EU Financial Services Policy: Evolution and Reforms

EU Financial Services Policy: Evolution and Reforms

Services Directive and its Limitations

Secondly, there was intense controversy about which sectors and industries, if any, should be excluded from the directive, and on what grounds. Should, for example, health, education, and cultural criteria be grounds for exclusion, and in what circumstances? Running through both of these areas of disagreement was a mosaic of factors influencing political actors, including ideological preferences concerning regulatory levels in the market and calculations about how national providers would likely fare in a more open market. The European Parliament (EP) and the Council eventually reached an agreement on the directive in November 2006, but only after its contents had been considerably watered down: the country of origin principle was virtually dropped and the number of services excluded from coverage by the directives was extended.

Financial Services Action Plan and the 2008 Crisis

As for financial services (banking, insurance, securities, assets management), progress in opening up and strengthening markets was made under the 1999-2005 Financial Services Action Plan (FSAP). In December 2005, the Commission issued a White Paper, Financial Services Policy 2005-2010, identifying objectives and proposed action over the next five years. The focus was mainly on consideration between services providers, and improving supervisory cooperation and convergence. However, the global financial crisis that erupted in 2008 has inevitably resulted in EU policy-makers giving financial services a much higher and more urgent policy profile than they had hitherto. This has led to a spate of legislative measures and proposals – originating from the Commissions working in close cooperation with the European Council and the Ecofin Council of Ministers – designed to tighten the EU regulatory framework in the financial sector and so create greater stability and boost confidence in financial markets.

Key Legislative Measures and Proposals

• Amongst measures that have been approved by the Council and the EP are the Capital Requirements Directive, the Solvency II Directive, and the Credit Rating Agencies Regulation.
• Amongst proposals that are scheduled to be approved are a package of measures adopted by the Commission in December 2009 to strengthen financial supervision.

New Supervisory Bodies

The measures will create a new European Systemic Risk Board (ESRB), charged to detect at an early stage risks to the financial system as a whole, and a new European System of Financial Supervisors (ESFS) which will work with three new European Supervisory Agencies for the banking, securities, and insurance and occupational pensions sectors.

Free Movement of Capital: A Slow Start

Until the late 1980s, only limited progress was made in establishing the free movement of capital. Treaty provisions partly explain this, since the elimination of restriction on the movement of capital under Article 67 of the EEC Treaty (not abolished) was required only “to the extent necessary to ensure the proper functioning of the common market”. More importantly, however, and notwithstanding the creation of the European Monetary System (EMS) in the late 1970s, the necessary political will did not exist in the first three decades of the Community’s life. For many states, control of capital movements was an important economic and monetary instrument and they preferred it to remain largely in their own hands.