Few issues are as emotive as Europe, throwing up images of referendums and, if some people are to be believed, a super-state, with bureaucrats in Brussels taking control.
With so much scaremongering and debate over what a European constitution would mean to people's everyday lives, it appears that this is one political hot potato no one wants to touch. So, for the Anglomaniacs among you, I have some difficult news – Europe is not only coming, it is in fact already here and exerting its influence.
As we all know, the FSA is in the middle of a series of major consultations with the industry that will lead to the most significant reform of the retail financial services market in the UK since the introduction of the Financial Services Act 1988.
What many people do not realise is just how much of this reform is either driven by or influenced by legislation being developed in Brussels.
Europe is moving rap-idly towards greater integration and the creation of a single market for goods and services. So far, a single market for financial services has seemed painfully slow in arriving but that is about to change.
In 2000, European heads of government committed to the financial services action plan, a series of measures designed to bring about a genuine single financial services market in Europe by 2004.
A series of European directives has been passed by the European Parliament, with others on the way, and will have to be implemented by member states.
The UK has no choice about implementing these directives and the FSA is the vehicle by which much of this change will be introduced to the UK. This is acknowledged in the FSA's plan and budget 2003/4. which states: “Much of the change which we have introduced, and which is in prospect, arises from European directives. When directives have been passed, we have no choice but to implement them here.”
It is no secret that the FSA has had to change its minds on a number of regulatory requirements in order to accommodate the needs of European directives. For example, in May 2002, the FSA consulted on new rules relating to status disclosure – when its policy statement was issued in January 2003, most of the proposals had been dropped or deferred pending implementation of the distance marketing directive.
There is concern that Europe is forcing the UK to operate in ways that do not necessarily suit the way the market here operates. There is enormous diversity in European financial services markets, with each member state having its own very individual arrangements. The guiding principle in Europe for financial services is harmonisation via “framework” directives, leading to common core standards across Europe, with each member state fleshing out the detail.
Whether this proves to be the reality or whether the bureaucrats in Brussels go beyond this remains to be seen.
So, what are some of the key European directives affecting the retail market?
The distance marketing directive aims to protect consumers when entering into contracts sold “at a distance” (that is, no face-to-face contact). It covers such matters as the standard of information that a consumer receives and their cancellation rights.
It has had a direct impact on the consultation for regulating general insurance and the FSA has just issued a consultation on how it will affect investment business. The requirements of the DMD must be implemented by October 2004.
The insurance mediation directive requires statutory regulation of general insurance brokers and sets common minimum standards that must apply across Europe. As a direct result of this, the FSA was given powers to regulate general insurance and has embarked on a major consultation with the industry and publication of draft rules.
To meet the requirements of the IMD, the UK must implement the necessary changes by no later than January 2004 – the date set by the FSA for introducing regulation of general insurance.
The investment services directive sought to establish a framework in which authorised investment firms and banks could provide specified services in other member states on the basis of home country authorisation and supervision. It therefore underpins much of the ongoing development of a single financial services market.
The above are just examples of the 40-plus initiatives in the financial services action plan that, when completed, will have transformed the framework for financial services in Europe. Like all change, it will bring threats and opportunities. It is important for IFAs to be briefed on these regulatory developments on a regular basis to ensure they have the knowledge to limit the threats and to maximise the opportunities.
Steve Pearson is managing director of network Sesame