COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 11.05.1999 
COM(l999) 232 final 
COMMUNICATION FROM THE COMMISSION 
IMPLEMENTING THE FRAMEWORK FOR FINANCIAL MARKETS: ACTION PLAN 
IMPLEMENTING THE FRAMEWORK FOR FINANCIAL MARKETS: ACTION PLAN 
1: INTRODUCTION: 
A single market for financial services has been under construction since 1973. Important 
strides have been made towards providing a secure prudential environment in which financial 
institutions can trade in other Member States. Yet, the Union's financial markets remain 
segmented and business and consumers continue to be deprived of direct access to cross­
border financial institutions. Now, the tempo has changed. With the introduction of the euro, 
there is a unique window of opportunity to equip the EU with a modern financial apparatus in 
which the cost of capital and financial intermediation are kept to a minimum. Corporate and 
household users of financial services will benefit significantly, and investment and employment 
across the Union will be stimulated. The structural changes triggered by the euro also herald 
new challenges for financial regulators and supervisors which call for effective answers, with a 
vlew to ensuring the balanced regional distribution of the benefits of competitive and integrated 
financial services markets. 
In recognition of this changing financial landscape, the Cardiff European Council in June 1998 
invited the "Commission to table a framework for action ... to improve the single market in 
financial services" I. In response to this mandate, the Commission published a Communication2 
which identified a range of issues calling for urgent action to secure the full benefits of the 
single currency and an optimally functioning European financial market. Five imperatives for 
action were highlighted: 
• the EU should be endowed with a legislative apparatus capable of responding to new 
regulatory challenges; 
• any remaining capital market fragmentation should be eliminated, thereby reducing the 
cost of capital raised on EU markets; 
., users and suppliers of financial services should be able to exploit freely the commercial 
opportunities offered by a single financial market, while benefiting from a high level of 
consumer protection; 
• closer co-ordination of supervisory authorities should be encouraged; and 
o an integrated EU infrastructure should be developed to underpin retail and wholesale 
financial transactions. 
The Vienna European Council, in December 1998, considered it vital to translate the clear 
consensus on the challenges and opportunities that confront EU financial markets into a 
concrete and urgent work programme3 -stressing the importance of the financial services 
sector as a motor for growth and job-creation and the need to confront the new challenges 
posed by the introduction of the single currency. A group of personal representatives of 
ECOFIN Ministers and the European Central Bank, meeting under the Chairmanship of the 
Commission, was thus entrusted with the task of assisting the Commission in selecting 
priorities for action for consideration by the May 25 ECOFIN Council. 
1 
2 
3 Pt. 17, Presidency Conclusions from Cardiff European Council ( 15/16 June 1998). 
COM (1998) 625. 28.10.98: "Financial Services: building a framework for action". 
Pt. 51, Presidency conclusions from Vienna European Council (11112 December 1998). 
Financial Services Policy Group (FSPG) met on three occasions. Its deliberations, 
··'"'·-'"'-·'"'·-with the broad consultation undertaken earlier for the Framework for Action and the 
of the European Parliament4, have greatly assisted the Commission in developing a 
perspective to its work. The Commission now presents this Communication which, 
not a report from the FSPG, is based on its work and reflects the broad discussions in 
The Commission tables this Communication as a possible basis for a future work 
proqramme in this area, building on agreed Commission policy as developed in discussions 
the FSPG and in the European Parliament. The Communication seeks to: 
• confirm the objectives which could guide the financial services policy over the coming 
years; 
~ <.-}ssign a relative order of priorities and an indicative time-scale for their achievement; and 
® identify a number of mechanisms which may contribute to their realisation. 
The annexed Framework for Action is an aspirational programme for rapid progress towards a 
financial market. . lt is an illustrative plan which may be pursued by the next 
Cornmlssion, which will of course need to decide conditions under which the different actions 
initiated. The indicative timefrarne reflects the priorities as suggested by discussions in 
the FSPG and the European Parliament. The European Parliament and the Council, for their 
part, are invited to confirm the content and urgency of the Action Plan. To the extent that 
political support at the highest level is forthcoming, the European Parliament and lhe Council 
are invited to make every effort to ensure rapid agreement and implementation of the individual 
measures. 
11. TACKLING URGENT ON·GOING BUSINESS: 
Several proposals of immediate and significant relevance to the functioning of EU financial 
markets have fallen victim to protracted political deadlock. Their resolution would constitute an 
immediate and tangible contribution to the functioning of the single financial market and a clear 
signal of the political commitment to make progress as urgently as possible. In February, 
ECOFIN Ministers agreed to intensify efforts to reach agreement on four key legislative 
initiatives (the two proposals on the winding-up and liquidation of credit institutions and of 
insurance companies; the proposal for a 13th Company Law Directive (Tak~-over bids) and the 
European Company Statute).5 No definitive break-through has yet been recorded, but 
progress has been made. 
4 
5 Ref. PE 229.721 fin, EP. 15.04.99. 
The Proposal for a Directive on the winding-up and liquidation for credit institutions will help to clarify 
and contain counter-party risk. As such, it is an important firebreak against systemic risk and an 
indispensable component of a blue-print for sound and stable financial markets. The Proposal for a 
Directive on the winding up and liquidation for insurance for insurance would offer insurance 
companies, their policy-holders, employees and creditors the legal security and confidence needed to take 
advantage of a single financial market. The European Company Statute (proposals for a Directive and 
Regulation) will contribute to increased transparency regarding management and ownership structures, as 
well as a rationalised legal template for pan-European operations. This will be a useful contribution to an 
integrated primary market and will also serve as an important step towards (market-driven) emergence of 
corporate governance patterns in the EU. The proposal for take-over bids (13th Company Law) Directive 
will facilitate the restructuring of the financial industry - a process which is gathering pace -and mark an 
important milestone in the emergence of an open market in EU corporate ownership. 
2 
, The Council is invif$d to confirm the fundamental-importance of these initiatives for an effective 
single financial market and to seek to resolve the outstanding difficulties as urgently as 
possible ... 
Further initiatives were singled out as being a high priority for adoption before the next century. 
In the annexed framework for action plan, both sets of these initiatives are clearly identified as 
urgent. They include: 
• the two proposals for Directives relating to Undertakings for Collective Investments in 
Transferable Securities (UCITS); 
• the proposal fora directive on the distance selling of financial services; 
• the proposal for a directive on electronic-money 
The Council and . the European Parliament are invited to take all necessary steps to secure 
political agreement on these important proposals before 31.12.99. 
Ill. FRESH PRIORITIES FOR A SINGLE FINANCIAL MARKET: 
The wide consultations undertaken over the past 12 months, the Resolution of the European 
Parliament and the work of the FSPG have confirmed that a fresh impetus is called for to 
harvest the undeniable opportunities offered by the single financial market and the single 
European currency. The present action plan consolidates the issues which have emerged from 
the Commission communication, as fleshed out by the FSPG discussions. In respect of most 
of the following actions, he Commission has already the occasion to confirm or announce its 
intention to proceed with initiatives as they have emerged from these discussions. Essentially 
action is envisaged under three headings: wholesale markets; retail markets, and sound 
supervisory structures. The Framework plan (annexed) provides the detailed basis for this 
work, which should build on efforts undertaken in other formal or informal bodies where 
appropriate. Some of the issues relating to flanking policies signalled in the Commission 
communication of October 1998 are dealt with in the last chapter of this paper. 
