responsibility for performing different supervisory tasks on a cross-border basis and to establish mechanisms for problem management.

Convergence of supervisory practices

The concentration and consolidation of the European financial industry is continuing, spurred on by the arrival of the euro. It is imperative that EU supervisors implement supervisory actions consistently.These require measures to guide supervisors and markets, conduct of business rules etc in order to safeguard the stability of the financial system in the single currency zone, to ensure that EU directives achieve their maximum effect and to accelerate the emergence of a single financial market. (Work on converging bank capital adequacy supervisory practices, as recommended by the EFC, is already underway in the Banking Advisory Committee and the Groupe de Contact). Convergence of supervisory practices for financial markets is a key theme for the immediate future.

ANNEX

Progress on the Action Plan for Financial Services

This annex provides a second overview of progress on actions included in the Action Plan for Financial Services (COM(1999) 232). This second report to the Council and to the European Parliament tracks progress over the first twelve months since the adoption of the Action Plan. The reporting date is May 2000. The tables summarise the current situation and provide the Commission's assessment of the degree to which Community institutions and Member States are achieving the objectives set out in the Action Plan. Where appropriate a comment has been added in the final column, notably to indicate the next steps to be taken A star (() indicates an action which has been successfully completed. A cross (() indicates actions where some progress has been achieved in meeting the targets set in the Action Plan. A minus sign (-) indicates those for which progress is disappointing. The third progress report will be made to the ECOFIN Council and the European parliament end 2000.

Mechanisms & process

The mechanisms for implementing the Action Plan are critical to its achievement. Over the past six months, and in line with the suggestions in the Action Plan, the Commission has put in place the following structures.

* The Financial Services Policy Group (FSPG), comprising personal representatives of economic and finance ministers, has resumed its tasks as a forum to forge consensus between national ministries involved in financial services regulation. The FSPG has met three times since the adoption of the action plan and has assisted the Commission in monitoring progress and preparing this report.

* Initial informal discussions have taken place with representatives of the European Parliament with a view to finding arrangements to discuss major policy orientations with parliamentarians at an early stage.

* EU representative bodies have assisted the Commission in setting up 'Forum Groups', composed of market experts, to consider the practical and technical aspects of FSAP measures.

* The Commission Communication on Fraud and Counterfeiting in Payment Systems and its Recommendation on disclosure of financial instruments will be presented before the summer. The short delay in their adoption is due to administrative reasons caused by the change in the Commission.

STRATEGIC OBJECTIVE 1: A SINGLE EU WHOLESALE MARKET

Raising capital on an EU-wide basis:

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Establishing a common legal framework for integrated securities and derivatives markets:

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Towards a single set of financial statements for listed companies:

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Containing systemic risk in securities settlement:

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Towards a secure and transparent environment for cross-border restructuring:

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A Single Market which works for investors:

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STRATEGIC OBJECTIVE 2: OPEN AND SECURE RETAIL MARKETS

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STRATEGIC OBJECTIVE 3: STATE-OF-THE-ART PRUDENTIAL RULES AND SUPERVISION

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GENERAL OBJECTIVE: WIDER CONDITIONS FOR AN OPTIMAL SINGLE FINANCIAL MARKET

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