CELEX: 51988PC0778
Language: en
Date: 1988-12-16
Title: Proposal for a COUNCIL DIRECTIVE on investment services in the securities field (presented by the Commission)

ARCHIVES HISTORIQUES
DE LA COMMISSION
COLLECTION RELIEE DES
DOCUMENTS "COM"
COM (88) 778
Vol. 1988/0253
 ---pagebreak--- Disclaimer
Conformément au règlement (CEE, Euratom) n° 354/83 du Conseil du 1er février 1983 concernant
l'ouverture au public des archives historiques de la Communauté économique européenne et de
la Communauté européenne de l'énergie atomique (JO L 43 du 15.2.1983, p. 1) modifié en dernier
lieu par le règlement (UE) 2015/496 du Conseil du 17 mars 2015 (JO L79 du 25. 3.2015, p. 1), ce
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informations classifiées de l'Union européenne.
In accordance with Council Regulation (EEC, Euratom) No 354/83 of 1 February 1983 concerning
the opening to the public of the historical archives of the European Economic Community and the
European Atomic Energy Community (OJ L 43, 15.2.1983, p. 1), as last amended by Council
Regulation (EU) 2015/496 of 17 March 2015 (OJ L 79, 27.3.2015, p. 1), this file is open to the
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In Übereinstimmung mit der Verordnung (EWG, Euratom) Nr. 354/83 des Rates vom 1. Februar
1983 über die Freigabe der historischen Archive der Europäischen Wirtschaftsgemeinschaft und
der Europäischen Atomgemeinschaft (ABI. L 43 vom 15.2.1983, S. 1), zuletzt geändert durch die
Verordnung (EU) Nr. 2015/496 vom 17. März 2015 (ABI. L 79 vom 25.3.2015, S. 1), ist dieser Akt
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Verschlusssachen als herabgestuft angesehen.
 ---pagebreak--- COMMISSION OF THE EUROPEAN COMMUNITIES
                                        COM(88 ) 778 - SYN 176
                                         Brussels , 16 December 1988
                        Proposai for a
                      COUNCIL DIRECTIVE
       on investment services in the securities field
                (presented by the Commission )
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 ---pagebreak---    PROPOSAL FOR A DIRECTIVE ON INVESTMENT SERVICES IN THE SECURITIES FIELD
                            EXPLANATORY MEMORANDUM
I.   Main objectives of the proposai
     The main aim of this Directive is to lay down an authorization
     procedure for any person wishing to provide one or more of the services
     coming within the Directive 's scope ( e.g. investment advice, broking,
     dealing or portfolio management ).    On the basis of such authorization
     the person in question ( called an " investment firm") will be allowed to
     provide the service in question on a cross-border basis within the
     Community or to set up branches in the other Member States without
     needing to be authorized again ( home country authorization ).    In this
     respect the present proposal should be regarded as an essential
     follow-up to the Commission 's proposal for a second banking
     coordination Directive, which provides for similar freedom of services
    and to create branches for credi.t institutions, not only in the tanking
     field but also in connection with the carrying out of securities
    transactions .    Accordingly, many of the Articles in the Directive
     reflect, mutatis mutandis , the provisions of the proposed Second
    Banking Directive .
    If a credit institution is already authorized to engage in the
    activities covered by the scope of the present Directive as a result of
    its banking authorization it will not be required to be authorized
    again under the present Directive .
    In addition to mutual recognition by other Member States of the initial
    authorization granted by the home Member State authorities it is
    desirable   for the creation of    a true   internal  market in  financial
    services that :
 ---pagebreak---                                   - 2 -
     ( i ) the monitoring of the financial soundness of the investment
       firm; and
     ( ii ) its compliance with other major prudential and conduct of
       business rules
should also,     so far as possible ,   be within the exclusive regulatory
competence of the home Member State supervisors .
As regards point ( i ) above ,   the present Directive requires that the
initial financial resources on the basis of which authorization was
given should not be allowed to fall below level following
authorization .     The monitoring of compliance with this rule will be
within the competence of the home Member State authorities .
It is also the Commission 's intention to coordinate rules relating to
the capital to be set aside by investment firms in respect of market
risk arising from the activities covered by the Directive . Once again,
monitoring of compliance of such rules will be the responsibility of
the home supervisors .    In view of the complexity of the subject matter
this topic is to be dealt with in a separate proposal for a Directive
on capital adequacy to be introduced at a later stage .
As regards point ( ii ) the Directive identifies in Article 9 certain
rules of a prudential nature and for the protection of investors , which
are placed under the exclusive regulatory competence of the home
supervisors straightaway .     In particular, the Directive requires all
Member States to establish a compensation fund to protect investors
against default or bankruptcy by an investment business . Pending
further harmonisation, however, the host country compensation rules
would apply to branches of investment businesses authorised in other
Member States .     The home-country compensation scheme would apply to
business done on a services basis .
                                                                           1
 ---pagebreak---                                        - 3 -
     The rules which regulate the relationship between investment firms and
     their clients ( conduct of business rules ) are not brought within the
     competence of the home-country authorities at this stage .      At present
     there are considerable divergences between Member States in the content
     of such rules and in the way in which they are applied . A considerable
     further    effort   of  harmonisation   will be  needed    to  permit  the
     application of these rules to pass under home-country control .
