Report from the Commission - Fifth progress Report on the Financial Services Action Plan - an Integrated European Financial Market - Europe Must Deliver on Time
Date: 2001-11-30
Institutions: European Commission
Subjects: financial institution, financial legislation, financial market, free movement of capital, report, single market

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 30.11.2001
COM(2001) 712 final

REPORT FROM THE COMMISSION

Fifth progress report on the
Financial Services Action Plan

AN INTEGRATED EUROPEAN FINANCIAL MARKET
EUROPE MUST DELIVER ON TIME

FIFTH PROGRESS REPORT

   
INTRODUCTION

In June 2001, the Commission concluded that the overall balance sheet on progress towards
financial  integration  was  broadly  positive1.  There  were,  nonetheless,  a  number  of  test  cases
which would shortly demonstrate whether there is a real political will to meet the European
Council deadlines of 2005 (2003 for securities markets) set in the Financial Services Action
Plan.  Failure  of  timely  delivery  of  individual  measures  could  endanger  the  overall  optimal
timeframe.  The  economic  context  for  making  progress  was  already  recognised  as  being
difficult;  any  delays  would  increase  the  cost  pressures  for  consolidation  of  the  EU’s  still
fragmented financial sector.

Against this backdrop, this fifth progress report has been drawn-up again with the assistance
of  personal  representatives  of  Ecofin  ministers  in  the  Financial  Services  Policy  Group.  It
delivers three central messages to the Ecofin Council:

– 

– 

– 

an  integrated  European  financial  sector  remains  as  crucial  as  ever  as  a  motor  for
growth  and  employment.  Crucially  it  also  can  act  as  a  buffer  against  volatility  and
hence a pole of stability in these turbulent economic circumstances;

there has been important progress since the last report. But there remains a concern
about  the  pace  to  deliver  the  Action  Plan  in  line  with  the  agreed  timeframe  and
political statements of successive Ecofin and European Councils; and

a broad and critical mid-term review is needed of what has been accomplished, what
benefits of integration there are, and what still needs to be done. Political action must
follow.

INTEGRATING EUROPE’S FINANCIAL SECTOR IS NEEDED MORE THAN EVER

First, as a pole of stability

After  the  tragic  events  in  the  USA  on  11  September,  the  extraordinary  European  Council
meeting in Brussels on 21 September concluded that economic slowdown would be stronger
than  forecast,  but  underlined  that  “thanks  to  the  single  currency,  the  countries  of  the  euro
zone  are  sheltered  from  the  shocks  associated  with  monetary  fluctuations”.  Integrated
financial  services  markets  are  a  prerequisite  to  derive  the  full  benefits  of  the  euro  and  to
ensure the continued stability and competitiveness of the EU financial sector.

Global  and  European  financial  markets  have,  despite  volatility,  reacted  with  maturity.  This
has  resulted  in  more  risk  aversion,  potentially  less  liquidity  and  higher  spreads.  Close  and
swift co-operation between the Federal Reserve, the European Central Bank and other central
banks has ensured liquidity and the functioning of the financial markets.

Stock markets suffered initial severe losses which have been recovered. There are particular
concerns  about  the  effects  of  the  downturn  in  equity  markets  on  the  insurance  sector,  since
equities  represent  a  substantial  proportion  of  investments  (30%).  The  precise  effect  of  the
downturn  in  equities and the final estimates  of  claims  flowing from 11 September have  not
yet crystallised (estimates range from $20 to $80 billion).

1

Fourth Report : « Financial Services-Political Challenges » June 2001 COM(2001)286 final.

2

                                                
Collaborative  efforts  by  regulators  have  sought  to  mitigate  possible  contagion  effects.
Nevertheless, the interaction of slower economic growth and possible financial vulnerability
calls for continued vigilance to ensure that any second round effects are managed prudently
and responsibly.