WHOLESALE MARKETS: 
The euro is the catalyst for a market-driven modernisation of EU securities and derivatives 
markets. Profound changes in the organisation of the EU financial marketplaces are already 
visible, notably in the relationship between different exchanges and in the consolidation of 
payment and securities settlement systems. These hold out the prospect of cheaper and more 
flexible financing arrangements for corporate borrowers, including innovative start-up 
companies. Similarly the present_ mass of legal and administrative barriers need to be stripped 
away lest the emergence of better _integrated securities trading systems driven by market 
forces is frustrated and the benefits of access to EU-wide capital markets denied. Broadly, 
action is needed under five chapters: 
1. Common rules for integrated securities and derivatives markets. 
The Investment Services Directive (lSD) is in urgent need of upgrading if it is to serve as the 
cornerstone of an integrated securities market. We must pave the way for effective cross­
border provision of investment services. Even though the lSD requires Member States to take 
into account the extent to which the client/investor is sophisticated enough to assume full 
3 
determining which rules should apply, tJbstacles to cross-border business 
Despite this provision, host country authorities are unwavering in applying their 
of business rules. However, there may ultimately be a need to reconsider the extent to 
country application of business conduct rules -which is the basic premise of ISO -
with the needs of an integrated securities market. 
f ------------;munication summarising the common interpretation between national supervisory 
I could be an important first step in clarifying the boundary between the sophisticated 
I (where the choice of ~~conduct of business" regime can be left to the two contracting_ 1 
I ... ·. and the less professional'household' investor (where local rules could continue to be I 
I applied). L-.-----·--·-- . --- -. -----
regul01tory issues: New developments and technologies also pose a major new 
n.,-,.-,,,.,-,nr'!n PI modern legal framework for competitive secondary markets requires a common 
understanding on: 
fj) definitions of markets and exchanges (to ensure that responsibility for authorisation and 
supervision is clearly allocated); 
a; the conditions under which brokers and dealers qualify automatically for remote 
membership of all regulated markets and the elimination of any other restrictions on 
exercise of related activities; 
11) a common approach to the authorisation and supervision of "alternative trading systems"; 
• Stringent safeguards to counter market manipulation. 
Consultations will be undertaken with all interested parties (exchanges, regulated markets, 
supervisors, intermediaries, issuers) on the basis on a Commission Green Paper. In addition, 
possible adaptation of the lSD itself will be considered. The utility of proposals for specific 
legislation to counter market manipulation will also be given full consideration. 
2. Raising capital on an EU-wide basis. 
Producing multiple sets of official documentation before issuers can offer securities_in other 
Member States is costly and undoubtedly inhibits pan-EU activity. The application of additional 
national requirements has thwarted the mutual recognition of prospectuses which the 1989 
Public-Offer_Prospectus Directive aimed to achieve. 
The Commission communication entitled "risk-capital: a key for job-creation in the EU"o, 
endorsed by the European Council at Cardiff, has underlined the missed opportunities for 
Europe in terms of investment and job-creation stemming from the urnterdeveloped nature of 
risk-capital markets. A number of impediments to the emergence of effective risk-capital 
provision relate to fragmented approaches to the regulation of securities business. These 
discrepancies prevent risk-capital markets from acquiring sufficient critical-mass to represent a 
viable alternative to more costly and inflexible forms of financing for innovative start-up 
companies. Actions identified in the risk-capital paper, coupled with the possible measures 
presented in this document, will stimulate the emergence of deeper and more liquid markets at 
6 SEC (1998) 552 final, April98. 
4 
-· -~--«~·-'-·-··---.-· ----------------------------· 
EU level. Closer collaboration at the level of securities supervisors will also serve this objective. 
These actions have now been integrated within the Framework Action Plan. and thus the 
pressure for change will be maintained .. 
I To secure practical improvements in the operation of the Public-Offer_Prospectus Directive, 
collaboration between the Commission and FESC07 will be intensified. Building on this work, . 
the Directives on prospectuses may be upgraded. These adjustments could reinforce the 
practical implementation of mutual recognition of prospectuses and provide for new streamlined 
procedures for raising subsequent instalments of capital (in particular, laying down the basis for 
common acceptance of shelf-registration techniques). 
In order to sustain the political momentum in respect of risk-capital markets, an interim report 
on progress of Member States in the implementation of the risk-capital action plan, endorsed 
by the European Council at Cardiff, will be published in the coming months. This report will 
highlight the steps taken by Member States to harness the potential contribution of vibrant and 
dynamic risk-capital markets to job-creation. 
3. Financial reporting. 
Comparable, transparent and reliable financial information is fundamental for an efficient and 
integrated capital market. Lack of comparability will discourage cross-border investment 
because of uncertainty as regards the credibility of financial statements. FSPG discussions 
pinpointed the urgent need for solutions which give companies the option of raising capital 
throughout the EU using financial statements prepared on the basis of a single set of financial 
reporting requirements. Capital-raising does not stop at the Union's frontiers: our companies 
may also need to raise finance on international capital markets. Solutions to enhance 
comparability within the EU market must mirror developments in internationally accepte9 best 
practice. At the present juncture. International Accounting Standards (IAS) seem the most 
appropriate bench-mark for a single set of financial reporting requirements which will enable 
companies (which wish to do so) to raise capital on international markets. In the same way. 
International Standards on Auditing appear to be the minimum which should be satisfied in 
order to give credibility to published financial statements. 
Discussions in the FSPG have triggered an important debate on how the twin objectives of 
comparable financial reporting and alignment on international best practice can be 
simultaneously achieved. Consideration is currently being given to a possible solution which 
would provide companies with an option (as the sole alternative to preparing financial 
statements in accordance with national laws transposing EU accounting Directives) to publish 
financial statements on the basis of /AS standards. The objective of comparability in financial 
reporting will be secured by excluding national deviations from /AS for companies exercising 
this option. A screening mechanism will be required in order to ensure that /AS output conforms 
with EU rules and corresponds fully with EU public policy concerns. Securities markets 
supervisors could be associated to this task. These issues will be amplified in a Commission 
Communication to be published by the end of 1999, which will prefigure amendments of the 4th 
and 7th Company Law Directives. Auditing issues will be addressed in a separate Commission 
Recommendation. 
4. A single market framework for supplementary pensions funds. 
7 The Forum of European Securities Commissions 
5 
1t is the competence of the Member States to organise pension provisions in the light of 
national circumstances and requirements. However, where they exist supplementary pension 
funds (employment related) should be able to operate in a coherent single market framework. 
The establishment of such a framework was regarded as such a priority by FSPG members 
that it warranted a specific debate. This debate centred on the extent to which an appropriate 
prudential framework for such financial services can enable fund managers to improve fund 
performance without in any way compromising the protection of fund members. With the 
introduction of the eurol the use of currency matching rules and stringent asset-category rules 
can increasingly -though not exclusively- be replaced by qualitative prudential rules. In this 
way pension funds can be permitted to select assets that better match the real, long term 
nature of their liabilities and thus reduce risk. In order to facilitate the development of funded 
pension schemes, a rigorous prudential framework is needed in order to ensure the security of 
pension fund beneficiaries. Providing for a high of level of protection and improve fund 
performance to the benefit of their members, will not only stimulate employment creation by 
lowering non-wage labour costs but also alleviate the growing burden of financing old age 
pensions due to demographic change. In developing new thinking, great care has been taken 
to ensure the maintenance of a level-playing field on a For all providers of occupational pension 
schemes. 
By providing a ready source of long-term capital, pension funds will also stimulate the flow of 
funds available for private sector investment (thus promoting job-creation and growth). This 
approach can serve as one of a range of measures to help to reduce the burden of financing 
old age pensions caused by demographic change. The general lack of a Community framework 
aiso discourages labour mobility in that it is both difficult to transfer employee rights from one 
Member State to another and impossible for residents of one Member State to join a pension 
scheme in another. 