     The Commission 's view is that , pending such further harmonisation, the
     confidence of the investor is best ensured by leaving the conduct of
     business rules within the competence of host country authorities for
     the time being .     This would also be consistent with the judgement of
     the European Court in the German insurance case ( 205 / 84 ). Accordingly,
     Article 13 ( 1 ) of the Directive provides that host country conduct of
     business rules , notably for the protection of the investor , can for the
     moment continue to apply to investment firms from other Member States
     provided such rules are justified on the grounds of public good . This
     Article is identical with Article 19 of the Second Banking Coordination
     Directive .   Work on a further Directive for the coordination of conduct
     of business rules will be initiated in due course .
     A second major aim of the proposal is to liberalize access to stock
     exchange membership in host Member States for investment firms
     authorized to carry out the relevant type of service in their home
     Member State .     Similar liberalization will apply to membership of
     financial futures and options exchanges .
II . Comments cn the    individual articles
     Article 1
     This sets    out definitions of a certain number of terms used in the
     Directive .    Such definitions have to the extent possible been aligned
     on those given in Article 1 of the proposal for a second banking
     coordination Directive .
                                                                                If
 ---pagebreak---                                   - 4 -
 In   the definition of   " investment  firm" it  is  made  clear that the
Directive 's rules are to apply to legal and natural persons alike . The
 intention is to cover - only such investment firms as have their
 registered offices ( in the case of legal persons ) on their residences
 ( in the case of natural persons ) within the Community .
The home Member State is the Member State in which the registered
office is situated or the Member State of residence .
Article 2
This provides that investment firms as defined in Article 1 are to be
covered by the scope of the Directive .       As a certain number of the
present Directive 's articles are aligned on corresponding provisions in
the second banking proposal it is provided that only certain articles
in the present text are to apply where the investment firm is a credit
institution, so as to avoid unnecessary duplication .
Article 3
The requirement to ensure that the head office of an investment firm is
in the same Member State as the registered office is designed to
prevent the use of " letter box " companies in a given Member State .
This provision mirrors Article 3 of Directive 85 / 611 / EEC on
undertakings for collective investment in transferable securities .
Article 4
This Article sets out the criteria for granting authorization in the
home Member State, and is based on comparable requirements in the first
banking coordination Directive of 1977 .
No specific figure has been laid down as regards the amount of initial
financial resources needed for authorization .       This amount will vary
depending on the nature of the investment service to be provided, and
this question will accordingly be considered further as part of the
 ---pagebreak---                                 - 5 -
 work on the capital adequacy Directive . Member States' supervisors are
 however obliged to ensure that initial capital is sufficient having
 regard to the nature of the activity in question .
 As regards investment firms that are credit institutions,    these will
not be authorized for the specific investment activity covered in the
scope of this Directive provided that their existing banking
authorizations already authorize the carrying out of such activity . The
position in this respect may vary from one Member State to another .
Article 5
Although investment firms from non-Member States are not directly
covered by the scope of the present Directive it is provided that if
such an investment firm creates a branch within the Community the
Member State in question cannot apply more favourable treatment to it
than that accorded to Community investment firms . In practice, this is
likely to mean that a Member State would require the branch of the
non-Community firm to be authorized .
Article 6
This applies a similar reciprocity regime to non-Community investment
firms as that set out in Article 7 of the proposed second banking
Directive as regards credit institutions .      As in the case of the
banking Directive, the reciprocity regime does not apply to existing
investment businesses already established in the Community .
Article 7
This Article parallels a similar provision in the second banking
proposal ( Article 9) and requires proposed changes in major
shareholdings in investment firms to be notified to the supervisory
authorities so that the latter can consider the suitability of the new
owners .
 ---pagebreak---                                 - 6 -
 Artide 8
 This Article provides that the rules laid down for initial
authorization must continue to be respected once the service in
question has started to be provided .
The home-country supervisors are responsible for monitoring compliance
with this requirement .
As regards initial financial resources , it is provided that the amount
can in exceptional circumstances descend below the initial figure for a
temporary period, but that if this occurs the capital must be restored
to its original level as soon as possible .
Article 9
This Article identifies a number of prudential rules which are placed
under the exclusive regulatory competence of the home Member State
supervisors .    These authorities are responsible for applying these
rules to investment firms authorized by them in respect of all their
branch and services business in the Community .
As regards the indent relating to compensation funds a distinction is
made between business carried out in another Member State on a services
basis ( where the home State regime is to apply ) and business carried
out through branches in the host country,   where the regime of the host
Member State is to apply .
This   distinction   has   been  made  because   some  coordination   of
compensation funds , including the minimum amount available in each
Member State to reimburse investors , will be necessary before the
home-country regime can be applied to branches' as well as to services
business .         -
 ---pagebreak---                                    - 7 -
Artide 10
Paragraph 1 sets out the rule that freedom of services and freedom to
create branches are to apply once the home Member State authorization
has been obtained .
Paragraph 2 underlines that no further authorization can be applied to
branches    of   investment   firms   from other Member  States,   nor a
requirement to provide separate capital in respect of its activities .
Paragraphs 3 to 5 contain rules aiming at         liberalizing access by
investment firms authorized to carry out certain services to membership
of stock exchange markets in host Member States, and to membership of
other organized securities markets, such as government bond markets .
