CELEX: 51989PC0629
Language: en
Date: 1990-01-23
Title: AMENDED PROPOSAL FOR A COUNCIL DIRECTIVE ON INVESTMENT SERVICES IN THE SECURITIES FIELD

22. 2. 90                           Official Journal of the European Communities                                No C 42/7
                                              COMMISSION
                 Amended proposal for a council directive on investment services in the securities field
                                  (Submitted by the Commission on 8 February 1990)
                                                       (90/C 42/06)
THE COUNCIL OF THE EUROPEAN COMMUNITIES,                       Whereas the principles of mutual recognition and of
                                                                home Member State control require the competent autho-
                                                                rities of each Member State not to grant authorization
                                                                or to withdraw it where factors such as the activities
Having regard to the Treaty establishing the European          programme, the geographical distribution or the acti-
Economic Community, and in particular Article 57               vities actually carried on make it quite clear that an
thereof,                                                        investment firm has opted for the legal system of one
                                                                Member State for the purpose of evading the stricter
                                                                standards in force in another Member State in which it
                                                                intends to carry on or carries on the greater part of its
Having regard to the proposal from the Commission,              activities; whereas, for the purposes of this Directive, an
                                                                investment firm which is a legal person shall be autho-
                                                                rized in the Member State in which it has its registered
                                                               office; whereas the Member States must require that the
In cooperation with the European Parliament,                    head office be situated in the same Member State as the
                                                                registered office;
Having regard to the opinion of the Economic and
Social Committee,
                                                               Whereas it is also necessary and appropriate to liberalize
                                                                access to membership of stock exchange and financial
Whereas this Directive is to constitute an instrument          futures and options markets in host Member States for
which is essential for achieving the internal market, a         investment firms authorized to carry out the relevant
course determined by the Single European Act and set           services in their home Member States;
out in timetable form in the Commission's White Paper,
from the point of view of both freedom of establishment
and freedom to provide financial services, in the field of
investment firms;                                              Whereas responsibility for supervising the financial
                                                               soundness of an investment firm will rest with the
                                                               competent authorities of its home Member State and
                                                               whereas to permit this responsibility to be assumed fully
Whereas the approach which has been adopted is to              by such competent authorities a further Directive will be
achieve only the essential harmonization necessary and          necessary to coordinate rules in the area of market risk;
sufficient to secure the mutual recognition of authori-
zation and of prudential supervision systems, making
possible the granting of a single authorization
recognized throughout the Community and the
application of the principle of home Member State              Whereas the home Member State may also establish
prudential supervision;                                        rules stricter than those laid down in Articles 3, 4, 10, 11
                                                               and 20 for investment firms authorized by its competent
                                                               authorities;
Whereas it is necessary for reasons of fair competition,
to ensure that non-bank investment firms benefit from
similar freedom to create branches and provide services
across frontiers as that provided for by the second            Whereas, by virtue of mutual recognition, the approach
Council Directive on the coordination of laws, regu-           chosen permits investment firms authorized in their
lations and administrative provisions relating to the          home Member States to carry on, throughout the
taking up and pursuit of the business of credit                Community, any or all of the activities listed in the
institutions;                                                  Annex by establishing branches or by providing services;
 ---pagebreak--- No C 42/8                             Official Journal of the European Communities                                 22. 2. 90
Whereas the carrying-on of activities not listed in the         competent authorities of the Member States; whereas for
Annex shall be governed by the general provisions of the        the consideration of problems concerning individual
Treaty concerning the right of establishment and the            investment firms the Contact Committee constituted
freedom to provide services;                                    under this Directive is the most appropriate forum;
                                                                whereas that committee is a suitable body for the mutual
                                                                exchange of information provided for in this Directive;
Whereas, the host Member State may, in connection
with the exercise of the right of establishment and the
freedom to provide services, require compliance with            Whereas that mutual information procedure will not in
specific provisions of its own national laws or regulations     any case replace the bilateral collaboration established by
on the part of firms not authorized as investment firms         this Directive; whereas the competent host Member State
in their home Member States and with regard to acti-            authorities can, without prejudice to their powers of
vities not listed in the Annex provided that, on the one        control proper, continue, either in an emergency, on
hand, such provisions are compatible with Community             their own initiative or following the initiative of the
law and are intended to protect the general good and            competent home Member State authorities, to verify that
that, on the other hand, such firms or such activities are      the activities of an investment firm established within
not subject to equivalent rules under the legislation or        their territories comply with the relevant laws and with
regulations of their home Member States;                        the principles of sound administrative and accounting
                                                                procedures and adequate internal control;
Whereas the Member States must ensure that there are
                                                                Whereas technical modifications to the detailed rules laid
no obstacles to carrying on activities receiving mutual
                                                                down in this Directive may from time to time be
recognition in the same manner as in the home Member
                                                                necessary to take account of new developments in the
State, as long as the latter do not conflict with legal
                                                                investment services sector; whereas the Commission shall
provisions protecting the general good in the host
                                                                accordingly make such modifications as are necessary,
Member State;
                                                                after consulting the committee constituted under this
                                                                Directive.