The  Action  Plan  contains  a  number  of  important  measures  that,  once  implemented,  will
respond  directly  to  the  twin  challenges  of  uncertainty  and  the  less  favourable  economic
outlook.  For  financial  services  companies,  financial  resilience  remains  paramount  –  strong
prudential rules for banks, investment firms and insurance companies to reflect the real risks
they  run  are  needed  more  than  ever.  Adequate  provisions,  reserves  and  risk  management
measures are essential to meet times of strain. Political agreement on the proposed Collateral
Directive is a priority to address a possible decrease in credit quality and increased contagion
risks,  and  is  within  reach  before  the  end  of  the  year.  Early  next  year  the  Commission  will
issue  a  Communication  on  clearing  and  settlement.  It  will  examine  how  to  improve  the
efficiency  in  the  EU  and  related  issues  for  the  stability  of  the  financial  system.  Within
individual  sectors  the  Union’s  supervisors  and  regulators  are  devising  policy  responses  that
may  be  needed  at  EU  level.  The  Roundtable  of  Regulators  is  also  ensuring  co-ordination
between  the  European  supervisory  and  regulatory  committees  to  ensure  that  cross-sectoral
issues are coherently and effectively tackled2.

Recent developments underscore that the need for European financial integration as a motor
for  growth  and  employment,  a  buffer  against  market  volatility  and  a  pole  of  economic
stability  is  stronger  than  ever3.  A  sound  and  stable  EU  regulatory  framework  is  also  of
paramount importance to cope with possible stability risks that could emerge in an  enlarged
Union.

Second, to combat terrorism

The attacks on the US call for concerted and intensified efforts at all levels to fight terrorism.
Opportunities for terrorists to finance their activities must be eliminated. Thus, reinforcing the
anti-money  laundering  framework,  both  at  the  EU  level  and  globally,  is  a  top  priority.  The
agreement  recorded  on  the  anti-Money  Laundering  Directive  at  the  ECOFIN  and  the  joint
ECOFIN/JAI  Councils  on  16  October,  and  adoption  of  the  proposal  in  co-decision  with
European  Parliament,  was  a  crucial  step.  Extending  the  identification  and  reporting
requirements is a vital element of the Union’s commitment against the financing of crime and
terrorism. Political agreement on the proposed Market Abuse Directive is within reach before
the  end  of  the  year.  It  will  ensure  that  the  financial  markets  are  protected  against  insider
dealing and market manipulation. Furthermore, the joint ECOFIN/JAI Council on 16 October
has called upon the Commission to present  before the  end  of  this  year  a  final  report  on  the
monitoring of cross-border cash flows.

2

3

The  Roundtable  of  Regulators  was  set  up  informally  on  the  Commission’s  initiative  early  in  2000  to
meet the call from the Economic and Financial Committee to strengthen the cross-sector co-operation at
the international level  and  to  promote  information  exchange  among  supervisors  and  regulators  across
sectors.  It  comprises  the  Chairmen  of  the  EU  financial  regulatory  and  supervisory  groups:  Banking
Advisory  Committee,  ECB  Banking  Supervisory  Committee,  Contact  Group  of  banking  supervisors,
Insurance  Committee,  Conference  of  Insurance  Supervisory  Authorities,  European  Securities
Committee, Committee of European Securities Regulators
To  strengthen  the  monitoring  process  of  the  Action  Plan,  the  Commission  is  developing  a  set  of
financial indicators. They will focus on quantifying trends of integration and efficiency within the EU
financial  market  and  be  used  to  develop  future  policy.  These  economic  assessments  should  become
available over the next few months.

3

                                                
Supporting  the  Financial  Action  Task  Force  on  money  laundering  at  all  levels  is  a  high
priority. Its mandate and the scope of its 40 recommendations have been expanded. By easing
bank secrecy laws and by enhancing the transparency of legal entities, financial trails left by
terrorists can be identified and followed to the end much more quickly and efficiently than at
present.

Third, to take full advantage of the imminent introduction of € notes and coins

On 19 October the European Council in Gent issued a Declaration on the preparation for the
introduction of euro notes and coins, based on an evaluation report by the Commission. The
European Council appreciated the historical importance of the introduction of euro notes and
coins and the benefits that will follow for the citizens and businesses of Europe. It noted with
satisfaction that the preparations are in hand although attention still has to be paid to a number
of issues. The cross-border payment systems must be improved and the costs for cross-border
payments  must  be  reduced.  Today,  cross-border  euro  payments  are  far  more  costly  than
national  payments4.  The  European  Council  therefore  invited  the  ECOFIN  Council  to  adopt
before the European Council in Laeken the Commission’s proposal for a Regulation to reduce
bank  charges  for  cross-border  payments  in  euro.  The  proposed  Regulation  will  enable
European citizens to transfer payments across the borders as easily and cheaply as is the case
for national payments.