Under paragraph 4 it is provided that access to membership can, in the
choice of the investment firm , be obtained in one of three ways :
  i)    the investment firm itself becomes a Member by means of a branch
        in the host country; or
  ii ) the investment firm creates a separately incorporated subsidiary
        in the host country ; or
  iii ) it acquires an existing member firm .
Rules relating to the structure and organization of the host exchange
or market have to be complied with .
Paragraph 5 recognizes that some Member States exchanges do not for the
moment accept credit institutions as direct members .          Access to
membership by credit institutions would in such a case have to be by
means of options ( ii ) or ( iii ) above .
Paragraph 6 provides for a similar liberalization as regards access to
financial futures and options exchanges .
 ---pagebreak---                                - 8 -
Article 11
This Article deals with the notification to be made and formalities to
be accomplished when a branch is opened in a host Member State .
Article 12
This provides   for the notification to be made when services are
intended to be carried out in host Member States .
Article 13
This Article is based on Article 19 of the second banking proposal and
deals with the powers of host Member States as regards investment firms
from other Member States providing services or creating branches within
its territory .
Article 14
This requires Member States to nominate one or more authorities to
grant authorizations and to carry out the various supervisory tasks
envisaged by the Directive .     t
Paragraph 2 stipulates that it is open to a Member State to nominate
professional associations to act in this role, provided that their
status is recognized in the overall statutory scheme of supervision in
the country concerned .
Article 15                         *
Where several authorities have been nominated in a given Member State
for the purposes of the Directive paragraph 1 requires them to work
together .
 ---pagebreak---                                  - 9 -
Paragraph 2 extends the principle of cooperation to authorities
responsible for different types of financial institution . A need for
such wider cooperation is becoming increasingly felt with the trend
towards the creation of financial conglomerates .
Paragraph 3 requires cooperation between supervisors on a cross-border
basis .
Article 16
This gives home country supervisors certain powers so that they can
exercise the duties that the Directive places upon them where
investment firms authorized by them open branches in other Member
States . It is based on Article 13 of the second banking proposal .
Article 17
The rules for professional secrecy imposed on staff employed by
competent authorities are based on the provisions of Article 14 of the
second banking Directive .
Article 18
This provides for a right to apply to the courts in respect of
decisions taken by competent authorities in the field covered by the
Directive .
Article 19
The obligation for Member     States to ensure adequate penalties for
infringements of their rules mirrors Article 15 of the second banking
proposal .
                                                                    Uo
 ---pagebreak---                                 - 10 -
Article 20
This permits amendments to be made to the Directive 's rules in certain
areas by use of a committee procedure . It is based on Article 20 of the
second banking proposal .
Article 21
This provides for investment firms whose existing authorization meets
the Directive 's standards not to have to be authorized again when the
Directive enters into force . There is also a "grandfathering" provision
for branches which have already been created in host Member States when
the Directive comes into force .
The Annex
This is divided into two parts , the first identifying the nature of the
services proposed to be covered,       the second, the nature of the
investments concerned .
It is necessary to give a somewhat greater definition of the nature of
the services concerned than has been done in the list annexed to the
second banking proposal .  This is because the range of possible persons
that could be covered by the scope is wider than in the other text ,
which is limited to credit institutions . The services concerned are ,
however, similar to the securities related activities         of credit
institutions set out in the second banking proposal .
                                                                         M
 ---pagebreak---                                 Proposai for a
                              COUNCIL DIRECTIVE
              on investment services in the securities field
THE COUNCIL OF THE EUROPEAN COMMUNITIES ,
Having regard to the Treaty establishing the European Economic Community,
and in particular Article 57 thereof .
Having regard to the proposal from the Commission,
In cooperation with the European Parliament ,
Having regard to the opinion of the Economic and Social Committee,
Whereas this Directive is to constitute an instrument which is essential
for achieving the internal market ,     a course determined by the Single
European Act and set out in timetable form in the Commission 's White Paper ,
from the point of view of both the freedom of establishment and the freedom
to provide financial services , in the field of investment firms ;
Whereas the approach which has been adopted is to achieve only the
essential harmonization necessary and sufficient to secure mutual
recognition of authorization and of supervisory systems, thus enabling the
application of the principle of home country control and the granting of a
single authorization recognised throughout the Community ;
Whereas it is necessary for reasons of fair competition,      to ensure that
non-bank investment   firms have  similar  freedoms to  create branches  and
provide services across frontiers as those envisaged by the proposal for a
second Council Directive in the field of credit institutions ;
 ---pagebreak---                                      - 2 -
 Whereas it    is also necessary and appropriate to     liberalize access to
 membership of stock exchange and financial futures and options markets in
 host Member States for investment firms authorized to carry out the
 relevant services in their home Member States ;
 Whereas responsibility for the financial soundness of an investment firm
 will rest with the competent authorities of its home Member State and
 whereas to permit this responsibility fully to be assumed by such competent
 authorities a further Directive will be necessary to coordinate rules in
 the area of market risk ;
 Whereas it is essential for the creation of the internal market for the
 home country supervisors to monitor all aspects of the investment firm 's
 activities in host Member States whether such activities are carried on by
 the provision of services or the . creation of branches there ;
Whereas the Member States should ensure that there are no obstacles to the
activities coming within the scope of this Directive being undertaken using
the financial techniques of the home Member State, as long as the latter
are not in violation of the legal provisions governing the public good in
the host Member State ;
Whereas requests for authorization of a subsidiary whose parent is governed
by the laws of a third country or the acquisition of a partici
pation - by such a parent are subject to a procedure intended to ensure that
Community investment firms are granted reciprocal treatment in the third
countries in question;
Whereas the smooth    running of the internal market in financial services
will require
       require,, in addition to common legislative standards , close and
regular cooperation between the competent authorities of the Member States ;
                                                                             ЛЗ
 ---pagebreak---                                       - 3 -
 Whereas in the case of problems concerning investment firms a Contact
 Committee is the appropriate forum for discussion and consultation;
 Whereas it is necessary/ in order to facilitate the achievement of the
 objectives of this Directive and to take account of the rapid development
 of national and international financial markets, to introduce a procedure
 for the adaptation of certain technical features ; whereas because of the
 important and sensitive nature of that adaptation, procedure III , type ( a ).