Whereas the procedures for the authorization of
branches of investment firms authorized in third
countries will continue to apply to such firms; whereas         HAS ADOPTED THIS DIRECTIVE:
those branches will not enjoy the freedom to provide
services under the second paragraph of Article 59 of the
Treaty or the freedom of establishment in Member States                                      TITLE I
other than those in which they are established; whereas,
however, requests for the authorization of subsidiaries or                            Definitions and scope
of the acquisition of holdings made by undertakings
governed by the laws of third countries are subject to a                                     Article 1
procedure intended to ensure that Community
investment firms receive reciprocal treatment in the third      For the purpose of this Directive:
countries in question;
                                                                   1. credit institution shall mean a credit institution as
                                                                      defined with the first indent of Article 1 of Council
Whereas, the authorizations granted to investment firms               Directive 77/780/EEC (') other than the institutions
by the competent national authorities pursuant to this                referred to in Article 2 (2) thereof;
Directive will have Community-wide, and no longer
merely nation-wide, application, and whereas existing
reciprocity clauses will henceforth have no effect;               2. investment service shall mean any of the services
whereas a flexible procedure is therefore needed to make              relating to any of the instruments set out in the list
it possible to assess reciprocity on a Community basis;               in the Annex;
whereas the aim of this procedure is not to close the
Community's financial markets but rather, as the
                                                                  3. investment firm shall mean any natural or legal
Community intends to keep its financial markets open to
                                                                      person whose business it is to provide any investment
the rest of the world, to improve the liberalization of the
                                                                      service;
global financial markets in third countries; whereas, to
that end, this Directive provides for procedures for nego-
tiating with third countries and, as a last resort, for the       4. home Member State shall mean:
possibility of taking measures involving the suspension of
new applications for authorization or the restriction of              (a) where the investment firm is a natural person,
new authorizations;                                                       the Member State where that person has his
                                                                           principal place of business;
Whereas the smooth operation of the internal market in
investment services will require not only legal rules but
also close and regular cooperation between the                  (') OJ No L 322, 17. 12. 1977, p. 30.
 ---pagebreak--- 22. 2. 90                              Official Journal of the European Communities                                No C 42/9
     (b) where the investment firm is a legal person, the                                   TITLE II
          Member State where its registered office is
         situated or if it has no registered office then the              Harmonization of authorization conditions
          Member State where its head office is situated;
                                                                                            Article 3
                                                                  1.    Investment firms shall obtain authorization in their
  5. host Member State shall mean the Member State                home Member State before commencing to provide
     where an investment firm has a branch or in which it         investment services. Such authorization shall be granted
     supplies services;                                          by the home Member State's competent authorities
                                                                  designated in accordance with Article 17. Following the
                                                                  granting of authorization the investment service in
  6. branch shall mean a place of business which forms a          question may be engaged in forthwith by the investment
     legally dependent part of an investment firm and             firm, together with any activities that are ancillary
     which provides an investment service for which the           thereto.
     investment firm has been authorized;
                                                                  2.    Without prejudice to other conditions of general
                                                                  application laid down by national law, the competent
  7. qualifying holding shall mean a direct or indirect           authorities shall not grant authorization unless:
     holding in an investment firm which represents 10 %
     or more of the capital or of the voting rights or            — the investment firm has sufficient initial capital in
     which makes it possible to exercise a significant                accordance with the rules prescribed in Directive . . .
     influence over the management of the investment                  having regard to the nature of the investment service
     firm in which a holding subsists.                                in question,
                                                                  — the persons who effectively direct the business of the
     For the purpose of this definition, in the context of
                                                                      investment firm are of sufficiently good repute and
     Articles 4 and 10 and of the other levels of holding
                                                                      experience.
     referred to in Article 10, the voting rights referred to
     in Article 7 of Council Directive 88/627/EEC (')
     shall be taken into consideration;                           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
  8. parent undertaking shall mean a parent undertaking           envisaged and the structural organization of the
     as defined in Articles 1 and 2 of Council Directive          investment firm.
     83/349/EECO;
                                                                  4.     The applicant shall be notified within three months
                                                                  of submission of a complete application whether or not
  9. subsidiary shall mean a subsidiary undertaking as            authorization is granted. Reasons shall be given
     defined in Articles 1 and 2 of Directive                     whenever an authorization is refused. If no decision is
     83/349/EEC; any subsidiary of a subsidiary under-            notified within six months of submission of the complete
     taking shall also be regarded as a subsidiary of the         application this shall be deemed to be a refusal.
     parent undertaking which is at the head of those
     undertakings;                                                5.     The competent authorities may withdraw the autho-
                                                                  rization issued to an investment firm subject to this
                                                                  Directive only where the investment firm:
10. members of a stock exchange or organized market shall
     mean any natural or legal person recognized by the           (a) does not make use of the authorization within 12
     relevant authorities of each organized market of the              months, expressly renounces the authorization or has
     said country and placed under their supervision.                  ceased to engage in investment business for mor than
                                                                       six months, if the Member State concerned has made
                                                                       no provision for the authorization to lapse in such
                                                                       cases:
                           Article 2
This Directive shall apply to all investment firms.               (b) has obtained the authorization through              false
However, only Articles 9 (2), 11 and 13 shall apply to                 statements or any other irregular means;
investment firms that are credit institutions authorized by
their banking licence to engage in securities business.           (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
(') OJ No L 348, 17. 12. 1988, p. 62.                                  towards its creditors, and in particular no longer
(2) OJ No L 193, 18. 7. 1983, p. 1.                                    provides security for the assets entrusted to it;
 ---pagebreak---  No C 42/10                           Official Journal of the European Communities                                  22. 2. 90
(e) falls within one of the other cases where national law       (b) whenever such a parent undertaking acquires a
     provides for withdrawal of authorization.                        holding in a Community investment firm such that
                                                                      the latter would become its subsidiary. The
                                                                      Commission shall inform the committee constituted
                          Article 4                                   under Article 23 accordingly.
