FINANCIAL SERVICES: COMMISSION ISSUES DRAFT DIRECTIVE ON FINANCIAL CONGLOMERATES.

"This proposal represents an important step forward towards an integrated European financial market and enhanced financial stability", said Frits Bolkestein, Internal Market Commissioner. "The proposed regulatory framework would benefit consumers, depositors and investors in the European Union by stimulating financial market efficiency and increasing competition."The need for such legislation has arisen following the consolidation of European financial services companies and has led to groups owning businesses in various different sectors - the big bancassurance groups. Their complex cross-sector structures bring with them new business risks and the Commission wants to encourage the co-ordination and exchange of information by supervisory bodies in each Member State. The EU executive does not, at this moment, envisage the creation of a Europe-wide overlord for the conglomerates sector.The three main aims are to ensure that a financial conglomerate has enough capital to operate, that the company does not use its position in the market to attempt "multiple gearing" (where capital is counted twice over in the operation and so used simultaneously as a buffer against risk in different entities in the same financial conglomerate) or that "excessive leveraging" occurs, where a company issues debt and then uses the proceeds as equity for another part of the business. The Commission also wants to be able to measure the solvency of the company and gauge its exposure to risk and the suitability and professionalism of the managers.The Commission also says that the draft Directive moves the EU into line with the world's other...