                                                            1
 as defined in Article 2 of Council Decision 87/ 373/ EEC , is the most
appropriate,
HAS ADOPTED THIS DIRECTIVE :
1
   OJ No L 197, 18.7.1987, p. 33
 ---pagebreak---  TITLE I
 Definitions and scope
                                      Article 1
 For the purposes- . of this Directive :
 - " credit institution " is defined in accordance with the first indent of
    Article 1 of Council Directive 77/780/ EEC%
- " investment firm" shall mean any natural or legal person whose business
    it is to engage in one or more of the activities set out in the Annex to
    this Directive ;
- " home Member State " shall mean :
    . where the investment firm is a natural person ,  the Member State where
      that person has his residence;
    . where the investment firm is a legal person, the Member State where its
      registered office is situated or if it has no    registered office then
      the Member State where its head office is situated ;
- " host Member State " shall mean the Member State where an investment firm
   has a branch or into which it supplies services ;
- "branch " shall mean a place of business which forms a legally dependent
   part of an investment firm and which provides an investment service for
   which the investment firm has been authorized ;
1 0J No L 322, 17.12.1977, p.30 .
 ---pagebreak---                                         - 2 -
 - "qualified participation" shall mean a holding , direct or indirect , in an
    investment firm which represents 10% or more of the capital or of the
    voting rights or which enables the exercise of a significant influence
                                                                                 1
    over it within the meaning of Article 33 of Council Directive 83 / 349/ EEC. ;
 - "parent undertaking " is defined in accordance with Articles 1 and 2 of
    Directive 83 / 349 / EEC ;
 - " subsidiary" shall mean a subsidiary undertaking in accordance with
    Articles 1 and 2 of Directive 83 / 349 / EEC .
                                      Article 2
 This Directive shall apply to all investment firms .     However , only Articles
 3,   4,   5,   8, 9, 10 and 21 shall apply to investment firms that are credit
 institutions .
                                      Article 3
 Member States must require that investment firms which are legal persons
 shall have their head office in the same Member State as their registered
 office .
10J No L 193, 18.7.1983, p.1 .
                                                                                JL
 ---pagebreak---                                        - 3 -
TITLE II
Harmonization of authorization conditions
                                     Article A
1.  Investment firms wishing to engage in one or more of the activities
    referred to in the Annex within one or more            Member States shall
    obtain authorization in their home Member State before commencing such
    activities .      Such authorization shall be granted by the home Member
    State 's competent authorities designated in accordance with Article 14 .
    Following the granting of authorization the investment activity in
    question may be engaged in forthwith by the investment firm together
    with any activities that are ancillary thereto .
2.  Without prejudice to other conditions of general application laid down
    by    national    law/    the   competent  authorities   shall  not  grant
    authorization unless :
    - the investment firm has sufficient initial financial resources having
       regard to the nature of the activity in question;
    - the persons who effectively direct the business of the investment
       firm are of sufficiently good repute and experience ;
    - holders of qualified participations in it are suitable persons .
3.  Member States shall also require applications for authorization to be
    accompanied by a programme of operations setting out inter alia the
    types of business envisaged and the structural organization of the
    investment firm .
 ---pagebreak---                                        - 4 -
4.   The applicant shall be notified within three months of submission of a
     complete application whether or not authorization is granted . Reasons
     shall be given whenever an authorization is refused . If no decision is
     notified within six months of submission of the complete application
     this shall be deemed to be a refusal .
5.   The authorization referred to in paragraph 1 shall not be required
     where the investment firm is a credit institution whose authorization
     as a credit institution by the competent authorities specified in
     Article    3 of  Directive  77 / 780 / EEC includes authorization of the
     investment activity concerned .
6.  The competent authorities may withdraw the authorization issued to an
    investment firm subject to this Directive only where the investment
    firm :
   (a ) does not make use of the authorization within 12 months , expressly
         renounces the authorization or has ceased to engage in business for
        more than six months, if the Member State concerned has made no
        provision for the authorization to lapse in such cases ;
                                       »                                     .
   (b) has obtained the authorization through false statements or any other
        irregular means ;
   (c ) no longer fulfils the conditions under which authorization was
        granted ;
   (d) no longer possesses sufficient financial resources or can no longer
        be relied upon to fulfil its obligations towards its creditors, and
        in particular no longer provides security for the assets entrusted
        to it ;
   Ce ) falls within one of the other cases where national law provides for
        withdrawal of authorization .