But further policy efforts are needed to establish a Single Market for all. Consumer protection
must  be  enhanced  and  cross-border  trade  simplified.  The  ECOFIN  Council  has  already
endorsed  the  strategy  for  cross-border  electronic  financial  services5.  A  new  roadmap  for  a
single  retail  financial  market  is  being  developed  by  the  Commission  in  close  co-operation
with the Member States, covering three policy areas:

– 

– 

– 

a  programme  of  convergence  covering  contractual  and  non-contractual  rules  to
provide high quality and comparable information to consumers. The final adoption of
the proposal for a Directive on the Distance Marketing of Financial Services will be
an  important  element  in  securing  that  coherence.  Together  with  the  Commission’s
Communication  on  E-Commerce  and  Financial  Services6,  the  Directive  will  be  a
cornerstone of the policy for retail financial services traded on the internet;

targeted steps to encourage consumer confidence in cross-border redress and internet
payments  to  improve  security  and  provide  consumers  with  legal  security  when
making payments on-line within the Union; and

enhanced  supervisory  co-operation  between  host  state  authorities  and  those  in  the
country where the provider is established.

To these ends, the Commission will in particular:

– 

4

5

6

in order to assist Member States and service providers and to ensure compliance with
the E-Commerce Directive carry out the analysis foreseen in its Communication on
E-Commerce and Financial Services; and

Bank charges: Key findings of new Commission study MEMO/01/294, 20th September 2001, available
at http://europa.eu.int/comm/internal_market/en/finances/payment/directives/index.htm.
Report from the FSPG to the Ecofin Council of 7th May 2001.
Communication from the Commission to the Council and the European Parliament - E-Commerce and
Financial Services, 2001 COM(2001)0066 final.

4

                                                
– 

propose to revise and update the Consumer Credit Directive (anticipated for the end
of 2001).

The  Fraud  Prevention  Action  Plan7,  adopted  in  February,  will  similarly  help  in  increasing
public  confidence  in  cross-border  payment  systems  and  help  the  development  of  electronic
commerce.  There  is  a  growing  problem  of  fraud  and  counterfeiting  of  cards  and  other  non-
cash  means  of  payment  used  for  cross-border  transactions.  Fraud  currently  amounts  to  an
estimated  600  million  euro  per  year  in  the  EU.  The  emphasis  of  the  Plan  is  to  improve  the
technical and legal security of payment instruments, the exchange of information, training and
education of all parties concerned.

IMPORTANT PROGRESS IS BEING MADE

The  political  agreement  in  the  Internal  Market  Council  on  27  September  on  the  Distance
Marketing Directive was a major breakthrough  in  developing  an  integrated  financial  market
for  consumers.  It  will  complement  the  E-Commerce  Directive,  which  enters  into  force  in
January next year. The final adoption of the anti-Money Laundering Directive to reinforce the
Union’s anti-Money Laundering policy also represented important progress. The Statute for a
European  Company  Regulation,  formally  adopted  on  8  October  2001,  is  a  further  step
towards  integrating  the  EU  financial  market  by  offering  an  optional  legal  structure  for
companies to organise their operations on a pan-European legal basis. The formal adoption of
the  Directives  on  UCITS  and  Insurance  Solvency  Margin  I  is  imminent.  The  Council
Presidency  is  aiming  for  a  political  agreement  on  the  proposed  Insurance  Intermediaries
Directive  at  the  Internal  Market  Council  on  26  November.  As  regards  the  proposals  in  the
Wise Men’s report8 the basic committee structure is now in place. It will play a crucial role in
assisting the Commission in its task of implementing parts of the Action Plan.

On the Action Plan itself, detailed and  regularly updated progress on the implementation of
the  42  measures  is  now  available  on  the  internet9.  More  generally,  figure  1  in  the  present
report  shows  that  25  Action  Plan  measures  will  have  been  finally  completed  by  mid
December.  Nine  of  these  are  legislative  acts  formally  adopted  by  the  Council  and  the
European Parliament10. The remaining 16 are Decisions, Communications, Recommendations
or Reports11. The Commission is preparing eight further Action Plan measures. Six of these
are legislative proposals, including updating the Capital Framework for banks and investment
firms, and a revision to the Investment Services Directive (both anticipated next year).