The competent authorities shall not grant authorization
for the taking-up of the business of investment firms           When authorization is granted to the direct or indirect
before they have been informed of the identities of the          subsidiary of one or more parent untertakings governed
shareholders or members, whether direct or indirect,             by the law of third countries, the structure of the group
natural or legal persons, that have qualifying holdings,         shall be specified in the notification which the competent
and of the amounts of those holdings.                            authorities shall address to the Commission.
The competent authorities shall refuse authorization if,
taking into account the need to ensure the sound and             2.    The Member States shall inform the Commission of
prudent management of an investment firm, they are not           any general difficulties encountered by their investment
satisfied as to the suitability of the abovementioned            firms in establishing themselves or carrying on activities
shareholders or members.                                         in a third country.
                          Article 5                              3.     Initially no later than six months before the
                                                                 application of this Directive and thereafter periodically,
Member States shall not apply to branches of investment         the Commission shall draw up a report examining the
firms having their registered office outside the                treatment accorded to Community investment firms in
Community, when commencing or carrying on their                 third countries, in the terms referred to in paragraphs 4
business, provisions that result in more favourable             and 5, as regards establishment and the carrying on of
treatment than that accorded to branches of investment          investment activities, and the acquisition of holdings in
firms having their registered office in a Member State.         third-country investment firms. The Commission shall
                                                                submit those reports to the Council, together with any
                                                                appropriate proposals.
                          Article 6
There must be prior consultation with the competent
authorities of the other Member State involved on the           4.     Whenever it appears to the Commission, either on
authorization of an investment firm which is:                   the basis of the reports referred to in paragraph 3 or on
                                                                the basis of other information, that a third country is not
                                                                granting Community investment firms effective market
— a subsidiary of an investment firm authorized in              access comparable to that granted by the Community to
    another Member State, or                                    investment firms from that third country, the
                                                                Commission may submit proposals to the Council for the
— a subsidiary of the parent undertaking of an                  appropriate mandate for negotiation with a view to
    investment firm authorized in another Member State,         obtaining comparable competitive opportunities for
    or                                                          Community investment firms. The Council shall decide
                                                                by a qualified majority.
— controlled by the same persons, whether natural or
    legal, as control an investment firm authorized in
    another Member State.                                       5.     Whenever it appears to the Commission, either on
                                                                the basis of the reports referred to in paragraph 3 or on
                                                                the basis of other information, that Community
                                                                investment firms in a third country do not receive
                         TITLE III                              national treatment offering the same competitive oppor-
                                                                tunities as are available to domestic investment firms and
               Relations with third countries                   that the conditions of effective market access are not
                                                                fulfilled, the Commission may initiate negotiations in
                         Article 7                              order to remedy the situation.
1.    The competent authorities of the Member States
shall inform the Commission:
                                                                In the circumstances described in the first subparagraph,
                                                                it may also be decided at any time, and in addition to
(a) of any authorization of a direct or indirect subsidiary     initiating negotiations, in accordance with the procedure
     one or more parent undertakings of which are               laid down in Article 23, that the competent authorities of
    governed by the laws of a third country. The                the Member States must limit or suspend their decisions
     Commission shall inform the committee constituted          regarding requests pending at the moment of the
     under Article 23 accordingly;                              decision or future requests for authorizations and the
 ---pagebreak---  22. 2. 90                             Official Journal of the European Communities                              No C 42/11
 acquisition of holdings by direct or indirect parent             2.    The Member States may decide that investment
 undertakings governed by the laws of the third country           firms already in existence when the Directive is
 in question. The duration of the measures referred to            implemented, the own funds of which do not attain the
 may not exceed six months.                                      levels for initial capital referred to in Article 3, may
                                                                  continue to carry on their acitivities. In that event, their
                                                                 own funds may not fall below the highest level reached
 Before the end of that six-month period, and in the light        after the date of the notification of this Directive.
 of the results of the negotiations, the Council may,
 acting on a proposal from the Commission, decide by a
 qualified majority whether the measures shall be
 continued.                                                       3.    If control of an investment firm falling within the
                                                                 category referred to in paragraph 2 is taken by a natural
                                                                 or legal person other than the person who controlled it
 Such limitations or suspension may not apply to the             previously, its own funds must attain at least the level for
 setting up of subsidiaries by investment firms duly autho-      initial capital referred to in Article 3.
rized in the Community or by their subsidiaries, or to the
 acquisition of holdings in Community investment firms
by such firms or subsidiaries.
                                                                 4.     However, where there is a merger of two or more
                                                                 investment firms falling within the category referred to in
                                                                 paragraph 2, in certain specific circumstances and with
6.      Whenever it appears to the Commission that one of        the consent of the competent authorities, the own funds
the situations described in paragraphs 4 and 5 obtains,          of the new investment firm resulting from the merger
the Member States shall inform it at its request:                need not attain the level of initial capital referred to in
                                                                 Article 3. However, the own funds of the new investment
                                                                 firm may not fall below the total own funds of the
(a) of any request for the authorization of a direct or          merged firms at the time of the merger, as long as the
      indirect subsidiary one or more parent undertakings        appropriate levels referred to in Article 3 have not been
      of which are governed by the laws of the third             obtained.
      country in question;
(b) whenever they are informed in accordance with                5.     However, if, in the cases referred to in paragraphs
      Article 10 that such an undertaking proposes to             1, 2 and 4, the own funds should be reduced, the
      acquire a holding in a Community investment firm           competent authorities may, where the circumstances
      such that the latter would become its subsidiary.          justify it, allow an investment firm a limited period in
                                                                 which to rectify its situation or cease its activities.
