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II. The Lamfalussy Legislative Model: A New Era For The Ec Securities And Investment Services Regime

Published online by Cambridge University Press:  17 January 2008

Niamh Moloney
Niamh Moloney
Affiliation:
School of Law, Queen' University Belfast
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Extract

The worldwide repercussions of the Enron collapse have placed the effectiveness of the EC's system of securities and investment services market regulation, particularly with respect to disclosure, market transparency, and auditor independence, under a harsh spotlight.1 But the regime was already undergoing a sea change that may have longstanding repercussions for how EC securities and investment services markets are regulated. In particular, sweeping changes have been made to the way in which EC securities and investment services measures are adopted. These changes have set the stage for a dramatic change in the detail, regulatory sophistication, and degree of intervention in Member States' system of the EC securities and investment services regime. They have not, however, required a Treaty revision but are based on the comitology process for delegated law making.

Type
Current Developments: European Union Law
Information
International & Comparative Law Quarterly , Volume 52 , Issue 2 , April 2003 , pp. 509 - 520
Copyright
Copyright © British Institute of International and Comparative Law 2003

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References

1 For the initial EC response to the Enron collapse see A First Response to Enron Related Policy Issues, Note by the Commission for the Informal ECOFIN Council, Oviedo 12 and 13 Apr 2002, IP/02/584.

2 See generally Moloney, N, EC Securities Regulation (Oxford: Oxford University Press, 2002).Google Scholar

3 COM (1998) 625 final, Building a Framework for Action.

4 COM (1999) 232 final, Implementing the Financial Services Action Plan.

5 Ibid, 2.

6 The FSAP progress reports read as a depressing litany of missed deadlines, political deadlock, inter-institutional inertia, and Commission frustration. In the Sixth Report, however, the Commission stated ‘the political commitment to implement the FSAP on time is beginning to be translated into firm political agreements’: COM (2002) 267 final, 9.

7 Final Report of the Committee of Wise Men on the Regulation of European Securities Market, Feb 2001.

8 Common Position No 1/2001 OJ 2001 C23/1.

9 Above n 7, 14.

10 Ibid, 7 and 12.

11 Ibid, 8.

12 Decision 99/468 (OJ 1999 L184/23). The Lamfalussy model is based on the comitology committee being a regulatory committee, which exerts the highest level of control over the Commission.

13 Presidency Conclusions, Stockholm European Council, 23 and 24 Mar 2001, Annex 1, Resolution on More Effective Securities Market Regulation (the Stockholm Resolution), Introduction and para 1.

14 Ibid, para 2.

15 Commission Decisions 2001/528 (OJ 2001 L191/45) (the ESC Decision) and 2001/527 (OJ 2001 L191/43 (the CESR Decision).

16 COM (2002) 460 final (the Amended Prospectus Proposal), Art 7.

17 Case C-376/98 Germany v Parliament and Council [2000] ECR I-8419.

18 Expert groups have been set up on: market transparency and efficiency; investor protection; market abuse; prospectuses; and clearing and settlement systems.

19 A market participants consultative panel was established in July 2002 (CESR 02-111).

20 CESR/01-002.

21 OJ 2001 C240/265 and OJ 2001 C 240/272.

22 The Commission will be excluded from CESR discussions that involve confidential matters relating to individuals and firms. CESR Charter above n 20, Art 3.1.

23 Above n 13, para 5. The Resolution does note, however, that this commitment does not constitute a precedent.

24 At an early stage of the Lamfalussy discussions, the European Parliament sought a right of appeal against Commission Level 2 decisions, a possibility rejected by the Lamfalussy Report as not being envisaged in the Treaty. It pointed to the close contact that would be maintained by both committees with Parliament. It also emphasized that the Parliament would have time before the Commission made a proposal to the ESC and after the ESC vote to check that the proposed Level 2 measure conformed to the scope of the Level 1 delegation. Finally, the Report noted that if Parliament were to consider that the Commission's proposal did not conform to the scope of the Level 1 measure, it could pass a resolution to that effect. The Commission would then be required to reconsider its proposal, taking the Parliament's position into account. Above, n 7, 34.

25 Above n 13, para 5.

26 European Parliament, Report on the Implementation of Financial Services Legislation, 23 Jan 2002 (A5-0011/2002).

27 P5-TAPROV(2002)0114 and P5-TAPROV(2002)0113, respectively (not yet reported in the Official Journal).

28 The Sixth Annual Report on the FSAP noted that ‘agreement on the Lamfalussy process was a key development’ in the re-energising of the FSAP timetable. Above n 6, 9. The Financial Times has also reported that the Lamfalussy model ‘has been praised for its relative simplicity and speed’: Guerrera, F and Parker, G, ‘Four new pan-European bodies will set financial regulations’, Financial Times 7 Oct 2002.Google Scholar

29 9 July 2002 Speech by the Chairman of CESR to the Economic and Monetary Affairs Committee of the European Parliament (CESR/02-147).

30 See, eg, Boland, V, ‘Battle looms over Brussels plan for capital market regulation’, Financial Times, 11 June 2001.Google Scholar

31 OJ 2002 C80/52 and OJ 2002 C80/61. This may be contrasted with the three detailed consultation documents on the reform of the Investment Services Directive, see COM (2000) 729 final and the 2001 and 2002 ISD Working Papers.

32 Above n 7, 41.

33 The selection of particular areas for amplification at Level 2 was made ‘in order to ensure a prompt response to fast-changing reality and to ensure the proper functioning of the internal market (in accordance with the home country principle) and adequate protection for retail investors’, Explanatory Memorandum to Amended Proposal, above n 16, 7.

34 2002 ISD Working Paper above n 31, 16–18. Since this article was completed, the Commission presented its formal proposal for reform of the ISD: Com (2002) 625. Arts 18–20 reflect the 2002 ISD Working Paper and set out dramatic revisions to the scope and detail of Art 11. In particular, detailed obligations are imposed with respect to best execution and order handling.

35 In Sept 2002, eg, the Chairman of the UK Financial Services Authority stated that ‘[t]here is a serious risk of ratcheting up regulation in a way that, in my view, could have damaging consequences’: Pretzlik, C, ‘Chief City Regulator Hits at Rash of Brussels Directives’, Financial Times, 10 Sept 2002.Google Scholar

36 A full discussion of this question is outside the scope of this article.

37 Guerrera, F, ‘Brussels plans share trading shake-up’, Financial Times, 27 Sept 2002. This approach has been adopted in the Commission's formal proposal which imposes a tailored pretrade transparency regime on investment firms: above n 34, Arts 20(4) and 25.Google Scholar

38 See, eg, the European Parliament's proposed amendments to the Commission's original proposal for the distance marketing of financial services directive (OJ 1998 C385/10) which were adopted in the Directive (Directive 2002/65 OJ 2002 L271/16).

39 2000 ISD Communication above n 31, 20.

40 On the representation of retail-investor interests in Community legislation, see Moloney above n 2, 856–8.

41 Above n 7, 22.

42 Above n 13, para 1.

43 Regulation 1602/2002, OJ 2002 L243/1.

44 See Guerrera and Parker, above n 28.

45 London Economics, in association with PricewaterhouseCoopers and Oxford Economic Forecasting, Quantification of the Macro-Economic Impact of Integration of EU Financial Markets (2002). Commenting on the Report Internal Market Commissioner Bolkestein stated that: ‘We must not lose this opportunity to put money in the pocket of every European’, IP/02/1649.