The contours of a prudential framework for supplementary pension funds have been discussed 
with the FSPG and the Insurance Committee. A Communication which consolidates recent . 
j consultations and discussions is envisaged. This Communication could serve as the basis for a l 
I proposal for .Si' Directive on the prudential supervision of pension funds. The envisaged 
prudentiAl framework would take into account the diversity of pension funds currently operating 
I in the Et./ and will cover: authorisation, reporting, fit and proper criteria, rules on liabilities and 
I investments with a combination of qual.itative and quantitative rules. Co-ordination of the tax 
arrangements governing supplementary pensions and the removal of the obstacles to labour 
1 mobilitY.__!9u!d also b_e_ex-'-p_Jo_re_d_. -----------------------' 
5. Collateral. 
Vvork on the implementation of the Settlement and Finality Directive shows the importance of 
common rules for collateral pledged to payment and securities systems. Priority should be 
given to further progress in the field of collateral beyond this field. The mutual acceptance and 
enforceability of cross-border collateral is· indispensable for the stability of the EU financial 
system and for a cost-effective and integrated securities settlement structure. At present, these 
conditions are not fulfilled: there is a higher risk of invalidation of cross-border collateral 
arrangements ;::1d uncertainty as regards enforceability should the collateral provider become 
insolvent. If such difficulties are not resolved, cross-border securities transactions will be 
subject to higher costs and risks. 
~--,n-close cooperation with the financial serVices sector and. national authorities, the Commission 
! :~~!.'L ber;Jn ~~~~ on __ E!_!}PC!_S!!_(~ for legisl?five action on._c_o,_'la_te_ra_l. __ ~--
6. A secure and transparent environment for cross-border restructuring. 
The EU is currently in the throes of widespread industrial restructuring. The financial sector is 
to the forefront of this development. Early adoption of the Take-Over Bids Directive and the 
European Company Statute will provide much-needed legal underpinning for protection of 
minority shareholdings and a more rationalised organisation of corporate legal structures in the 
single market. Early progress on the European Company Statute will also pave the way for the 
Commission to come forward with long overdue and important proposals for Directives on 
cross-border mergers of public limited companies, and on the transfer of company seat 
Ensuring a secure and transparent environment for restructuring is of particular importance 
when it involves the financial services industry. Prudential considerations must of course be 
fully taken into account. At the same time, arriving at configurations that bring about greater 
efficiency is crucial given the key role that financial services play in ensuring an efficient 
allocation of resources throughout the EU economy. Therefore, the supervisory authorities, 
while taking prudential considerations ·fully into account when dealing with the restructuring 
process (mergers, acquisitions, take-over bids etc.), should do so in full respect of the 
principles of transparency and non-discrimination. In order to avoid that prudential 
considerations -left unspecified -could result in unjustified actual or potential obstacles to 
restructuring operations, it would be appropriate that any required authorisation process be 
· based on a set of objective and publicly disclosed criteria, stable over time. Such an approach 
has been set out by the Commission in its Communication on certain legal aspects concerning 
intra-EU investmentss in particular to ensure free movement of capital and freedom of 
investment. 
RETAIL MARKETS: 
Fundamental change in the EU financial markets is clearly being driven by wholesale services. 
However, the retail sector is itself in the process of considerable adaptation. Action at EU level 
for retail markets and for the protection of consumers thus remains a high priority. 
The policy for the single market in financial services has already introduced a legal framework 
that allows financial institutions to offer their services throughout the Union and established a 
bulwark against institutional failure and systemic risk. Depositors, insurance policy holders and 
are already well-protected against the financial trauma of default. Yet many hurdles to cross­
border provision of services remain. In particular _the conditions under which financial products 
are sold (e.g. marketing rules) should be addressed. Member States continue to apply national 
rules as a defence against unfair trading practices and to ensure the soundness and integrity 
of financial services and their providers. This situation prevents consumers and suppliers from 
reaping the single market benefits of increased choice and competitive terms. Cross-frontier 
trading will only flourish if consumers are confident about the integrity of the service being 
provided and the selling methods used by suppliers; the credentials of the supplier, the 
availability and efficacy of redress procedures in the event of a dispute. Similar factors may 
also deter suppliers from supplying services to consumers resident in another Member State 
because of the increased costs and/or risks that such transactions entail for the supplier. 
Rather than attempting harmonisation of financial products, mutual recognition of essential 
requirements should be pursued. 
Regulatory and structural problems which prevent financial service suppliers and consumers 
from mutually benefiting in a climate of trust and legal security must be tackled head on. 
8 OJ C 220, 19.07.97. 
7 
Appropriate and progressive harmonisation of marketing and information rules throughout the 
Union together with a pragmatic search for non-legislative solutions offers the prospect of a 
truly integrated retail market fully respecting the interests of consumers and suppliers. The 
Commission has identified six key areas for action. 
1. Information and transparency 
Clear and understandable information for consumers is vital when they are investing significant 
savings in another country. Consumers need information to assess the characteristics of the 
contract, the service provider, and the proposed investment. Industry must do everything 
possible to meet such needs. Clear understanding of what information is required will also be of 
benefit to service providers in facilitating effective action to partner country markets. The 
Commission will encourage a constructive dialogue between suppliers and users whilst itself 
remaining fully prepared to respond to citizens' concerns, if necessary by legislative action. 
r-The Commission will pursue the policy of Dialogue between financial seNices providers and I 
consumers, initially by issuing a Recommendation to follow-up on a code of good practice on 
. information provision in the area of mortgage credit. lt will also seek to develop an over-arching 
i policy in this area. This will be reflected in a Communication to be published which will examine 
I possible guiding principles for the full range of cross-border fi'nancial seNices, taking account of 
I provisions laid down in existing EU and national provisions. 
2. Redress procedures 
Amongst the most significant stumbling-blocks to the single financial market is the consumer's 
uncertainty about the possibilities of redress in the eventuality of cross-border contractual 
dispute, We need to find an efficient and effective judicial and extra-judicial settlement of 
disputes to provide the necessary confidence in cross-border activity. l On the basis of the Commission's policy of administrative cooperation within the Single Market, . 
11 the Commission could consider the development of a Union-wide complaints network (including ' 
the use of an ombudsman for financial ·seNices). In the field of consumer disputes, the 
1 Commission will .base its action on its Recommendation on the principles applicable to the 
I bodies responsible for out-of-court settlements of consumer disputes9 and will follow the 
, methodology foreseen in that text. Thus, in order to promote co-operation between these extra-
1 judicial bodies in charge of consumer disputes, the European Commission will encourage 
I networking between these bodies with a view to resolving cross-border disputes. Ultimately, 
I consumers should be able to refer cross-border disputes to the extra-judicial body which is 
1 competent and which respects the criteria of the Recommendation in the foreign country via the 
1 corresponding extra~udicial body in their own country. lt goes without saying that recourse to 
1 extra-judicial bodies can never preclude the right of consumers to bring their action before 
1 judicial courts. In addition, the Commission policies of Dialogue with Citizens and with 
I Business could also be developed to provide advice and help on complaints procedures 
throughout the Union. 
·------------------------------------------~ 
3. A balanced application of consumer protection rules: 
9 Recommendation 98/257 of 30.03.98. 
States have the same basic level of protection in place, national authorities 
more ready to allow financial services providers authorised in other Member States 
their clients without setting additional requirements on those providers. 
-------a·~~.;n?ber- of specific financial products, the Commission could analyse national consumer 1 
rules (including general provisions that affect other Member States; 
produc!;/suppliers). Detailed work could be undertaken to establish possible equivalence I 
between clearly similar rules. This work could culminate in detailed report to the Council and 
EP on the basis of which conclusions for future policy will be drawn. The Commission has 
already announced its intention to issue a communication on the application of the general 
1 good in_ the insurance sector. 
4. Paving the way for e-commerce based retail financial business 
E-commerce is already revolutionising retailing and distribution of many financial services. 