This obligation to provide information shall lapse
whenever an agreement is reached with the third country
referred to in paragraph 4 or 5 or when the measures
                                                                                            Article 9
referred to in the second and third subparagraphs of
paragraph 5 cease to apply.                                       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 3 (2).
7.      Measures taken under this Article shall comply with
the Community's obligations under any international
agreements, bilateral or multilateral, governing the
taking up and pursuit of the business of investment firms.
                                                                 2.     The competent authorities of the home Member
                                                                 State shall require that investment firms authorized by
                                                                 them make sufficient provision against market risk in
                                                                 accordance with the rules prescribed in Directive . . .
                           TITLE IV
Harmonization of the conditions governing pursuit of the
                 business of investment firms
                                                                 3.     The supervision of compliance with the conditions
                           Article 8                             referred to in Articles 3 (2) and 4 shall be within the
                                                                 exclusive regulatory competence of the home Member
1.     An investment firm's own funds may not fall below         State's competent authorities irrespective of whether or
the amount of initial capital required pursuant to Article       not the investment firm establishes a branch or provides
3 at the time of its authorization.                              services in another Member State.
 ---pagebreak---  No C 42/12                            Official Journal of the European Communities                                22. 2. 90
                          Article 10                             for example, by the information received at the annual
                                                                 general meetings of shareholders and members or as a
 1.    The Member States shall require any natural or            result of compliance with the regulations relating to
 legal person who proposes to acquire, directly or indi-         companies listed on stock exchanges.
 rectly, a qualifying holding in an investment firm first to
 inform the competent authorities, telling them of the size
 of the intended holding. Such a person must likewise            5.     The Member States shall require that, where the
 inform the competent authorities if he proposes to              influence exercised by the persons referred to in
 increase his qualifying holding so that the proportion of       paragraph 1 is likely to operate to the detriment of the
 the voting rights or of the capital held by him would           prudent and sound management of the investment firm,
 reach or exceed 20, 33 or 50 % or so that the investment        the competent authorities shall take appropriate measures
 firm would become his subsidiary.                               to put an end to that situation. Such measures may
                                                                 consist, for example, in injunctions, sanctions against
                                                                 directors and managers, or the suspension of the exercise
                                                                 of the voting rights attaching to the shares held by the
 Without prejudice to the provisions of paragraph 2, the         shareholders or members in question.
 competent authorities shall have a maximum of three
 months from the date of the notification provided for in
 the first subparagraph to oppose such a plan if, in view        Similar measures shall apply to natural or legal persons
 of the need to ensure sound and prudent management of           failing to comply with the obligation to provide prior
 the investment firm, they are not satisfied as to the suit-     information, as laid down in paragraph 1. If a holding is
 ability of the person referred to in the first                  acquired despite the opposition of the competent autho-
 subparagraph. If they do not oppose the plan, they may          rities, the Member States shall, regardless of any other
 fix a maximum period for its implementation.                    sanctions to be adopted, provide either for exercise of
                                                                 the corresponding voting rights to be suspended, or for
                                                                 the nullity of votes cast or for the possibility of their
                                                                 annulment.
2.     If the acquirer of the holdings referred to in
paragraph 1 is an investment firm authorized in another
 Member State or the parent undertaking of an                                              Article 11
 investment firm authorized in another Member State or
a natural or legal person controlling an investment firm         1.     Member States shall draw up prudential rules to be
authorized in another Member State and if, as a result of        observed on a continuing basis by investment firms autho-
that acquisition, the firm in which the acquirer proposes        rized by their competent authorities. Supervision of such
to acquire a holding would become a subsidiary or                prudential rules shall be within the exclusive competence
subject to the control of the acquirer, the assessment of        of the home Member State's competent authorities irres-
the acquisition must be the subject of the prior consul-         pective of whether or not the investment firm establishes
tation referred to in Article 6.                                 a branch or provides services in another Member State.
                                                                 Such rules shall require that the investment firm:
                                                                 — has sound administrative and accounting procedures
3.     The Member States shall require any natural or                 and internal control mechanisms,
legal person who proposes to dispose, directly or indi-
rectly, of a qualifying holding in an investment firm first
to inform the competent authorities. Such a person must          — arranges for securities belonging to investors to be
likewise inform the competent authorities if he proposes              kept separately from its own securities,
to reduce his qualifying holding so that the proportion of
the voting rights of or the capital held by him would fall
                                                                 — except in the case of investment firms that are credit
below 20, 33 or 50 % or so that the investment firm
                                                                      institutions, arranges for money belonging to
would cease to be his subsidiary.