7

8

9
10

11

Communication from the Commission to the Council, the European Parliament, the European Central
Bank, the Economic and Social Committee and the Europol – Preventing Fraud and Counterfeiting of
non-cash means of payments, COM (2001)11 final.
The  final  report  of  the  Committee  of  Wise  Men,  chaired  by  Alexandre  Lamfalussy  and  published  on
15 February 2001, is available at http://europa.eu.int/comm/internal_market/en/finances.htm.
http://europa.eu.int/comm/internal_market/en/finances/actionplan/index.htm.
Directives  on  UCITS,  Insurance  Solvency  Margin  I,  Money  Laundering,  Winding-up  of  Banks,  on
Winding-up  of  Insurance  Companies,  on  Electronic  Money,  on  amendments  to  4th  and  7th  Company
Law  Directives,  on  Information  Exchange  with  third  countries,  and  the  European  Company  Statute
Regulation.
For example, the Commission Recommendations on the marketing of mortgage loans and on Auditing
Practices, the Communication on E-Commerce and Financial Services, and the Commission Decision to
set-up a European Securities Committee.

5

                                                
Figure 1 Action Plan implementation

25 finalised

8 in 
preparation 

Title

rejected in 

EP/Council:
Take-over Bids 
Directive

9 under 
EP/Council 
scrutiny
Title

Accounting 4th and 7th Co. Law Directives Modernisation
Bank/Investment Firm Capital Directive
14th Co. Law Directive
Auditing Practices Recommendation
Corporate Governance Review
10th Co. Law Directive Amendment
ISD upgrade Directive
Regular Reporting

Insurance Intermediaries Directive
IAS Accounting Regulation 
Distance Marketing of Financial Services Directive
Taxation of Savings Directive
Supplementary Pension Funds Directive 
Market Abuse Directive
Financial Conglomerates Directive
Prospectuses Directives
Collateral Directive

BUT SOME CONCERNS REMAIN

A major setback  was the recent rejection  –  after  12  years  of  negotiation  –  by  the  European
Parliament  in  conciliation  of  the  proposed  Directive  on  Takeover  Bids.  The  measure  was
aimed  –  most  importantly  –  at  protecting  minority  shareholders  in  the  event  of  a  hostile
takeover bid, and was identified by the European Council as an important element for creating
a single financial market. The Commission will table a revised proposal early next year after
having considered advice from a Group of high level experts now meeting12.

A  second  concern  is  the  absence  of  decisive  progress  in  the  Council  on  the  Pension  Funds
Directive. The proposal was tabled by the Commission in October last year, and is scheduled
for  adoption  in  the  Action  Plan  by  2002.  The  Parliament  has  completed  its  first  reading  in
July. But the critical points identified in the previous Progress report still remain to be settled:
(i)  the  scope  of  the  directive,  (ii)  quantitative/qualitative  investment  rules,  (iii)  the  technical
provisions, and (iv) cross-border membership. Progress is vital to secure a political agreement
by the deadline of 2002.

12

The Group of High Level Experts on Company Law was set up by the Commission in September 2001.
More information on the Group is available at
http://europa.eu.int/comm/internal_market/en/finances.htm.

6

                                                
A third concern relates to the three key financial services priorities identified by the European
Council:  the  proposed  Directives  on  Prospectuses,  on  Financial  Conglomerates,  and  the
proposed  Regulation  on  International  Accounting  Standards.  Continued  progress  is  also
needed on three other Action Plan measures: Insurance Intermediaries, Taxation of Savings,
and Market Abuse.

Figure  2  sets  out  the  stages  and  deadlines  for  the  Commission,  the  Parliament  and  the
Council,  and  the  Member  States  to  adopt  and  implement  these  measures,  together  with  the
forthcoming legislative proposals updating the Capital Framework for Banks and Investment
firms,  and  the  Investment  Services  Directive.  The  indicated  timeframe  reflects  the  optimal
FSAP timeframe for the implementation of the individual measures set out in the Action Plan.
Figure  2  underlines  the  amount  of  effort  needed  under  successive  presidencies  to  achieve
concrete results.