Suppliers -EU and non-EU -will be able to make contact with potential users across national 
boundaries at minimal distribution cost. Users will benefit from a wider range of innovative 
products. The overall impact will be to reinforce and cement market integration. Proposals for 
E-Commerce and Distance Selling Directives are on the table, which will facilitate the 
emergence of these activities. However, discussions in the FSPG highlighted the need for 
clarification and coherence in certain areas (e.g. existing differences in prudential procedures 
and notification arrangements). Many of the issues, already identified for cross-border sales in 
retail financial markets, will be thrown into even sharper relief. 
The Commission . envisages publishing a Green Paper to establish whether the provisions of 
existing financial legislation contain coherent provisions on prudential procedures provide a 
propitious legal environment in which e-commerce based financial services business can 
I thrive, while ensuring that consumers' interests are fully safeguarded. 
5. Insurance intermediaries 
Member States have developed consumer protection safeguards in relation to insurance 
intermediaries, but varying national legislation has been drawn up along very different lines 
which acts to hamper the free provision of services. Given their key importan~e in enhancing 
the functioning of the single insurance market, there is a need to provide a clear and common 
approach to regulation of insurance intermediaries, thus facilitating the free provision of 
services while strengthening consumer protection at a high level. 
I The Commission is working towards tabling a Directive: 
, 1) to update the 1976 Directive on insurance intermediaries and 
l 2) to strengthen consumer protection by establishing common requirements on inter alia 
L_ registration, financial security and information disclosure to the consumer. 
6. Cross-border retail payments 
Without impetus at the highest political level, there is a danger that the individual customer of 
financial services will be deprived of some of the tangible benefits of a single currency. 
In particular, low value credit transfers between euro-zone countries will continue to attract high 
charges until such time as a modern payments infrastructure which is capable of supporting 
9 
efficient, secure and low-cost cross-border payments is put in place. The current relatively low­
volumes of cross-border credit transfers combined with a range of structural and administrative 
factors stand in the way of "state-of-the-art" linkages. However, citizens are unwilling -and 
rightly so-to tolerate a situation where cross-border payments incur charges which far exceed 
those charged by domestic transfer systems. If charges could be reduced to a level 
comparable to domestic credit transfers, savings of several billion euro could be made. 
Remedying the infrastructural gaps requires a concerted strategy, supported at the highest 
political level and including the EU institutions, the ESCB and the private sector to surmount 
the technical and commercial hurdles. 
Likewise, charges for cross-border card-payments are higher (and often more opaque) than 
fees for domestic card payments -although the differences are less marked than for credit 
transfers. In this area, the Commission believes that a combination of efforts to increase 
transparenc , reduce fraud and reinforce corn etition disci lines erode such differentials. 
There is a clear need for integrated retail payments systems, which provide for secure and 
competitive sma/luvalue cross-border transfers comparable with the service provided within 
domestic payment systems, to be put in place before the end of the euro transitional period. A 
concerted effort involving the ESCB, EU institutions and the private sector should be lau17ched 
to deliver a technically secure and operational solution as a matter of utmost urgency . The 
Council and the European Parliament are invited to endorse this as a foremost political 
. objective in the financial services field and to play their full part in supporting the 
\ implementation of a solution which will serve the needs of citizens. The Commission intends to 
publish a Communication mapping out a strategy for ensuring progress towards this objective. 
SOUND SUPERVISORY STRUCTURES: 
The EU's supervisory and regulatory regime has provided a sound basis for the emergence of 
a true single financial market which goes hand in hand with prudential soundness and 
financial stability. Steady EU-Ied convergence in regulatory requirements, has been 
underpinned by a comprehensive system of informal bilateral memoranda of understanding 
between financial supervisors. This system has provided common ground-rules and pragmatic 
mea:1s of implementing and applying the EU Directives for a single market for financial 
services. However, the future will bring fresh challenges.. The heightened tempo of 
consolidation in the industry, and the intensification of links between financial markets because 
of the euro call for careful consideration of structures for containing and supervising institutional 
and systemic risk. In an environment characterised by strong and immediate transmission 
effects between EU banking and securities markets, there are reasons to believe that the 
status quo may not tenable over the longer-term. There is now a greater need and a 
willingness to engage in an open discussion on the structures that will be needed to ensure 
appropriate regulation and supervision of a single financial market. 
As regards regulation, the Union should strive to maintain tAe highest standards of prudential 
regulation for its financial institutions. These standards must be kept up-to-date with market 
developments and capital requirements must accurately reflect the risks run by banks, 
insurance undertakings and securities firms in the Union. Combined financial operations may 
also create new prudential risks or exacerbate existing ones. Capital requirements must be 
adequate and proportionate to meet the risks undertaken in financial . groups that straddle 
traditional sectoral boundaries. The Commission will continue to exercise its right of initiative in 
promulgating proposals to address new regulatory issues. lt would however, draw great benefit 
from cross-sectoral strategic input of the type which could be delivered by the mechanism 
presented in section IV.1 of this paper. This perspective would be valuable in defining broad 
10 
for appropriate regulatory approaches in areas such as conglomerates The EU 
assume a key role in ensuring that its voice is clearly heard in international financial 
fora to ensure that sound and coherent regulations are promulgated that guarantee 
fields. The global dimension to regulation of financial services is set to acquire 
importance as international liberalisation gath~rs pace under the aegis of the WTQIO 
In area of supervision, closer market integration has pushed the issue of reinforced EU 
collaboration to the forefront. The continuing process of internationalisation, disintermediation, 
and globalisation of financial services challenges the way in which we have structured the 
present means of co-operation and co-ordination between authorities. The following practical 
steps, which build on existing arrangements, could take account of the greater cross-border 
and cross-sectoral dimension to ensuring financial stability. 
1. Increasing cross sectoral complexities underline the need for clarity in supervisory roles. 
Many themes that are discussed within a banking, insurance, or securities perspective in 
reality cut across all financial sectors. There is therefore a pressing need for increased 
collaboration, monitoring and better understanding of experiences and risks in all sectors, 
including those that would normally go beyond individual banking, insurance or securities 
supervisory perspective. At present, there is no focal point for forging common approaches 
across sectors to the day-to-day application of prudential rules to individual cases. The. 
Commission would see great merit in developing .. ad hoc" and streamlined arrangements 
for close coordination between front-line authorities. Such an arrangement could draw from 
the membership of existing structures. In this way, it would avoid duplication and 
proliferation of structures.'' Although the Commission's vocation in the financial services 
field is regulatory, it stands ready to assist Member States in developing these·ideas. 
2. In the field of securities markets, closer cooperation between securities has taken a step 
forward following the creation of FESCO. As cross-border trading and issuance becomes a 
common-place, policy concerns such as market integrity will assume the properties of a 
common good. In time, the option of a single authority to oversee securities markets 
supervision may emerge as a meaningful proposition in the light of changing market reality. 
The EU has also been hamstrung by the absence of a committee of appropriate standing 
to assist the EU institutions in the developing and implementing regulation for investment 
services and securities markets. 
3. EU legislation provides a legally binding underpinning for cross-border cooperation 
between banking supervisors. These rules are managed through bilateral Memoranda of 
Understanding between national supervisors. Recently, some have argued that these 
arrangements are no longer sufficiently robust to contain cross-border effects of failure of 
large institutions. The Commission does not subscribe to the view that present 
arrangements are unsuitable for the present state of the single banking market. However, it 
considers that there is a need for high-level political assessment, encompassing all 
national and EU level institutions with an interest in banking supervision, of the conditions 
under which a review of present arrangements for banking supervision could be required . 
. At present, decisions on appropriate supervisory arrangements are determined at national 
level, and the supervision of the banking, insurance and securities sectors is predominantly 
conducted at that level. Member States have developed different models for performing these 
1 0 Ratification of the 1997 Agreement is proceeding and attention is turning to a second round of GATS 
liberalisation. 
1 i E.g. Groupe de Contacte, FESCO and Conference of insurance supervisors and their parent committees -
BAC, HLSS and IC. 