                                                                     investors to be placed in an account or in accounts
                                                                     which are separate and distinct from the firm's own
                                                                     account,
4.     On becoming aware of them, investment firms shall
inform the competent authorities of any acquisitions or          — is either a member of a general compensation scheme
disposals of holdings in their capital that cause holdings           designed to protect investors who are prevented from
to exceed or fall below one of the thresholds referred to            having claims satisfied because of the bankruptcy or
in paragraphs 1 and 3.                                               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
They shall also, at least once a year, inform them of the            shall be subject to the compensation scheme in force
names of shareholders and members possessing quali-                  in the host Member State provided that payment or
fying holdings and the sizes of such holdings as shown,              contribution to such a compensation scheme shall be
 ---pagebreak--- 22. 2. 90                              Official Journal of the European Communities                             No C 42/13
    calculated by reference to their income in respect of        investment firms which are authorized to provide
    investment activity carried out in that State,               broking, dealing or market-making services by the
                                                                 competent authorities of their home Member State can
                                                                 have access, either directly or indirectly, to membership
— provides the competent authorities of the home                 of stock exchanges and organized securities markets of
    Member State with such information on request and            host Member States where similar services are provided
    at such intervals as they may determine (but not less        and also to membership of clearing and settlement
    frequently than quarterly) in order that they may            systems there which are available to members of such
    assess its financial soundness, including the adequacy       exchanges and markets.
    of its provision in respect of market risk,
                                                                  2.     In order to meet their obligation set out in
— arranges for adequate records to be kept relating to           paragraph 1, host Member States shall ensure that the
    executed transactions which shall be at least sufficient      investment firms referred to in that paragraph have the
    to enable the home Member State's authorities to              option to become either:
    monitor compliance with prudential rules which they
    are responsible for applying, including rules relating       — direct members of host Member States' stock
    to market risk. Such records shall be retained for                 exchanges or organized securities markets by setting
    periods to be laid down by the competent authorities,              up a branch in the host Member State, or
                                                                 — indirect members by setting up a subsidiary in the
— is organized in such a way that conflicts of interest                host Member State or by the acquisition of an
    between the firm and its clients or between one of its             existing member firm.
    clients and another do not result in clients' interests
    being prejudiced.                                             In these cases membership shall be   on the basis that the
                                                                  rules governing the structure and     organization of the
                                                                  relevant host stock exchange or       organized securities
2.    Member States may provide that the rules set out in         market and clearing and settlement   systems are complied
the second, third and fourth indents of paragraph 1 shall        with.
not apply where the service is provided to business or
professional investors or where the investment service
                                                                  3.     Where the stock exchange or organized securities
does not involve the investment firm in handling any
                                                                  market of the host Member State operates without any
money or securities on behalf of clients.
                                                                  requirement for a physical presence the investment firms
                                                                  referred to in paragraph 1 may become members of it on
                                                                  a similar basis without having any establishment in the
                                                                  host Member State. Home Member States shall allow
                           TITLE V
                                                                  host stock exchanges or markets to provide appropriate
Freedom     of establishment and freedom         to  provide      facilities within the home Member States' territory so as
                            services                              to permit their investment firms to become members of
                                                                  the host exchange or market in accordance with this
                                                                  paragraph.
                          Article 12
 1.   Host Member States shall ensure that any                    4.     Host Member States shall likewise ensure that
investment service and any activities which are ancillary         investment firms which are authorized to deal in
thereto may be provided in their territories, in                  financial futures and options by the competent autho-
accordance with the provisions of Articles 14 to 16,              rities of their home Member State can have access to
either by the establishment of a branch or by way of the          membership of financial futures and options exchanges
provision of services, by an investment firm authorized           and membership of clearing houses in the host Member
to provide the relevant service under this Directive by the       State under the same conditions as are set out in para-
competent authorities of its home Member State.                   graphs 1, 2 and 3.
2.    Host Member States may not make the estab-                                           Article 14
lishment of a branch or the provision of services under
                                                                  1.     In addition to meeting the obligations set out in
paragraph 1 subject to an authorization requirement or
to a requirement to provide endowment capital or any              Article 3, an investment firm wishing to establish a
measure having equivalent effect.                                 branch in the territory of another Member State shall
                                                                  notify the competent authorities of its home Member
                                                                  State.
                          Article 13
                                                                  2.     The Member States shall require every investment
 1.   Without prejudice to the exercise of the freedom of         firm wishing to establish a branch in another Member
establishment and the freedom of services referred to in          State to provide the following information when
Article 12, host Member States shall ensure that                  effecting the notification referred to in paragraph 1:
 ---pagebreak--- No C 42/14                            Official Journal of the European Communities                                    22. 2. 90
(a) the Member State within the territory of which it                                      Article 15
     plans to establish a branch;
                                                                 1.    Any investment firm wishing to exercise the
                                                                freedom to provide services by carrying on its activities
(b) a programme of operations setting out inter alia the        within the territory of another Member State for the first
     types of business envisaged and the structural organ-      time shall notify the competent authorities of the home
     ization of the branch;                                     Member State of the investment service or services which
                                                                it intends to carry on.
(c) the address in the host Member State from which
     documents may be obtained;
(d) the names of the managers of the branch.                    2.     The competent authorities of the home Member
                                                                State shall, within one month of receipt of the notifi-
                                                                cation mentioned in paragraph 1, send that notification
3.     Unless the competent authorities of the home             to the competent authorities of the host Member State.
Member State have reason to doubt the adequacy of the
administrative structure or the financial situation of the
investment firm, taking into account the activities
envisaged, they shall, within three months of receipt of
the information referred to in paragraph 2, communicate                                    Article 16
that information to the competent authorities of the host        1.    Host Member States may, for statistical purposes,
Member State and shall inform the investment firm               require that all investment firms having branches within
concerned accordingly.                                          their territories shall report periodically on their activities
                                                                in those host Member States to the competent authorities
The competent authorities of the home Member State              of those host Member States.
shall also communicate the amount of own funds of the
investment firm.
