FINANCIAL SERVICES: EU CONTINUES TO WORK TOWARDS AN INTEGRATED MARKET.

In May 1999, The European Commission put forward a host of ambitious policy objectives and specific measures for improving the Single Market for financial services in the EU over the next five years. The Commission stresses the importance of completing this Financial Service Action Plan (FSAP) by the 2005 deadline, especially in light of a recently-commissioned study that suggests integration of financial markets could add 0.5%-0.7% annually to the EU's GDP. The Commission also says that an integrated well-functioning home market will improve the global competitiveness of EU financial service providers and attract more foreign investors. It will also strengthen the international role of the Euro.Since the FSAP was adopted, a number of changes to the financial and political climate have caused the Commission to re-think its strategy slightly and call for tougher regulation in Europe. The terrorist attacks on the United States last September shook the insurance sector, and called into question whether existing EU rules on insurance solvency are sufficient to protect policy-holders. Financial scandals that have dogged the US recently - such as the collapse of Enron and WorldCom - have prompted calls for tougher legislation in Europe to prevent such incidents happening this side of the Atlantic.State of play with FSAP measuresEuropean Report takes a brief look at how far the EU has come in meeting the goals set out in its Action Plan, and reflects on what still needs to be done.Prospectuses.It is taking longer than expected to reach a deal on a new streamlined Directive on prospectuses for entry to stock exchanges, in part because of concern that the proposed legislation may not be tough enough. The Commission originally hoped to have the new Directive adopted by the end of 2002, but political wrangling among Finance Ministers suggests that final approval now looks more likely in 2003. In particular, recent scandals in the US financial sector have shifted the context of the debate, and prompted calls from such political heavyweights as Hans Eichel, the German Foreign Minister, that the new Directive should contain tougher laws to protect the interests of retail investors.The new Directive, which replaces two previous Directives (80/390/EEC and 89/298/EEC), was tabled by the Commission in May 2001. It aims at making it easier to raise capital across borders by providing a single EU passport, and removing the need for companies to publish separate prospectuses (the disclosure document containing all the necessary information to enable investors to make a correct assessment of the assets and liabilities of publicly-traded bonds and shares) in each EU market.Regular reporting requirements.Before the end of the year, the European Commission hopes to put forward a proposal for new legislation on the information that publicly-traded companies must disclose. The contents of the proposal will draw on the two rounds of consultation that the Commission has recently held.Internal Market and Financial Services Commissioner Frits Bolkestein believes that, in light of the Enron scandal, the need to improve market transparency for investors all over Europe is imperative.Market abuse.The Commission hopes that the new Directive on market abuse will be adopted before the end of 2002. It put forward new proposals for a Directive on insider dealing and market manipulation in May 2001, setting out common rules against market manipulation throughout Europe in order to strengthen investor confidence in these markets. The European Parliament gave its Opinion on...