11 
tasks. Mutual confidence in the effectiveness of partner country financia! supervision Emd 
regulation -whether that be undertaken by a consolidated authority for the entire sector o!' by 
separate sectoral authorities that co-operate and co-ordinate effectively -is the ke;t ingredient 
for successful cross-border supervision .. 
The ~011]1j1i~sion1~~~nd$lo pre~entproposals to maintain ~iQh standards of_ banking, insurance 
andrsecuritiespr~dentiallegislation. To this end the work.ot existing bodies will be taken into 
account. as much as possible (Basle Committee, FESCO etc). Work on the prudential 
supervision of" finaf}cial. ·.conglomerates . will be taken in. hand. Appropriate and efficient 
arrangerpeot$ wi/{ be put in pl~ce to increase cross-sectoral discussion and co-operation 
between"aJJteoritl~s on issues of common concern. In the securities field, the Commission 
envisag~~':tpe,,creayon ·of a Sequritie~ Committee, in the light of any future inter-institutional 
de~ision g~ ':~comltology'1
• /t also advocates the initiation of high-level consideration of the 
conditions ·under which present supervisory arrangements in the banking sector might need to 
be reviewed. 
GENERAL CONDITIONS FOR AN EFFICIENT EU FINANCIAL MARKET: 
1. Corporate governance: 
Investors in the single market may experience unnecessary uncertainty due to differences in 
corporate governance arrangements. Differences in corporate governance arrangements could 
give rise to legal or administrative barriers which might frustrate the development of an EU 
financial market (e.g. practical arrangements for the exercise of voting rights by shareholders in 
partner countries). However, the term "corporate governance" covers a wide series of issues 
whose ramifications for the single financial market are at present unclear. Furthermore, national 
arrangements spring from long-standing legal and socio-economic traditions. At the present 
juncture, any EU involvement in this area should be confined to identifying any barriers to the 
development of the EU financial market resulting from corporate governance arrangements. 
A review of existing national codes of corporate governance will be launched with a view to 
identifying any legal or administrative barriers which could frustrate the development of a single 
EU financial market. 
2. Taxation: 
For the sake of a smoothly functioning single market for financial services, contributing to an 
efficient allocation of resources throughout the European Union, the further integration of 
financial markets must proceed broadly in parallel with an adequate process of tax co­
ordination. 
The liberalisation of capital movements in 1988 - a key step, inter alia, for ensuring a single 
market for financial services -was due to be accompanied by parallel measures in the area of 
savings taxation in order to eliminate or reduce the risks of distortion, tax evasion and/or tax 
avoidance. In fact, the Council was unable to reach agreement on the Directive proposed in 
1989. 
A second key step in financial liberalisation took place with the adoption of specific sectoral 
financial services directives, again without progress in the field of taxation. For example, 
barriers arising from the tax treatment of insurance premium continue to act as a serious barrier 
to a single insurance market. 
12 
This framework action plan is intended as the third key step towards a single market for 
financial services. A number of-Member States, together with the Commission, consider that it 
would be technically unbalanced and politically difficult to implement this third stage while the 
process of tax co-ordination in financial markets is still less developed. 
The Council is invited to adopt the .1998 proposal for a Directive to ensure a minimum effective 
taxation ofcross-bordersavings.income. The Commission will continue its efforts to tackle tax 
barriers to a fully functioning single market for financial services. The Commission will present 
proposals, in the light of the Taxation Policy Group discussions, as regards pension funds and 
insurance. 
IV. DELIVERING THE FRAMEWORK ACTION PLAN: 
FSPG discussions have permitted a long overdue stock-taking of our approach to legislating for 
financial markets. lt took more than a decade to agree the Single Market financial services 
legislation which gave effect to the guiding philosophy of the "single passport/home-country 
control". We are now embarking on a qualitatively more challenging process which aims to 
target a broader range of policy objectives against the backdrop of a faster-changing financial 
world. If we are successfully to implement the regulatory blue-print set out in the annex, we will 
need to overhaul the way we develop financial services legislation and achieve high levels of 
international cooperation. 
Mechanisms are required which avoid the following pitfalls: 
{ 1) A piecemeal and reactive approach to proposing and designing actions is inadequate 
in a situation where financial conglomerates are common-place and the boundaries 
between financial services are being steadily blurred. A holistic, cross-sectoral view is 
required in setting regulatory priorities, in avoiding tensions between policy objectives 
in different segments of the financial markets and in expanding the range of policy 
solutions. Such considerations militate in favour of a high-level strategic input in policy­
sett!ng; 
{2) Protracted decision-making processes (witness the debates on winding-up and 
liquidation of credit institutions and insurance companies). A more inclusive and 
consensual approach in shaping policies from an early stage and in advance of drafting 
legislation will deliver dividends when it comes to completing formal (eo-decision) 
procedures. This inclusive approach should extend to all EU institutions, but also to 
representatives of market practitioners, consumers, users and employees; 
{3) EU solutions must be characterised by a degree of flexibility so that they are not 
immediately rendered obsolete by the relentless pace of chang~ in the markets. Overly 
prescriptive EU measures often only serve to ossify market structures and behaviour. 
This risk is exacerbated by the length of time needed formally to agree legislative 
solutions. 
The way in which we set about implementing the new framework agenda will be critical to its 
achievement. The following mechanisms can be considered. 
1. Updating cross-sectoral priorities: 
New regulatory challenges will emerge as a potential threat to the stability of EU financial 
markets. To meet such challenges a fresh look at the present organisation of the Union's 
structures and procedures for financial services is needed. 
13 
Without prejudice to the Commission's legal right of initiative, a mechanism to identify future 
challenges and to frame priorities in a broad context could comprise the following elements: 
• A forum to forge consensus on emerging challenges between national ministries involved in 
financial services regulation. The Commission would derive great benefit from access to 
strategic input similar to that provided by the FSPG for the period of its short-lived mandate. 
• Appropriate arrangements could be made to allow policy orientations to be discussed 
infomal/y with EP representatives at an early stage. 
• A high level forum could be created to take soundings from bodies representing the 
principal EU ·interest groups which have an interest in the smooth and efficient operation of 
financial markets. Chief amongst these would be representatives of all segments of financial 
markets, exchanges, consumers and (business) users, and employees. 
• The recently developed process of economic reform provides essential information and 
analysis of the functioning of product, service and capital markets. The Cardiff process will 
serve as a valuable input in the selection of priorities. 
• The Commission should report regularly to the Council on the progress made in achieving 
the deadlines set in the Framework Action Plan and, following a high level group 
examination, in considering major new cross sectora/ challenges (such as financial 
conglomerates). 
2. Selecting the best available technical solutions: 
The Commission intends, at as early a stage as possible, to engage the other EU institutions 
and relevant EU-Ievel interest groups in discussions on the broad contours of any initiative. 
Such consultations could include the following: 
(1) Input from national authorities engaged in the regulation and supervision of markets 
could be integrated at an early stage when Community initiatives are being prepared; 
(2) EU representative bodies could designate a short-list of experts to help the 
Commission in assessing the implications of more technical solutions. 
3. Speedy implementation of agreed solutions: 
At present, the adaptation of EU prudential rules to cope with new sources of instability or to 
align it on state-of-the-art regulatory/supervisory practice is painstakingly slow (it is not unusual 
for legislative procedures to take three to four .years to complete). The resolution of the 
European Parliament highlights the dangers inherent in these delays, whilst underlining the 
need to respond effectively to concerns about the democratic legitimacy of the EU's decision­
making process. 
All agree that we need greatly to minimise the time needed to conclude agreement on 
individual actions. The Commission could explore with the Parliament and the Council how 
best to ensure the possible acceleration of eo-decision procedures provided for under Art. 251 
of the Treaty (as introduced by Amsterdam Treaty) can be used. 
