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Euro vision

Europe is taking a bigger role in financial services, with the aim of a single market by 2005.

Cap Gemini Ernst & Young vice-president Shaun Crawford thinks European firms have stolen a march on UK companies. He says the single financial market is not always on the radar here, with UK companies occupied on issues such as depolarisation.

Apart from the chief executives of the increasingly European-wide consolidated financial services companies, the Treasury and FSA are both broadly in favour of an integrated market.

In a recent – but virtually unreported – speech, Economic Secretary Ruth Kelly emphasised the importance of achieving the single financial market. Like FSA chairman Howard Davies, who has a lea-ding role on some of the Euro-pean committees, she sounded a note of caution on regulation, with this country pushing for a network of regulators rather than an integrated European super-regulator.

The European Commiss-ion&#39s review of progress tow-ards a single market said processes would have to be speeded up but there was no alteration to the target date of 2005.

Commission president Romano Prodi has promised to place the issue high on the agenda of the forthcoming meeting of European heads of government at the Barc-elona summit.

To coincide with the “half-term” review of the financial services action plan, research was commissioned into the benefits of a single financial market by the European Financial Services Round Table. This is an industry body made up of invited heads from the biggest European financial services companies and is currently chaired by CGNU chairman Pehr Gyllenham-mar, former head of Volvo.

The EFR&#39s research, commissioned from two German institutes, makes some strong claims. Most dramatic perhaps is its claim that an integrated market could save the mutual fund industry around £3bn a year, a figure arrived at thr-ough comparison with the US.

It claims that product choice would increase and savings from economies of scale could be passed on to consumers. Mortgages could be dramatically affected as banks would have to adjust interest rates more quickly in an integrated market.

The research also suggests that the home-market bias in investment portfolios could change. Most speculatively, the report says financial integration could mean additional annual growth of £26bn for the countries of the EU.

This was no doubt music to the ears of internal market commissioner Fritz Bolkes-tein, who believes “by creating a truly European market in financial services, we can lower the cost of capital, create more jobs and increase choice for consumers”.

The report notes that most cross-border business currently is the consequence of mergers and acquisitions. It dismisses the financial act-ivity from Luxemburg and Dublin as “round-trips” rather than as indicative of true European integration.

E-commerce, too, has not offered a promised land of cross-border activity. The report emphasises there will have to be more progress on harmonisation of tax and regulation. Tax, in particular, is clearly a highly content-ious issue.

Despite the thorny problems, Crawford says a single market makes a lot of sense. For providers, he says the attraction is clear – a single market would enable products to be sold across Europe in greatly increased volumes, resulting in decreased costs.

Globalisation and consolidation are far from new. One of the arguments frequently put forward for the EU is the need to offer governance on a scale to meet the size of the new corporations.

Take, for example, Aviva, which has followed Consignia and Accenture, by consigning the CGNU name to history and adopting a name to pres-ent a new, international face to the world.

NU chief executive (Norwich Union will remain as a UK brand) and CGNU board member Philip Scott says the result of the regulatory uphe-avals in this country has been to make other markets, particularly those in Europe more attractive. A single market would address precisely this kind of regulatory arbitrage.

People in this country might think the UK market is saturated but Crawford says there are many across the Channel eagerly eyeing up opportunities. For instance, the German financial service group AWD bought up national IFA Thomsons at the end of last year, and MLP, a big, listed German intermediary, has opened an office in this country to complement its presence in Austria and the Netherlands.

Crawford says: “The opposite is true as well. There is an opportunity for firms in this country to go into growing markets, such as Germany, which has traditionally been dominated by bancassurers but where an appetite is growing for intermediated, IFA-type products.”

Threadneedle is an interesting example. Owned by a Swiss company (Zurich Fin-ancial Services), it functions as a London boutique which has sold more in the German-speaking countries of Europe than in the UK.

Towry Law, unusually for a UK-based IFA firm (though Australian owned), has a strong international presence, with Towry Law International based in Brussels.

Towry Law European director Tony Shah believes many of the European countries are three to four years ahead of the FSA in terms of preparation for EU law. He believes Europe offers strong opportunities for IFAs.

But whether we see what Aifa director general Paul Smee terms the “IFA sans frontières” will depend on the direction of future negotiations, notably next week&#39s Barcelona summit.

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