                                                                             J?
 ---pagebreak---                                     - 5 -
                                  Artide 5
Member States shall not apply to branches of investment firms having their
registered office outside the Community , when commencing or carrying on
their business , provisions that result in more favourable treatment than
that accorded to branches of investment firms having their registered
office in a Member State .
                                  Article 6
1.  Requests for authorization of a subsidiary whose parent undertaking is
    governed by the laws of a third country or the acquisition of a
    participation     as      provided for in paragraph 3 shall be subject
    to the procedure laid down in this Article .
2.  The competent authorities of the relevant Member State shall inform the
    competent authorities of the other Member States and the Commission of
    the request for authorization .
 «
3.  In the same manner , when informed, according to the provisions of
    Article 7, that an undertaking governed by the laws of a third country
    is considering the acquisition of a participation in a Community
    investment firm such that the latter would become its subsidiary, the
    competent authorities of the relevant Member State shall inform the
    competent authorities of the other Member States and the Commission .
4.  The competent authorities of the Member State concerned must suspend
    their decision regarding requests as referred to in paragraphs 1 and 3
    until the procedure provided for in paragraphs 5 and 6 is completed .
 ---pagebreak---                                   - 6 -
5. The Commission shall , within three months of receiving the information
   provided for in paragraphs 2 and 3, examine whether all Community
   investment firms enjoy reciprocal treatment , in particular regarding
   the establishment of subsidiaries or the acquisition of participations
   in investment firms in the third country in question .
6. If the Commission finds that reciprocity is not ensured it may extend
   suspension of the decision referred to in paragraph 4 , using the
   procedure provided for in Article 20 .
7. The Commission shall present suitable proposals to the Council with a
   view to achieving reciprocity with the third country in question .
 ---pagebreak---                                     - 7 -
TITLE III
Harmonization of conditions relating to the pursuit of the business of
investment firms
                                 Article 7
1.  Member States shall require any natural or legal person who is
    considering the acquisition of a qualified participation in an
    investment firm    to first inform the competent authorities , telling
    them of the size of the intended participation .    The above-mentioned
    persons must similarly inform the competent authorities if they propose
    to increase their qualified participation such that the investment firm
    would become a subsidiary .  The competent authorities shall assess the
    suitability of the above-mentioned persons .
2.  Investment firms shall each year furnish the competent authorities of
    the home Member State with the names of major shareholders and members
    as referred to in paragraph 1 and the size of their qualified
    participations , in accordance with the names registered at the annual
    general meeting of shareholders and members or in accordance with
    information received as a result of compliance with the regulations
    relating to companies quoted on stock exchanges .
3.  Member States shall require that in cases where the persons referred to
    in paragraph 1 exercise their influence in a way which is likely to be
    to the detriment of the prudent and sound management of the activities
    of the investment firm,       the competent authorities shall take
    appropriate measures to bring such a situation to an end . Such measures
    may consist in particular in injunctions , sanctions against directors
    and managers or the suspension of voting rights in respect of the
    shares held by the shareholders or members in question .
 ---pagebreak---                                         - 8 -
                                      Article 8
1.   The competent authorities of the home Member State shall require
     continuing compliance by an investment firm authorized by them with the
     conditions referred to in Article 4 ( 2 ). In appropriate circumstances ,
     the competent authorities may allow an investment firm a certain
      limited period to restore its financial resources to the agreed . initial.-
     minimum .  The competent authorities of the home Member State shall also
     require that investment firms authorized by them make sufficient
     provision against market risk in accordance with rules to be prescribed
     in a further coordinating Directive .
2.   The supervision of      compliance with    the  conditions referred to in
     Article 4 ( 2 ) shall be within the exclusive regulatory competence of
     the home Member State 's competent authorities irrespective of whether or
     not the investment firm establishes a branch or provides services in
     another Member State .
                                     Article 9
1.   Member States shall draw up prudential rules to be observed on a
     continuing basis by investment firms authorized by their competent
     authorities .    Supervision of such prudential rules shall be within the
     exclusive competence of the home Member State's competent authorities
     irrespective of whether or not the investment firm establishes a branch
   • or provides services in another Member State . Such rules shall require
     that the investment firm :
     - has   sound administrative and      accounting procedures  and internal
        control mechanisms ;
     - arranges for securities belonging to investors to be kept separately
        from its own securities and for money belonging to investors to be
        placed in an account or in accounts which are separate and distinct
        from the firm 's own account ;
 ---pagebreak---                                          - 9 -
   - is either member of a general compensation scheme designed to protect
      investors who are prevented from having claims satisfied because of
      the bankruptcy or default of the investment firm or makes individual
      arrangements which provide investors with equivalent protection .
      Pending further harmonization of compensation                    schemes
      branches of investment firms shall be subject to the compensation
      scheme in force in the host Member State provided that payment or
      contribution to such a compensation scheme shall be calculated by
      reference to their income in respect of investment activity carried
      out in that State ;
   - provides the competent authorities of the home Member State with such
      information on request and at such intervals as they may determine
      ( but not less than quarterly ) in order that they may assess its
      financial soundness ,.       including the adequacy of its provision in
      respect of market risk ;
   - arranges for adequate records             to be kept relating to executed
      transactions which shall be at least sufficient to enable the home
      Member State 's authorities to monitor compliance with prudential rules which they are
      responsible for applying including rules relating to market risk .