Where the competent authorities of the home Member               2.    Where the competent authorities of a host Member
State refuse to communicate the information referred to         State ascertain that an investment firm having a branch
in paragraph 2 to the competent authorities of the host         or providing services within its territory is not complying
Member State, they shall give reasons for their refusal to      with the legal provisions adopted in that State pursuant
the investment firm concerned within three months of            to the provisions of this Directive involving powers of
receipt of all the information. That refusal or failure to      the host Member State competent authorities, those
reply shall be subject to a right to apply to the courts in      authorities shall require the investment firm concerned to
the home Member State.                                          put an end to the irregular situation.
4.     Before the branch of an investment firm
commences its activities the competent authorities of the        3.    If the investment firm concerned fails to take the
host Member State shall, within two months of receiving         necessary steps, the competent authorities of the host
the information mentioned in paragraph 3, prepare for            Member State shall inform the competent authorities of
the supervision of the investment firm in accordance with       the home Member State accordingly. The competent
Article 16 and, if necessary, indicate the conditions            authorities of the home Member State shall, at the
under which, in the interest of the general good, those          earliest opportunity, take all appropriate measures to
activities must be carried on in the host Member State.          ensure that the investment firm concerned puts an end to
                                                                that irregular situation. The nature of those measures
                                                                 shall be communicated to the competent authorities of
5.     On receipt of a communication from the competent
                                                                the host Member State.
authorities of the host Member State, or in the event of
the expiry of the period provided for in paragraph 4
without receipt of any communication from the latter,
the branch may be established and commence its acti-
                                                                4.     If, despite the measures taken by the home Member
vities.
                                                                 State or because such measures prove inadequate or are
                                                                 not available in the Member State in question, the
6.     In the event of a change in any of the particulars        investment firm persists in violating the legal rules
communicated pursuant to paragraph 2 (b), (c) or, (d),          referred to in paragraph 2 in force in the host Member
an investment firm shall give written notice of the change       State, the latter State may, after informing the competent
in question to the competent authorities of the home and         authorities of the home Member State, take appropriate
host Member States at least one month before making             measures to prevent or to punish further irregularities
the change so as to enable the competent authorities of          and, insofar as is necessary, to prevent that investment
the home Member State to take a decision under                   firm from initiating further transactions within its
paragraph 3 and the competent authorities of the host           territory. The Member States shall ensure that within
Member State to take a decision on the change under             their territories it is possible to serve the legal documents
paragraph 4.                                                     necessary for these measures on investment firms.
 ---pagebreak--- 22. 2. 90                             Official Journal of the European Communities                              No C 42/15
5.    The foregoing provisions shall not affect the power                                 TITLE VI
of host Member States to take appropriate measures to
prevent or to punish irregularities committed within their      The authorities responsible for authorization and super-
territories which are contrary to the legal rules they have                                 vision
adopted in the interest of the general good. This shall
include the possibility of preventing offending investment                                Article 17
firms from initiating any further transactions within their
territories.                                                     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.
6.    Any measure adopted pursuant to paragraphs 3, 4
and 5 involving penalties or restrictions on the activities
of an investment firm must be properly justified and             2.    The authorities referred to in paragraph 1 must be
communicated to the investment firm concerned. Every            public authorities or bodies officially recognized by
such measure shall be subject to a right of appeal to the        national law or by public authorities to be part of the
courts in the Member State the authorities of which              supervisory system prevailing in the relevant Member
adopted it.                                                      State.
                                                                 3.    The authorities concerned must be granted all the
7.     Before following the procedure set out in para-          powers necessary to carry out their task.
graphs 2 to 4 the competent authorities of the host
Member State may, in emergencies, take any pre-
cautionary measures necessary to protect the interests of
investors and others to whom services are provided. The                                   Article 18
Commission and the competent authorities of the other            1.    Where there are several competent authorities in
Member States must be informed of such measures at the           the same Member State they shall collaborate closely in
earliest opportunity.                                            order to supervise the activities of investment firms
                                                                 operating there.
The Commission may, after consulting the competent
authorities of the Member States concerned, decide that          2.     Member States shall also permit such collaboration
the Member State in question must amend or abolish               to take place between such competent authorities and
those measures.                                                  public authorities responsible for the supervision of credit
                                                                 and other financial institutions and insurance companies
                                                                 as regards the respective entitles supervised by them.
8.     In the event of withdrawal of authorization the
competent authorities of the host Member State shall be          3.     Where investment services are provided on a
informed and shall take appropriate measures to prevent          services basis across frontiers or by the establishment of
the investment firm concerned from initiating further            branches in one or more Member States other than the
transactions within its territory and to safeguard the           home Member State the competent authorities of the
interests of investors. Every two years the Commission           Member States concerned shall collaborate closely in
shall submit a report on such cases to the committee             order to supervise the activities of the investment firms
constituted under Article 23.                                    concerned. They shall supply one another on request
                                                                 with all information concerning the management and
                                                                 ownership of such investment firms that is likely to
9.     The Member States shall inform the Commission of          facilitate their supervision and the examination of the
the number and type of cases in which there has been a           conditions for their authorization and all information
refusal pursuant to Article 14 or measures have been             likely to facilitate the monitoring of such firms.
taken in accordance with the provisions of paragraph 4.
