In asset terms, _banks_ are the most important group of financial investors in fixed income securities markets. On the securities side of banking business, the 1993 Capital Adequacy Directive (CAD) applies to investment firms as well as the trading books of universal banks. Opposite to UCITS, the CAD does not define specific thresholds for investment firms ́ or banks ́ investments in fixed income securities.

_Insurance companies_ are the second most important group of financial investors in Europe, possessing total assets in the European Union as high as pension funds and UCITS combined.<sup>31</sup> EU's third life insurance directive contains investment rules that require 80 percent currency matching between the company's assets and liabilities.<sup>32</sup> Attempts have been made to extend the single license to the management and investment of _pension funds_ . A draft 1991 directive had to be withdrawn because of disagreements between member states on the prudential supervision. In 2000 the Commission proposed a slightly amended proposal for a directive on the activities of “institutions for occupational retirement provisions” (IORPs), which are pension funds other than social security schemes and individual schemes, e.g. company pension funds. This proposal was agreed both by Council and Parliament on 12 and 13 May 2003. The Directive suggests free choice of asset managers and custodians and provisions on own funds that will ensure a level playing field compared to _life-assurance companies_ (whose investments are regulated under the Single Market Program for insurance companies). As regards investment rules, the Directive will allow IORPs to have relatively high levels of investments in risk-capital products.<sup>33</sup> The proposal, however, does not suggest as detailed quantitative provisions on investments as in the UCITS directives.

# **3.2 Investor protection**

Investor protection is mainly provided for in the EU Investment Services Directive, adopted in 1993 (1993 ISD). The directive establishes the conditions in which authorized investment firms and banks can provide specified services in other member states on the basis of home country authorization and supervision. Services eligible for a passport under the existing ISD include brokerage, dealing, individual portfolio management, reception and transmission of investor orders, and underwriting/placing activities. In addition, the ISD enshrines the right of direct or remote access of any authorized ISD firm to participate in trading on exchanges/regulated markets in other member states. To support the effective exercise of this right, the ISD defines some characteristics for mutually recognized exchanges and impose some conditions on the operation of those markets. The ISD is therefore the legal instrument that seeks to translate Treaty freedoms into practice in respect of investment services and organized trading of financial instruments.

> 31 Gros, 2000.

> 32 According to Gros, 2000, page 64, EMU has made this EU currencies matching rule irrelevant for euro area life insurance companies, allowing them to spread their assets in a larger currency area.

> 33 Draft Article 18 of the proposal will allow member states to define investment rules for IORPs.  However, an IORP shall at least be given the possibility to invest up to 70 percent of their assets in shares and corporate bonds and shall have access to invest in risk capital markets.

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