      Such records shall be retained for periods to be laid down by the
      competent authorities ;
   - is organized in such a way that conflicts of interest between the
      firm and its clients or          between one of its clients and another are
      reduced to a minimum .
2. If the rules contained in paragraph 1               are     not appropriate to the
   nature of the investment service in question,              Member States may adapt
    them .or provide that they shall not apply .
3. Member States may provide that the rules set out in the second and third
   indents of paragraph 1 shall not apply where the service is provided to business or
   professional investors .
                                                                                             as
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TITLE IV
Provisions relating to freedom of establishment and freedom to provide
services
                                      Article 10
1.   Host Member States shall ensure that at least the activities set out on
     the list in the Annex and any activities which are ancillary thereto
     may be pursued in their territories , in accordance with the provisions
     of Articles 11 , 12 and 13, either by the establishment of a branch or by way
     of the provision of services , by an investment firm authorized to
     engage in such activities under this Directive by the competent
     authorities of its home Member State .
2.   Host Member States may not make the establishment of a branch or
    the provision of services under         paragraph ; 1          subject to an
     authorization requi rement or to a requi rement to provide endowment
     capital or any measure having équivalent effect .
3.   Host  Member  States    shall   ensure   that  investment  firms    which  are
     authorized to provide broking ,       dealing or market-making services     in
     their home Member States can enjoy the full range of trading privileges
     normally reserved to members of the stock exchanges and organized
     securities markets of host Member States         where similar   services are
     provided .
4.   In order to meet their obligation set out in paragraph 3 ,.               host
     Member States shall ensure that the investment firms referred to in
     that paragraph have the option to become members of host Member States'
     stock exchanges or organized securities markets by setting up either a
     branch or a subsidiary in the host Member State which complies with
     rules governing the structure and organization of the relevant host
     stock exchange or organized securities market or by the acquisition of
     an existing member firm .
 ---pagebreak---                                     - 11
5. Pending further harmonization, host Member States which do not accept
   credit institutions as members of their stock exchanges or organized
   securities market are not required to accept ,     as members , branches of
   those investment firms referred to in paragraph 3           ‘ which     are
   crédit institutions .
6. Host Member States shall likewise ensure that investment firms which
   are authorized to deal in financial futures and options in their home
   Member State      can enjoy the full range of trading facilities on
   financial futures and options exchanges in the host Member State under
   the same conditions as are set out in paragraphs 3, 4 and 5 .
                                    Article 11
1. An investment firm wishing to establish a branch in the territory of
   another Member State shall give notification thereof to the competent
   authorities of the home Member State and relevant host Member State .
    At the same time it must send the latter authorities :
   (a ) an attestation by the competent authorities of the home Member
         State to the effect that the investment firm is duly authorized
         there in respect of the investment service proposed to be provided
         and that it otherwise fulfils the conditions imposed by this
         Directive;
   (b ) a programme of operations setting out inter alia the types of
         business envisaged and the structural organization of the branch ;
   ( c ) the  names of the managers . of the branch ;     _
   (d ) the address in the host Member State from which documents can be
         obtained .
2. An investment firm may establish a branch in the. other Member State
   one month after the notification referred to in paragraph 1 .
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3.     An . investment    firm wishing to change any of the matters notified
       pursuant to paragraph 1 shall give written notice of the proposed
       change to the competent authorities in the host Member State at least
       one month before making the change . If necessary those authorities may
       decide whether it will not be possible,             in the interest of the public
       good, for the investment firm to engage in any additional activities
      which it may envisage which are not precluded under the conditions of
       authorization in its home Member State and which are not contained on
       the list in the Annex .
                                          Artide 12
1 . Any investment firm wishing to exercise the freedom to supply services
    in the territory of another Member State for the first time shall notify
    the competent authorities of the home and host Member States of the
    activities      included   on    the   list   in  the Annex     which it   intends   to
    undertake .
2 . The investment firm may begin to provide such services and any activities
    which are ancillary thereto in the host Member State one month after notification.
                                          Article 13
1.    If the competent authorit ies of the host Member State ascertain              that an
      investment firm having a branch or providing services in the territory of that
       Member State is not complying with the legal provisions in force there - =■•
     in       which are justified on the grounds of the public good, those
     authorities shall request the investment firm concerned to put an end to
      the irregular situation .
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2. If the investment firm concerned fails to take the necessary steps , the
   competent authorities of the host Member State shall inform the competent authorities of the
   Member State accordingly . The authorities of the home Member State shall
   take , in the shortest time possible, all appropriate measures to ensure
   that the investment firm concerned puts an end to the irregular
   situation .   The nature of those measures shall be communicated to the
   competent author it ies of the host Member State .
3. If , despite the measures taken by the home Member State pursuant to
   paragraph 2 , or because such measures prove inadequate or are not taken
   by the Member State in question , the investment firm persists in
   violating the legal rules referred to in paragraph 1 in force in the
   host Member State , the latter State may, after informing the competent
   authorities of the home Member State, take appropriate measures to
   prevent further irregularities including, insofar as is necessary, the
   prevention of the initiation of further transactions by that investment
   firm within its territory .          Member States shall ensure that within
   their territory it is possible to serve the legal documents necessary
   for those measures on investment firms .