However, a more wide-ranging rethink of the way in which policy for financial markets is 
processed is required. Any more radical procedural approach must provide for rigorous 
oversight by the EP and Council and must ensure that rules are, as far as possible, uniformly 
14 
interpreted and applied across the EU; that greater flexibility in regulatory policy is introduced 
so that where necessary it can be more promptly adapted (subject to political oversight) to 
changing circumstances. 
The Commission could initiate informal discussions with the European Parliament and Member 
States on the way in which Article 251 can be used to accelerate the legislative process for 
financial services. In addition, ways of drafting legislation in order to minimise over complexity 
will be explored. In particular, the framing of single market legislation in this area (based on Art. 
1 OOa) could enshrine ''essential requirements" which have as their basis a high level of 
consumer protection. The core concepts at the heart of EU legislation could be fie shed out in 
greater detail through the use of agreed comitology procedures, thus providing for legal 
certainty as regards ·detailed implementing provisions. Additional clarification on technical 
issues, to assist supervisors and other agencies in day-to-day application of framework rules, 
would be provided in the form of Commission communications. 
The Council and EP are invited to lend their support to the implementation of this new 
approach to elaborating and finalising proposals for EU level action in respect of financial 
markets. 
15 
FINANCIAL SERVICES ACTION PLAN 
~ 
Based on the extensive consultations around the Commission's Framework for Action, the following plan 
confirms the work that must be set in hand to reap the full benefits of the euro and ensure continued stability 
and competitiveness of EU financial markets. The future Commission will need to decide conditions under 
which different actions will be taken forward. The optimal timeframe reflects the priorities which have emerged 
from discussions in the FSPG, with the European Parliament and with other interested parties. 
The European Parliament and the Council are invited to endorse the content and urgency of the Financial 
Services Action Plan. The European Parliament and the Council are also invited to make every effort to ensure 
rapid agreement and implementation of the individual legislative measures. Commitments are also called for to 
ensure the investment of political will and concentration of the necessary resources to achieve the ambitious 
deadlines that are set in response to the changing demands of the market, the need to safeguard consumer 
interests and to enhance the competitiveness of EU industry as a whole. 
Three indications of priority have been set for each measure identified in the Action Plan: 
Priority 1 actions: 
There is broad consensus that these actions call for immediate attention. These measures are are crucial to 
I 
realisation of the full benefits of the euro and to ensuring the competitiveness of the Union's financial services 
sector and industry whilst safeguarding consumer interests. 
~ Where legislative proposals are already on the table European Parliament and Council are invited to take 
all steps necessary to secure the maximum possible agreement before January 1, 2000. · 
~ The Commission confirms that where an initiative is required, it will come forward with. the neces~ary 
action without delay. 
);.-Based on any necessary preparatory work by the Commission, the Council and European Parliament are 
invited to ensure rapid agreement within two years, or at the latest by the end of the euro-transitio~al 
period, and to expedite implementation of agreed measures without delay. 
Priority 2 actions: 
The Commission regards these priorities as important to the functioning of the Single Market for Finan~ial 
Services -in particular, by amending existing legislation or adapting present structures to meet n~w 
challenges. 1 
Prioritv 3 actions: 
These actions concern important areas where a clear and general consensus exists that new work should lbe 
set in hand with a view to finalising a coherent policy by the end of the euro-transitional period. : 
STRATEGIC OBJECTIVE 1 
A SINGLE EU,WHOLESALE MARKET 
(VERSION: 07-05-1999) 
Speedy adoption and implementation of the following actions1 in order to achieve this strategic 
objective will: 
• enable corporate issuers to raise finance on competitive terms on an EU-wide basis; 
• provide investors and intermediaries with access to all markets from single point-of-entry; 
• allow investment service providers to offer their services on a cross-border basis without 
encountering unnecessary hindrances or administrative or legal barriers; 
• establish a sound and well integrated prudential framework within which asset managers can put 
funds at their disposal to their most productive use; 
• create a climate of legal certainty so that securities trades and settlement are safe from 
unnecessary counter-party risk. 
Raising capital on an EU-wide bas1s: 
Action Priority 
Upgrade the Directives on 
Prospectuses through a 
possible legislative 
amendment 
Update the Directive on 
Regular Reporting 
(82/121/EEC) 1 
3 Objective 
Overcoming obstacles to the 
effective mutual recognition of 
prospectuses, so that a 
prospectus or offer document 
approved in one Member state 
will be accepted in all. In addition, 
incorporating "shelf registration" 
will provide for easier access to 
capital markets on the basis of 
streamlined prospectuses, 
derived from annual accounts. 
More frequent and better quality 
information will enhance market 
confidence and attract capital Actors Optimal 
Timeframe 
Commission, For issue by mid 2000 I 
building upon Adoption: 2002 · 
work by FESC02 I 
Commission, 
following 
consultation with 
FESCO and the Launch consultation 
by mid 2000 
Proposal: 2001 
Adoption: 2002 
l..------------~------L------------'--.:..:..m=ar:..:..:.ke=-=t ___ _L. __________ I 
E t bl' h. sa 1s mg a common ega /~ k(! . ramewor or mtegrate d secunt1es an dd . envatives markets: 
Action Priority Objective Actors Optimal ] 
Timeframe 
Issue a Commission 1 Summary of common Commission, Draft for issue by en1 
Communication on interpretation of use of investor building upon 1999 
distinction between protection rules, including work by FESCO 
"sophisticated" investors conduct of business rules to and after 
and retail investors. determine conditions under which consultation with 
host country business rules apply MS. 
to cross-border securities 
transactions. '--· 
1 The proposed actions are structured in accordance with the presentation in the introductory paper. 
2 Forum of European Securities Commissions 
--------·---------------------------
j Directive to address 2 Enhance market integrity by Commission: after Proposal by end 2000 
market manipulation. reducing the possibility for consultation with .. Adoption~ 2003 
I institutional. investors and MS and markets. 
intermediaries to rig markets. Set 
common disciplines for trading 
floors to enhance investor 
confidence in an embryonic single 
securities market. 
--~-- .. -
Paper 2 Wide-ranging review of ISO as Commission, Publish Green Green on Paper: ; J 
upgrading the lSD basis for integrated and efficient 
market for investment services. 
Tackle remaining obstacles to 
market access for 
brokers/dealers, obstacles to 
I remote membership, and 
restrictions on trading in T -bonds. 
Address new regulatory 
challenges such as Alternative 
l-........ Trading systems. 
Towards a smgle set of financial statements for listed compames: 
Action Priority Objective Actors 
Amend the 4th and 7th 2 
Company Law Directives 
to allow fair value 
1 accounting 
rcornmission 1 
Communication updating 
the EU accounting 
strategy Enabling European companies to Commission, 
account for certain financial Council, EP 
assets at fair value, in 
accordance with International 
Accounting Standards 
Map out strategy for enhancing Commission. 
comparability of financial reports 
issued by llsted EU companies, 
based on combination of EU 
accounting Directives and 
financial statements issued in 
accordance with agreed 
international accounting 
standards. Strategy should 
prefigure mechanism for vetting 
international benchmark 
standards so that these can be 
used (with no national variations} 
by EU listed companies. mid-2000 
Optimal 
Timeframe 
Proposal autumn-99 
Adoption: 2001 
For issue by end-99 
Modernisation of the 2 Bringing the 41h and 71h Directives Commission, Proposal end-2000 
1 in line with the needs of the Council, EP Adoption: 2002 I 
Single market and to take into 
account developments in I accounting provisions of 
the 4th and 71h Company 
Law Directives 
international accounting standard- i. 
setting 
1 ~C-om~m~ls-s-~-n~~-~~~~~2~-~~U~pg~m~d-~-g-t-he_q_u_a_hl_y_of~~~~~ry Comm~~on. -~~~r~sue~nd-~--- 1
1, 
I Recommendation on EU audits in the EU by 
auditing practices L recommending specific measures 
j in the areas of quality assurance 1 !__ ______ and auditing s!a.:.-n_..:..d_ar....:...ds:....:... ___ ...~..-________ _:. ____ . ____ . _______ _] 
~~~nta_ining_ systemic risk in securities settlement: 
Action j Priority Objective 1 Actors 
; :n:··dpr;-1ontation of the --r----r·--+--Co_m_m __ o_n_a-nd·-_c_o_h-er-e-nt _____ i-Member States Optimal 
Timeframe 
Commission tc· : I I 
~~---~~-------------------
i Settlement Finality application of the Directive continue monitoring of 
Directive throughout the EU is implementation in a 
important for a smooth working Group. 
functioning of systems. Commission report to 
Council end 2002 
Directive on cross-border 1 Legal certainty as regards Commission in Launch consultation 
use of collateral. validity and enforceability of consultation with autumn-99: proposal 
collateral provided to back MS and market end-2000. 
cross-border securities experts Adoption: 2003 
transactions. 