Every two years, the Commission shall submit a report
on such cases to the committee constituted under Article                                  Article 19
23.
                                                                  1.    Host Member States shall ensure that, where an
                                                                 investment firm authorized in another Member State
                                                                 carries on its activities there through a branch, the
 10.    Nothing in this Article shall prevent investment         competent authorities of the home Member State may,
firms authorized in other Member States from adver-              after having first informed the competent authorities of
tising their services through all available means of             the host Member State, carry out themselves or through
communication in the host Member State, subject to any           the intermediary of persons they appoint for that purpose
rules governing the form and the content of such adver-          on-the-spot verification of the information referred to in
tising adopted in the interest of the general good.              Article 18 (3).
 ---pagebreak--- No C 42/16                             Official Journal of the European Communities                                22. 2. 90
2.    The competent authorities of the home Member                    or
States may also ask the competent authorities of the host
Member State for this verification to be carried out. The        — to impose sanctions,
authorities which have received such a request must,
within the framework of their competence, act upon it                or
either by carrying out the verification themselves, or by        — in an administrative appeal against a decision of the
allowing the authorities who made the request to carry it            competent authority,
out, or by allowing an auditor or expert to carry it out.
                                                                     or
3.    This Article shall not affect the right of the             — in court proceedings instituted pursuant to Article 21.
competent authorities of the host Member State to carry
out, in the discharge of their responsibilities unter this
                                                                 5.     Paragraphs 1 and 4 shall not preclude the exchange
Directive, on-the-spot verifications of branches estab-
                                                                 of information within a Member State, or between
lished within their territory.
                                                                 Member States, between competent authorities and:
                                                                 — authorities responsible for the supervision of financial
                          Article 20
                                                                     markets,
1.    The Member States shall provide that all persons
working or who have worked for the competent auth-               — bodies involved in the liquidation and bankruptcy of
orities, as well as auditors or experts acting on behalf of           investment firms and in other similar procedures,
the competent authorities, shall be bound by the obli-
                                                                 — persons responsible for carrying out statutory audits
gation of professional secrecy. This means that no
                                                                     of the accounts of investment firms and other
confidential information which they may receive in the
course of their duties may be divulged to any person or              financial institutions,
authority whatsoever, except in summary or collective            in the discharge of their supervisory functions, and the
form such that individual investment firms cannot be             disclosure to bodies which administer compensation
identified, without prejudice to cases covered by criminal       schemes of information necessary to the exercise of their
law.                                                             functions. This information shall be subject to the
                                                                 conditions of professional secrecy referred to in
Nevertheless, where an investment firm has been                  paragraph 1.
declared bankrupt or is being compulsorily wound up,
confidential information which does not concern third            6.     In addition, notwithstanding the provisions referred
parties involved in attempts to rescue that investment           to in paragraphs 1 and 4, the Member States may, by
firm may be divulged in civil or commercial proceedings.         virtue of provisions laid down by law, authorize the
                                                                 disclosure of certain information to other departments of
2.    Notwithstanding paragraph 1, the competent auth-           their central government administrations responsible for
orities of the various Member States and the public auth-        legislation on the supervision of credit institutions,
orities responsible for the supervision of credit and other      financial institutions, investment firms and insurance
financial institutions shall be authorized to exchange           companies and to inspectors acting on behalf of those
information in accordance with the provisions of Article         departments.
18 where appropriate for the efficient discharge of their
                                                                 However, such disclosures may be made only where
respective responsibilities. This information shall be
                                                                 necessary for reasons of prudential control.
subject to the conditions of professional secrecy referred
to in paragraph 1.                                               However, the Member States shall provide that infor-
                                                                 mation received under paragraphs 2 and 5 and that
3.    Member       States   may conclude         cooperation     obtained by means of the on-the-spot verification
agreements, providing for exchanges of information,              referred to in Article 19 may never be disclosed in the
with the competent authorities of third countries only if        cases referred to in this paragraph except with the
the information disclosed is subject to guarantees of            express consent of the competent authorities which
professional secrecy at least equivalent to those referred       disclosed the information or of the competent authorities
to in this Article.                                              of the Member State in which on-the-spot verification
                                                                 was carried out.
4.    Competent authorities receiving confidential infor-
mation under paragraphs 1 or 2 may use it only in the                                      Article 21
course of their duties:                                          Member States shall ensure that decisions taken in
                                                                 respect of an investment firm pursuant to laws, regu-
— to check that the conditions governing the taking-up           lations and administrative provisions adopted in
    of the business of the entities supervised by them are       accordance with this Directive may be subject to the
    met and to facilitate the monitoring of the conduct of       right to apply to the courts. The same shall apply where
    such business, the administrative and accounting             an application for authorization is deemed to be refused
    procedures and the mechanisms of internal control,           in accordance with Article 3 (4).
 ---pagebreak--- 22. 2. 90                              Official Journal of the European Communities                              No C 42/17
                         Article 22                              within the committee shall be weighted in the manner set
                                                                 out in that Article. The chairman shall not vote.
