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The Financial Services Action Plan (FSAP)
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A single market. A harmonised market in banking, investment, insurance, derivatives, commodities. This is a top priority for the European Union.


The Financial Services Action Plan (FSAP), launched in 1999 and almost completed by 2004, is a huge and ambitious project.

There are 42 original measures in the FSAP.

Some are non-legislative, a few are regulations, and there are almost 30 directives.

Over 20 of the original measures are likely to affect the financial sector.

 
The most important measures are:
 
1. The Capital Requirements Directive

DIRECTIVE 2006/48/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (recast)
DIRECTIVE 2006/49/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 14 June 2006 on the capital adequacy of investment firms and credit institutions (recast)

The Capital Requirements Directive (CRD) is the common framework for the implementation of Basel ii in EU.

This directive is making significant changes to two existing directives that were implementing Basel I:


1. The Banking Consolidation Directive

2. The Capital Adequacy Directive  

Although the Capital Requirements Directive (CRD) has worked very well for the European Union, after the market crisis it was obvious that there was a need for amendments.

We have the:

Capital Requirements Directive II (CRD II)

Capital Requirements Directive III (CRD III)

Capital Requirements Directive IV (CRD IV)


2. The 8th Company Law Directive

DIRECTIVE 2006/43/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 17 May 2006 on statutory audits of annual accounts and consolidated accounts

The 8th Company Law Directive is similar to the US Sarbanes Oxley Act.

This directive is called the European Sarbanes Oxley.

In fact, there are similarities and differences.

This Directive was necessary to ensure that investors and other interested parties can rely fully on the accuracy of audited accounts and to enhance the EU's protection against the type of scandals that recently occurred in companies such as Parmalat and Ahold.

Most of the measures in the proposal, however, were already in preparation well before those scandals broke.

Faith in financial reporting and financial markets should be restored to protect investment, jobs and growth.

This Directive fulfils many of the priority commitments the Commission announced in its May 2003 Communication "Reinforcing statutory audit in the EU" (see IP/03/715).

It clarifies the duties of statutory auditors, their independence and ethics, by introducing a requirement for external quality assurance and by ensuring robust public oversight over the audit profession.

This considerably broadens the scope of the former Eighth Council Directive on Company Law, which only dealt with the approval of statutory auditors.

The 8th Company Law Directive also provides a basis for effective and balanced international co-operation between regulators in the EU and with regulators in third countries, such as the US Public Company Accounting Oversight Board (PCAOB).

The latter is particularly important because of the global nature of modern capital markets, demonstrated again by the international nature of the recent scandals, which affected several jurisdictions.


The 8th Company Law Directive of the European Union


3. The Markets in Financial Instruments Directive (MiFID)

DIRECTIVE 2004/39/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 21 April 2004 on markets in financial instruments

 
The Investment Services Directive has been replaced by MiFID that reflects developments in financial services and markets and extends the scope of the passport to cover commodity derivatives, credit derivatives and financial contracts for differences for the first time. 


4. Financial Conglomerates Directive

DIRECTIVE 2002/87/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 16 December 2002 on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate
 
The Financial Conglomerates Directive tries to introduce supplementary supervision of financial conglomerates on a group-wide basis, in addition to both the prudential supervision of regulated entities on a standalone basis and consolidated supervision on a sectoral basis.  

The Financial Conglomerates Directive of the European Union


5. Savings Tax Directive

COUNCIL DIRECTIVE 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments
 
The Savings Tax Directive is the effort of the European Union to stop taxpayers from fleeing to lower tax environments.

The new environment is becoming very interesting, as, although not in the EU, many offshore financial centers have voluntarily agreed to apply the same or equivalent measures.


Understanding the inancial Services Action Plan (FSAP)

The Financial Services Action Plan (FSAP) is an ambitious programme with four key strategic objectives:

1. Developing a single European market in wholesale financial services

2. Creating open and secure retail markets

3. Ensuring financial stability through establishing state of the art prudential rules and supervision

4. Setting wider conditions for an optimal single financial market.

The overall aim of this assignment was to measure the economic impact attributable to the FSAP as a whole at this point in time. It also sets out the baseline methodology for how future developments attributable to the FSAP can be assessed.

To meet these four strategic objectives, the FSAP introduced 42 measures each with their own operational objectives (such as increasing market confidence, harmonising information etc).

The Financial Services Action Plan (FSAP) was largely completed by its 2004 deadline, with 39 of the 42 measures adopted.  

This is considered a success in legislative procedural terms for a programme of this scale, which included landmark legislative initiatives, introduced a new regulatory process and had to respond to unprecedented market events in the financial services area.

To achieve this extremely wide-ranging programme required a tremendous effort on the part of all institutions with relatively few resources.

The range of activities from ex-ante consultation exercises to drafting of legislative proposals by Commission personnel and inter-institutional negotiations was extremely wide-ranging.

The FSAP has already been the subject of considerable analysis by various parties, including:

1. The ten Progress Reports on the FSAP (the “Progress Reports”)

2. The Financial Services Committee report on Financial Integration (the “Asmussen report”)

3. The Reports of the Four Independent Groups of Experts on European Financial Integration (“expert group” reports)

4. The European Parliament’s Economic and Monetary Affairs Committee’s draft report on the Current State of Integration of EU Financial Markets (“van den Burg report”)  

 

  

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