Towards a secure and transparent environment for cross-border restructurmg: 
,-----------r--!:-~~--r-----:--:-::--:--------,,---:---:------'-----.----::--:---:::--- --·· Action Priority Objective Actors Optimal 
Timeframe 
~--~~--------~~+---~----1-~:--~~~~~-~~-~~---~~~------------·-Political agreement of the 1 Create EU-wide clarity and Council, EP Mid-99 
proposed directive on transparency in respect of Adoption: 2000 
Take Over Bids legal issues to be settled in 
event of take-over bid. 
Prevent pattern of EU 
corporate restructuring from 
being distorted by arbitrary 
differences in governance 
and management cultures. 
Political agreement on the 
European Company 
Statute 
Review of EU corporate 
governance practices 
Amend the 1 Qth Company 
Law Directive 
14th Company Law 
Directive 1 
3 
3 
3 Create optional legal structure 
to facilitate companies to 
place pan-European 
operations on a rationalised 
single legal umbrella. Within 
this context clarify scope for 
participation by employees -
thereby create further 
common ground in respect of 
corporate governance 
practices. 
Identification of legal or 
administrative barriers and 
resulting differences in 
corporate governance 
regimes. 
Create the possibility for 
companies to conduct cross­
border mergers 
Allow companies to transfer 
their corporate seat to 
another Member State 
As· I M k t h. h mgJe ar e w 1c t wor s or mves ors: 
Action Priority Objective 
Commission 1 Consultation on prudential 
Communication on framework for second-pillar 
Funded pension Schemes pension fund schemes to 
protect beneficiary rights 
through stringent prudential 
safeguards and rigorous 
supervision. Council, EP Mid-1999 
Adoption:2000 
Commission, Launch review early 
Member States, 2000 
markets. 
Commission 
Commission 
Actors 
Commission Proposal in autumn 1999 
Adoption: 2002 
Proposal in autumn 199~ 
Adoption: 2002 
Optimal 
Timeframe3 
Issue by May 1999 I 
,,,_, -·--····----- ·--------------.o...-------·~~-· ........ o:o R'. I El..,..... 
Political agreement on the 1 Proposal 1 will remove eouncii,EP End-1999 
proposed directives on barriers to cross-border Adoption: 2000 
UCITS marketing of units of 
collective investment by 
widening assets in which 
funds can invest. 
Proposal 2 would provide a 
European passport for I management companies, and 
wk:Jen the activities which 
they are abed to undertake 
(also be authorised to provide 
individual portfolio 
manaaement services). 
Directive on the 1 F allowing the policy outlined Commission Proposal: Mid 2000 
prudential supervision of in its CommtJnication, the Adoption: 2002 
pension funds Commission will propose a 
Directive on the· prudential 
supervision of pension funds. 
I lt will take into account the 
diversity of pension funds 
I currently operating in the EU 
and will cover authorisa6on, 
reporting, fit & proper criteria 
and rules on liabilities and 
invesbnents 
STRATEGIC OBJECTIVE 2 
OPEN AND SECURE RETAIL-MARKETS 
b,y EU institutions and all interested parties, along the lines listed below, are needed 
to: 
I) Equip consurners with the necessary instruments (information) and safeguards (clear rights and 
effective dispute settlement) to permit their full and active participation in the single financial 
market: 
• Identify and roll back unjustified insistence on non-harmonised consumer-business rules as an 
obstacle to cross-border provision of services; 
• Promote the emergence of effective mechanisms for overcoming fault in the single retail financial 
market which have their origin in differences in private law: 
• Create legal conditions in which new distribution channels and distance technologies can be put 
to work on a pan-European scale; 
• Encourage the emergence of cost-effective and secure payment systems which enable citizens to 
effect small-value cross-border payments without incurring exorbitant charges. 
Action 
Political agreement on 
proposal for a Directive on 
the Distance Selling of 
Financial· Services Priority 
1 
: Objective Actors 
Proposal aims to bring about Council, EP 
convergence ofrules on 
business .. to;;consumer 
marketing and sales 
techniques. This will·limit 
exposure ofconsumers to 
undesirabiemarketing 
techniques (inertia and 
pressure-selling) through 
inclusion of appropriate 
provisions (generous right of 
withdrawal rights, 
prohibitions). Once in place, 
distance selling via remote 
technologies should be free 
from this category of 
impediment. Optimal 
Timeframe 
End 99 
Adoption: 2000 
r Commission 
I communication codifying 
clear and comprehensible 
information for purchasers 2 Establish over-arching view Commission, 
of basic information Member States. Review to begin 
end 99: 
I requirements consumers 
need in order to assess 
credential of (cross-border) 
service suppliers, 
security/performance of 
services otfered by latter 
(plus redress). Examine 
extent to which these 
requirements are complied 
for range of retail financial Communication: 
mid 2000 
I services. 
1~----- ---·-------·· ··-·---·--1---------t-------~ 
i Recommendation to 1 Building on discussions in Commission, bank For issue by end-99 i support best practice in Consumer Dialogue, the . and consumer 
: ra~pe(:t of information Commisston will publish a J representative .. ~s. 1 
lpPi?!i.~~on {mortgage credit). ~~_!nunication to endorse __ _ ______ j _____ ____.J 
Z1 
understanding in respect of 
information to be provided in 
event of cross-border 
provision of mortgage credit 
services. Commission 
involvement in monitoring of 
compliance. 
~----------------~--=-~~~----~~--~-----.----~-------.----~~~·----Action Priority Objective Actors Optimal 
Commission report on 
substantive differences 
between national 
arrangements relating to 
consumer-business 
transactions. 
Interpretative 
Communication on the 
freedom to provide services 
and the general good in 
insurance 
Proposal for amendment of 
Insurance Intermediaries 
Directive 
Commission 
Communication on a single 
market for payments 
4 Insurance Committee 3 
2 
2 
2 The report will catalogue 
obstacles to cross-border 
business-to-consumer 
transactions for relevant 
financial services. This will 
provide analysis of whether, 
how and why host-country 
consumer rules apply and 
determine conditions under 
which equivalence of 
national rules does/does not 
exist. Provide objective and 
empirical basis for 
discussion with MS and EP 
on how to facilitate cross­
border provision of retail 
financial services without 
jeopardising consumer 
safeguards. 
Greater legal certainty and 
clarity for Member States, 
insurance undertakings and 
citizens, contributing to the 
creation of the single 
market 
Facilitation of the free 
provision of services by 
insurance intermediaries 
and enhanced consumer 
protection by updating and 
intraqucing safeguards on 
professionalism and 
competence. By creating 
stringent common ground· 
rules for intermediaries can 
facilitate placing on market 
of insurance premia by 
partner country 
underwriters. 