Figure 2 Stages and deadlines for Action Plan implementation

Council Presidencies

Council Presidencies

BE

ES

DK

EL

2005 
2005 
deadline
deadline

Jul-01

Jan-02

Jul-02

Jan-03

Jul-03

Jan-04

Jul-04

Banking

Bank/Investment Firm Capital Directive *

Insurance

Insurance Intermediaries Directive

Supplementary Pension Funds Directive *

Capital Markets

IAS Accounting Regulation *

Prospectuses Directive *

Market Abuse Directive

Regular Reporting

10th Co. Law Directive Amendment

Collateral Directive

14th Co. Law Directive

ISD upgrade Directive

Accounting 4&7th Co. Law Directives Modernisation

Financial Services General

Distance Marketing of Financial Services Directive

Taxation of Savings Directive *

Financial Conglomerates Directive *

EP & Council

implementation by Member States

 * = European Council Priorities

A MID-TERM BOOST IS NEEDED FOR THE ACTION PLAN

Any sustained lack of  progress may be perceived  as undermining  the credibility  of  political
statements by successive European Councils. The Action Plan was formulated in May 1999.
Most of the final legislative measures should be adopted by end 2002 if they are to be fully
implemented by the agreed deadlines, which were themselves originally criticised by many as
being  too  unambitious.  The  Commission  will  initiate  a  Mid-Term  Review  next  February  as
the  basis  for  high  level  political  recommitment  to  the  Action  Plan  and  its  deadlines.  The
Review will assess how far we have progressed; seek to reaffirm the central importance of an

7

integrated financial sector for European competitiveness and growth; confirm a commitment
at the highest level by all institutions concerned to achieve the Action Plan’s objectives and
set  out  the  concrete  priorities  and  commitments  necessary  to  deliver  key  Action  Plan
proposals by agreed deadlines. The support, contribution and commitment of the Parliament,
Member  States,  and  market  participants  should  be  reinforced  at  the  Barcelona  European
Council in March by underlining the key contributions that an EU integrated financial sector
can make in securing the economic reform objectives established in Lisbon.

CONCLUSION

The case for integrated financial markets is stronger than ever – particularly as the economic
outlook is deteriorating –  as a  motor for  growth and  employment  and  as a pole of financial
stability for the benefit of EU citizens and businesses. Good progress on the implementation
of  the  Action  Plan  has  already  been  made  during  the  Belgian  presidency;  25  of  42  original
measures have now been finalised.

But there still remains a real concern about the present pace of work if we are to deliver the
Action  Plan  in  line  with  its  agreed  timeframe.  Repeated  and  unambiguous  political
declarations  from  successive  ECOFIN  and  European  Councils  must  now  be  translated  into
hard agreements and matched by real political progress. Any inability to find politically and
technically  viable  solutions  within  the  set  timeframe  will  result  in  political  and  economic
failure for the EU. The timeframe for progress in the European Parliament and the Council is
equally pressing. By the end of next year 10 legislative proposals must be adopted to meet the
Action Plan deadlines.

– 

– 

In  the  Spanish  presidency:  directives  on  Distance  Marketing,  Prospectuses,  Market
Abuse, and the IAS Regulation; and

In  the  Danish  presidency:  directives  on  Insurance  Intermediaries,  Pension  Funds,
Financial  Conglomerates,  10th  Company  Law  amending  directive,  Collateral
directive, and Taxation of Savings.

Responsibility  for  progress  on  these  crucial  issues  is  shared  by  all  institutions.  The
Commission, the Council and the European Parliament must shoulder their responsibility. For
its  part,  the  Commission  reaffirms  its  determination  to  deliver  the  remaining  legislative
proposals  in  line  with  the  priorities  set  out  in  the  Action  Plan  :  the  Capital  Framework  for
Banks  and  Investment  Firms,  the  ISD  Upgrade  Directive,  the  Regular  Reporting  Directive,
Amendments to the 10th and the 4th and 7th Company Law Directives, and a 14th Company
Law  Directive.  Further  legislation  and  an  non  legislative  measures  may  be  needed  beyond
those already set out in the Action Plan

8