4. Any measures adopted pursuant to paragraphs 1 , 2 and 3 involving
   penalties or restrictions on the provision of services must be properly
   justified and communicated to the investment firm concerned . Every such
   measure shall be subject to a right to apply to the courts in the
   Member State whose authorities adopted it .
5. Before following the procedure set in paragraphs 1 , 2 and 3 the
   competent authorities of the host Member State may, in exceptional
   circumstances , take measures necessary to protect the interests of
   investors and others to whom services are provided . The Commission and
   the other Member States shall be informed of such* measures in the
   shortest possible time . In this event the Commission may, after
   consulting the Member States concerned, decide that the Member State in
   question shall amend or abolish the measures .
 ---pagebreak---                                    - 14 -
6. In the event of withdrawal of authorization the competent authorities of
   the host Member State shall be informed and shall take appropriate
   measures to prevent the investment firm concerned from undertaking
   further transactions in the territory of that Member State .
7. Member States shall inform the Commission of the number and type of
   cases  in  each Member   State  in  which measures   have    been taken in
   accordance with the provisions of paragraph 3. Every
   two years , the Commission shall submit a report summarizing such cases
   to the committee s»?t up under Article 20-
                                                                            2$
 ---pagebreak---                                     - 15 -
TITLE V
Provisions concerning the authorities responsible for authorization and
supervision .
                                  Article 14
1.  The Member States shall designate the authorities which are to carry
    out the duties provided for in this Directive . They shall inform the
    Commission thereof , indicating any division of duties .
2.  The authorities referred to in paragraph 1 must be public authorities
    or bodies appointed by public authorities . •                    -r . .
3.  The authorities concerned must be granted all the powers necessary to
    carry out their task .
                                  Article 15
1.  Where there are several competent authorities in the same Member State
    they shall collaborate closely in order to supervise the activities of
    investment firms operating there .
2.  Member States shall also permit such collaboration to take place
    between such competent authorities and public authorities responsible
    for the supervision of credit and other financial institutions and
    insurance companies as regards the respective entities supervised by
    them .
 ---pagebreak---                                    - 16 -
3.  Where investment   services are provided on a services basis across
    frontiers or by the establishment of branches in one or more Member
    States other than the home Member State the competent authorities of
    the Member States concerned shall collaborate      closely in order to
    supervise the activities of the investment firms concerned . They shall
    supply one another on request with all information concerning the
   management and ownership of such investment firms that is likely to
    facilitate their supervision and the examination of the conditions for
   their authorization and all      information  likely  to facilitate the
   monitoring of such firms .
                                   Article 16
1. Host Member States shall ensure that ,       where an investment firm
   authorized in another Member State conducts its business there through
   a branch , the competent authorities of the home Member State are able,
   after having first informed the competent authorities of the host
   Member State , to carry out themselves on-the-spot verification of the
   information referred to in Article 15(3 )..
2. This Article shall not affect the right of the competent authorities of
   the host Member State to carry out on-the-spot verification of branches
   established in their territory          in the discharge of their
   responsibilities under this Directive .
                                  Article 17
1. Member States shall ensure that all persons now or in the past employed
   by the competent authorities, as well as auditors or experts acting on
   behalf of the competent authorities , are bound by the obligation of
   professional secrecy . This means that any confidential information
   which they may receive in the course of their duties may not be
   divulged to any person or authority, without prejudice to cases covered
   by criminal law .
 ---pagebreak---                                     - 17 -
2.  Notwithstanding paragraph 1 ,   the competent authorities of the various
    Member   States   and   the  public   authorities  responsible   for  the
    supervision of credit and other financial institutions shall be
    authorized to exchange information in accordance with the provisions of
    this Directive where appropriate for the efficient discharge of their
    respective responsibilities . This information shall be subject to the
   same conditions of professional secrecy as those indicated in
   paragraph 1 .
3. Member States may conclude cooperation agreements , providing for
   exchanges of information, with the competent authorities of third
   countries only if the information communicated is subject to guarantees
   of professional secrecy equivalent to those referred to in this
   Article .
4. The authorities receiving information under paragraphs 1 or 2 shall use
   it only :
   - to examine the conditions for the taking-up of the business of the
      entities supervised by them and to facilitate monitoring of the
      pursuit of such business ,        the administrative and accounting
      procedures and mechanisms of internal control ; or
   - when    the  decisions   of  the   authorities are the  subject   of  an
      administrative appeal ; or
   - in court proceedings initiated pursuant to Article 18 .
5. Paragraphs 1 and 4 shall not preclude within a Member State or between
   Member States the exchange of information between the competent
   authorities and persons responsible for carrying out statutory audits
   of the accounts of investment firms .
   The authorities    and  institutions  to which  such information   is sent
   shall use it only in the discharge of their supervisory functions . The
   information received shall fall within the professional secrecy rules
   by which those authorities and institutions are bound .
 ---pagebreak---                                      - 18 -
6 . Notwithstanding paragraph 1 , Member States may authorize, by virtue of
     provisions laid down by law , the disclosure , when it is necessary for
     reasons of prudential control , of certain information to other
     departments of their central government administration . Member States
     shall ensure that information received in accordance with paragraph 2
     is not disclosed in such cases ,     except where there is the explicit
    consent of the authorities which have communicated the information .
7.  Member States shall ensure that the professional secrecy provisions
     laid down by this Article shall apply to information given by the
    competent authorities to persons responsible for carrying out statutory
    audits of the accounts of investment firms .