Will provide a road-map for 
public and private agencies 
with a role to play in 
ensuring that secure and 
cost-effective retail 
payments can be effected 
on a cross-border basis. At 
present, such transactions Commission, 
Member States. 
Commission 
Commission (IC4) Timeframe 
Review to begin 
autumn 1999: 
status report -mid-
2000: 
Discussions with 
Council, EP to 
begin end-2000. 
For issue by: 
summer 1999 
Proposal mid-2000 
Adoption: 2002 
Commission, For issue by 
ESCB, markets, summer 1999 
consumers. 
r·--·-~--,---
incur charges which are 
much higher in average 
than those within domestic 
I payments systems -a 
I situation which is untenable 
l within a single currency 
I zone. The Communication 
will focus heavily on credit 
transfers but will also 
address card payments, 
cheques and cash. -· Commission Action Plan to 2 Agree on ways to prevent Commission, Communication for 
prevent fraud and fraud, e.g. in organising the industry, users and issue by: end·1999 
counterfeiting in payment exchange of data or MS 
systems increasing the security of 
technical systems 
Commission green paper 1 A clear and coherent policy Commission For issue by: mid-
on an e-commerce policy for the whole financial 2000 
for financial services sector, which takes account 
of existing rules, wider 
j international developments, 
and technological progress. 
STRATEGIC OBJE~TI'\7~,~: 
STAT.E .. OF-THE!"ARTPRUDENTIAtli)R,UQa$\~NOSUPERVISION 
Urgent headway must be made in order to: 
1. Eliminate any lacunae in EU prudential framework, arising from new forms of financial business or 
globalisation, as a matter of utmost urgency. 
• Set rigorous and appropriate standards so that the EU banking sector can successfully manage 
intensification of competitive pressures 
• Contribute to the developing of EU supervisory structures which can sustain stability and 
confidence in an era of changing market structures and globalisation: 
• Develop a regulatory and supervisory approach which will serve as the basis for successful 
enlargement; 
• Enable the EU to assume a key role in setting high global standards for regulation and 
supervision, including financial conglomerates . 
...-----------..-------,------------r--------.----·----·-····-···-·-··-Action 
Adopt the proposed 
directive on the winding­
up and liquidation of 
insurance undertakings 
Adopt the proposed 
directive on the winding­
up and liquidation of 
banks 
Adopt the proposal for 
an Electronic Money 
directive 
Amendment of the money 
laundering directive Priority Objective Actors 
1 Provide a coherent legal Council, EP 
framework for the winding-up 
1 
1 and liquidation of insurance 
companies in the single market 
through the mutual recognition 
of proceedings and the 
principles of unity, universality, 
publicity and non-discrimination 
Common rules on winding-up Council, EP 
and liquidation will establish 
common principles for 
procedures to be followed in 
event of bank insolvency, 
identify responsible authority. 
As such will safeguard against 
continued activities by insolvent 
institutions which could 
represent source of counterpart 
risk. 
Ensure market access and Council , EP 
adequate regulation of e-money 
providers: clarify the prudential 
rules under which institutions 
other than traditional credit 
institutions can provide e-
money services. Enable 
provision of this activity on 
cross-border basis. 
Combat fraud and. money Commission. 
laundering in the financial 
system to widen definition of 
predicate offences and to 
extend reporting ('suspicious 
transactions') requirements to Timeframes 
New first reading in 
EP end 1999 
Political agreement 
as soon as possible 
Adoption: 2001 
Common position 
end-99 
Adoption:2001 
Common position: 
autumn 99 
Adoption: 2000 
Proposal mid 1999 
Adoption: 2001 
Commission 
Recommendation on 
disclosure of financial 
1
• instruments 
Amend the directives 
governing the capital 
framework for banks and 
investment firms 2 
2 relevant non-financial 
professions. 
Enhanced disclosure of the 
activities of banks and other 
financial institutions to allow 
investors to take informed 
decisions, and to foster market 
transparency and disciple as a 
complement to prudential 
supervision 
Work on a review of the bank 
capital framework to reflect 
market developments is running 
in parallel with that of the G-1 0 
Basle Committee on Banking 
Supervision. This work is 
expected to result in a overhaul 
of the EU's bank and Commission. 
Commission 
(BAC, HLSSG) 
Member States, 
markets Communication mid 
1999 
Proposal for 
directive: spring 
2000, pending 
developments in 
Basle 
Adoption:2002 
investment canital framework. 
~----------------~--------~~--~~·~~·--~~--~----------~------------J 
" Banking Advisory Committee, High Level Securities Supervisors Committee 
Action 
Amend the solvency 
margin requirements in 
the insurance directives 
Proposal to amend the 
insurance directives and 
the lSD to permit 
information exchange 
with third countries 
Development of 
prudential rules for 
financial conglomerates 
following the 
recommendations of the 
'Joint Forum' 
Creation of a Securities 
Committee Priority 
3 
3 
2 Objective 
Protection of consumers in the 
single market by ensuring that 
insurance undertakings have 
adequate capital requirements 
in relation to the nature of their 
risks. 
Basis for international exchange 
of information to underpin 
financial stability 
Addressing loopholes in the 
present sectoral legislation and 
additional prudential risks to 
ensure sound supervisory 
arrangements. 
A formal regulatory committee 
in this field will contribute to the 
elaboration of EU regulation in 
the securities area. Requires 
willingness on part of EU 
institutions to agree an 
appropriate comitology Actors Optimal 
Timeframe 
Commission (IC), Proposal for 
Member States, directive: mid 2000 
markets. Adoption: 2003 
Commission 
Commiss1on: 
BACIIC/HLSS, 
Member States, 
supervisors and 
markets. 
Commission, 
Council, EP Proposal autumn 
1999 
Adoption: 2001 
Proposal: end-2000 
Adoption: 2002 
Proposal end 2ooo · 
Adoption: 2002 
procedure. L..-________ .__ ____ ..J....,I;,..;....;..;...,;;_,;;;,;;.......;;.,;.. ______ ....J-_____ __._ ____ _:__ _______ . __ 
GENERAL OBJECTIVE 
WIDER CONDITIONS: FOR AN· OPTIMAL SINGLE FINANCIAL MARKET 
• Addressing disparities in tax treatment 
• An efficient and transparent legal system for corporate governance 
...------------.r-------.r------------.--:-------r--·--·--·--'"-"""" ........ Priority Objective Actors Optimal action 
Adopt a Directive on 
Savings Tax 1 The objective of the proposal is Council 
to remove disparities in tax 
treatment of private savings to 
complement the removal of 
obstacles to the free movement 
of capital and financial services Timeframe 
Political agreement by 
November 1999 
Adoption: 2000 
will benefit the financial sector 
l----------:----:-t-----:---t-::-----:~-::-:-----~-1-=---:--:------1r-:--:---~--- ..... -·------. Implementation -of the 1 Counter harmful tax competition Commission, Ongoing examination in 
December 1997 Code of which may significantly affect Member States. the Code of Conduct 
Conduct on business the location of business activity group 
taxation in the Union 
Review of taxation of 
financial service products 3 
business markets. Lower costs and remove Commission, Discussions in --·fax .. J 
disincentives for cross-border Member States, ·--P-olicy Gro_ up I 
1----------r------t---~--------- ------~--------------- .. --------·--Commission proposals 2 Building on discussions in Tax Commission Proposals ~nlt 1 w'' 
for co-ordination of the Policy Group, proposal for Adoption: :lUUl 
tax arrangements legislative action will be 
governing supplementary prepared to address tax 
pensions treatment of cross-border 
contributions of migrant workers 
to supplementary pension 
funds. Will serve as a 
contribution to labour mobility. 
Review of EU corporate 
governance practices 3 Identification of legal or Commission, Launch review early I 
administrative barriers and Member States, 2000 
resulting differences in markets. 1 
corporate governance regimes. 1