Without prejudice to the procedures for the withdrawal
of authorizations and the provisions of criminal law,            The Commission shall adopt the measures envisaged if
Member States shall provide that their respective                they are in accordance with the opinion of the
competent authorities may, as against investment firms,          committee.
or those who effectively control the business of such
                                                                 If the measures envisaged are not in accordance with the
firms which infringe laws, regulations or administrative
                                                                 opinion of the committee, or if no opinion is delivered,
provisions concerning the supervision or pursuit of their
                                                                 the Commission shall, without delay, submit to the
activities, adopt or impose in respect of them penalties or
                                                                 Council a proposal relating to the measures to be taken.
measures aimed specifically at ending observed breaches
                                                                 The Council shall act by a qualified majority.
or the causes of such breaches.
                                                                 If, on the expiry of three months from the date of
                                                                 referral to the Council, the Council has not acted, the
                                                                 proposed measures shall be adopted by the Commission.
                         TITLE VII
                                                                                          Article 24
                      Final provisions
                                                                  1.   Investment firms already authorized to provide
                         Article 23                              investment services in their home Member State before
                                                                 the entry into force of the provisions adopted in
 1.   The technical adaptations to be made to this               implementation of this Directive shall be deemed to be
Directive in the following areas shall be adopted in             authorized for the purposes of this Directive provided
accordance with the procedure laid down in paragraph             that the authorization was given under equivalent
2:                                                               conditions to those set out in Articles 3 (2) and 4.
— expansion of the content of the list in the Annex or
                                                                 2.    Branches which have commenced their activities, in
    adaptation of the terminology used in that list to take
                                                                 accordance with the provisions in force in their host
    account of developments on financial markets,
                                                                 Member States, before the entry into force of the
— alteration of the amount of initial capital referred to        provisions adopted in implementation of this Directive
    in Article 3 to take account of developments in the          shall be presumed to have been subject to the procedures
    economic and monetary field,                                 envisaged in Article 14 (1), (2) and (3). They shall be
                                                                 governed, from the date of that entry into force, by the
— the areas in which the competent authorities must              provisions of Articles 12, 14 (6), 16 and 19.
    exchange information as listed in Article 18,
— clarification of the definitions in order to ensure            3.    Article 15 shall not affect rights acquired before the
    uniform application of this Directive throughout the         entry into force of the provisions adopted in implemen-
    Community,                                                   tation of this Directive by investment firms providing
                                                                 services.
— clarification of the definitions in order to take
    account in the implementation of this Directive of
    developments on financial markets,                                                    Article 25
— the alignment of terminology on and the framing of              1.   Member States shall bring into force the laws,
    definitions in accordance with subsequent measures           regulations and administrative provisions necessary to
    on investment firms and related matters.                     comply with this Directive by 1 January 1993. They shall
                                                                 forthwith inform the Commission thereof.
2.    The Commission shall be assisted by a committee
                                                                 The provisions adopted pursuant to the first
composed of representatives of the Member States and
                                                                 subparagraph shall make express reference to this
chaired by a representative of the Commission.
                                                                 Directive.
The representative of the Commission shall submit to the
committee a draft of the measures to be taken. The               2.    Member States shall communicate to the
committee shall deliver its opinion on the draft within a        Commission the texts of the main provisions of national
time limit which the chairman may lay down according             law which they adopt in the field covered by this
to the urgency of the matter. The opinion shall be               Directive,
delivered by the majority laid down in Article 148 (2) of
the Treaty in the case of decisions which the Council is
                                                                                          Article 26
required to adopt on a proposal from the Commission.
The votes of the representatives of the Member States            This Directive is addressed to the Member States.
 ---pagebreak--- ^oC^Bt^                               C^f^c^l]ourn^lof           rh^Euron^nC^ornrnunin^                                                        ^ ^ ^ 0
                 ^^V^^^^^T^^Vt^^^O^^^^^T^tl^T^
                                                             S^CTtCo^l^
                                                                 Services
        t Brokerage,le the acceptance of mvestors^orders relating to any or all of the instruments referred to in
          SectionBbelo^vandBor the e ^ e c u t i o n o f s u c h o r d e r s o n a n e ^ c h a n g e or market o n a n a g e n c y basis
          against payment of commission
        2 Dealing as pnncipal,ie the purchase and sale of any or all of the instruments referred to in S e c t i o n s
          belo^v for o^vn account and at o ^ n n s l ^ ^ i t h a v i e ^ to profiting from the margin between bid and offer
          prices
        ^ ^tarl^et malting, l e maintenance of amarl^et in a n y o r a l l o f t h e m s t r u m e n t s r e f e r r e d t o m S e c t i o n B
          belo^v by dealing in such instruments on the basis ofacommitment to mal^et^vo^vay prices
        4 Portfolio management,ie the management against payment of portfolios composed of any or all of the
          instruments referred to in SectionBbelo^ undertaken for investors otherwise than onacollective basis
        ^ arranging or offering underwriting services in respect of issues of the instruments referred to in p o i n t !
          of SectionBbelo^v and distribution of such issues to the public
        D Professional investment advice given to investors on an individual basis or on the basis of private
          subscription in connection ^vith any or all of the instruments referred to in SectionBbelo^v
        B Safekeeping and administration of any of the instruments referred to in SectionBbelo^v otherwise than
          in connection ^ith the management ofacleanng system
        t Transferable securities including units in undertakings for collective investment in transferable securities
        2 ^vtoney market instruments ^including certificates of deposit and ^urocommercial papers
        ^ financial futures and options
        4 ^ c h a n g e rate and interest rate instruments