                                   Article 18
Member States shall ensure that decisions taken in respect of an investment
firm in pursuance of laws ,       regulations and administrative provisions
adopted in accordance with this Directive may be subject to the right to
apply to the courts . The same shall apply where an application for
authorization is deemed to be refused in accordance with Article 4 ( 4 ).
                                   Article 19
Member States shall ensure that their respective competent authorities may
adopt , as against investment firms      or those who effectively control the
business of such firms which breach legislative,               regulatory or
administrative provisions concerning the control of their businesses or the
pursuit of their activities , penalties or measures aimed specifically at
ending observed breaches or the causes of such breaches .     Those penalties
shall include procedures       for the       suspension or    withdrawal of
authorizations .
                                                                              τι
 ---pagebreak---                                     - 19 -
TITLE VI
Final provisions
                                  Article 20
1.  Technical amendments to this Directive in the following areas :
    - extension of the activities on the list set out in the Annex ,
    - the   fields   in  which  the   competent  authorities   must  exchange
      information, as enumerated in Article 15-
    shall be made according to the procedure set out in paragraph 2 .
2.  The Commission shall be assisted by a committee composed of
    representatives of the Member States and chaired by a representative of
    the Commission .
    The representative of the Commission shall submit to the committee a
    draft of the measures to be taken .      The committee shall deliver its
    opinion on the draft within a time limit which the chairman may lay
    down according to the urgency of the matter .       The opinion shall be
    delivered by the majority laid down in Article 148 ( 2 ) of the Treaty in
    the case of decisions which the Council is required to adopt on a
    proposal from the Commission .   The votes of the representatives of the
    Member States in the committee shall be weighted in the manner set out
    in that Article . The chairman shall not vote .
    The Commission shall adopt the measures . envisaged if they are in
    accordance with the opinion of the committee .
                                                                              33
 ---pagebreak---                                           - 20 -
   If the measures envisaged are not in accordance with the opinion of the
   committee, or if no opinion is delivered, the Commission shall , without
   delay, submit to the Council a proposal relating to the measures to be
   taken . The Council shall act by a qualified majority .
   If , on the expiry of a period to be laid down in each act to be adopted
   by the Council under this paragraph but which may in no case exceed
   three months from the day of referral to the Council ,                the Council has
   not acted, the proposed measures shall be adopted by the Commission .
                                       Article 21
1. Investment firms already authorized to provide investment services in
   their home Member State before the entry into force of the provisions adopted
    in implementation of this Directive shall be deemed to be authorized for the purposes of this
   Directive provided that the authorization was given under equivalent conditions
   to those set out in Article 4 ( 2 ).
2. Branches which have commenced their activities , in accordance with the
   provisions in' force in the host Member State, before the entry into
   force of the provisions adopted in implementation of this Directive are
   presumed to have been subject to the procedures envisaged in Article
   11 ( 1 ), (2) and (3). They shall be governed,         from the date of entry into
   force of the provisions adopted in implementation of this Directive, by
   the provisions of Articles 10, 11 ( 3) and 13 .
3. Article 12 shall not adversely affect rights acquired before the entry
   into force of the provisions adopted in implementation of this
   Directive by investment firms operating through the supply of services .
                                                                                              ÏH-
 ---pagebreak---                                     - 21
                                    Artide 22
1.  Member States shall bring into force the laws ,         regulations and
    administrative provisions necessary to comply with this Directive by 1
    January 1993 . They shall forthwith inform the Commission thereof .
2.  Member States shall communicate to the Commission the texts of the main
    laws , regulations and administrative provisions which they adopt in the
    field covered by this Directive .
                                  Article 23
This Directive is addressed to the Member States .
 Done at Brussels ,                              For the Council
                                                 The President
 ---pagebreak---                                      - 22 -
                                                                  ANNEX
       Investment activities coming within the scope of this Directive
Section A : Activities
1.  brokerage i.e.    the acceptance of investors' orders relating to any or
    all of the    instruments  referred to in Section    B below  and / or the
    execution of such orders on an exchange or market on an agency basis
    against payment of commission;
2.  dealing as principal i.e.     the purchase and sale of any or all of the
    instruments referred to in Section B below for own account and at own
    risk with a view to profiting from the margin between bid and offer
    prices ;
3.  market making i.e. maintenance of a market in any or all of the
    instruments referred in Section B below by dealing in such instruments ;
4.  portfolio management i.e. the management against payment of portfolios
    composed of any or all of the instruments referred to in Section B
    below undertaken for investors otherwise than on a collective basis ;
5.  arranging or offering underwriting services in respect of issues of the
    instruments referred to in point 1 of Section B below and distribution
    of such issues to the public .
6.  professional investment    advice given to investors on an individual
    basis or on the basis of private subscription in connection with any or
    all of the instruments referred to in Section B below .
7.  safekeeping and administration of any of the instruments referred to in
    Section B below otherwise than in connection with the management of a
    clearing system .
 ---pagebreak---                                     - 23 -
Section B : Inst ruments
1.  transferable securities including units in undertakings for collective
    investment in transferable securities ;
2.  money market instruments     ( including certificates of  deposit  and
    Eurocommercial paper );
3.  financial futures and options ;
4.  exchange rate and interest rate instruments .