Europe's Retail Financial Services On the road to integration,

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					Europe’s Retail Financial Services:
On the road to integration,
are we up to the challenges?


     Tuesday, 6th June and Wednesday, 7th June 2006
         At the European Parliament in Brussels
Leading Sponsors

                   Organised by Eurofi with Forum Europe
About EuRoFI
Eurofi is an operational think tank dedicated to European financial integration chaired by
Jacques de Larosière and Daniel Lebègue.

our objective is to help the industry have a leadership role in addressing the current market
inefficiencies of European financial markets and to bridge the gap when necessary with the
European institutions. We address prospective subjects as well as contentious issues, where we
act as a go-between and catalyst for the market.

Eurofi’s specificity is to work with all the representative stakeholders involved in a given
subject – different types of financial institutions such as banks, broker dealers, insurance
companies as well as market infrastructures, consumer representatives , European institutions
and domestic political decision makers - to the industry solve contentious issues or specify
new ideas.

We are currently working at the European level on:
• strategic and operational issues such as: SEPA, securities post-trading, investment fund
  distribution and processing, development of micro-credit
• institutional issues such as required evolutions of the regulatory and supervisory organisation
  and processes (ex: 26th regime, evolution of supervision in the Eu).

this way we complement the institutional proposals made by the Commission, the academic
assessments made by associations or universities and the proposals made by industry associa-
tions that often relate to a given domestic market or type of player.

In addition, Eurofi organises each year a certain number of events to ensure in particular
media coverage of its recommendations and to enable its members and partners (partners are
institutions who are not formal members of Eurofi but who are associated to certain specific
topics) to discuss issues publicly and promote their ideas.

We are supported exclusively by financial institutions who use Eurofi to test, exchange, clarify,
develop, deepen or promote their ideas for fostering European financial integration.

our present members are Axa, Aviva, bNP Paribas, Caisse Nationale des Caisses d’Epargne,
Citigroup, Crédit Agricole, Deutsche bank, Euronext, Goldman Sachs, Groupe banque Populaire,
JPMorgan Chase, La banque Postale, Sanpaolo Imi, Société Générale, the European Investment
bank, unitcredit Group.

Many additional institutions have actively been involved as partners in the studies and events
we organised in 2005 and 2006 as partners: bank of New York, Caja de Granada, Euroclear,
Deustcher Sparkassen und Giroverband, Fortis, HSbC, ING, Natexis Asset Management, Visa

        European parliament, Brussels
     Tuesday, 6 and Wednesday 7 June 2006

                 Conference report

   organised by Eurofi with Forum Europe
EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

                            EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

1. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
. AbOUT THE CONfERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
. ExECUTIvE SUmmARy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4. THE CONfERENCE PROGRAmmE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5. THE CONfERENCE – Day 1 Tuesday 6 June 006 . . . . . . . . . . . . . . . . . . . . . . . . 4
   1. Opening and Welcome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
   . Plenary Session 1: Are Europe’s consumers well served? . . . . . . . . . . . . . 7
   . Workshop 1: bringing microcredit to Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
   4. Workshop : Consumer protection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
   5. Workshop : Development of UCITS in the EU . . . . . . . . . . . . . . . . . . . . . . . . . 50
   6. Workshop 4: Do “European Shareholders” really exists . . . . . . . . . . . . . . 66
   7. Plenary Session : Tougher Competition – threat or Promise . . . . . . . 76
      Keynote Address: Neelie Kroes,
      EU Commissioner for Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
6. THE CONfERENCE – Day  Wednesday 7 June 006 . . . . . . . . . . . . . . . . . . . 8
   1. Plenary Session : What is the outlook for the single euro
      payments area (SEPA)? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
   . Plenary Session 4: making the 6th regime an attractive option . . . 96
   . Plenary Session 5: Do Europe’s myriad national
      supervisory authorities raise costs for consumers. . . . . . . . . . . . . . . . . . . . . . 107
   4. microcredit: A Strategy for Europe
      Keynote Address: Danuta Hübner: EU Commissioner
      for Regional Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
   5. Pleanry Session 6: The Way Ahead
      Keynote Address: José manuel barroso, President of the EU. . . . . . 11
7. ExECUTIvE SUmmARy of the studies conducted by Eurofi . . . . . . . . 16

EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

for its 006 conference, Eurofi’s ambition was to gather in one major public event
all the main stakeholders of retail financial services in the EU including the
decision-makers of leading retail financial institutions active in Europe, policy-
makers and experts from the various European institutions, national government
representatives as well as consumer representatives and the press.

During two days, over 750 delegates gathered at the European Parliament in
brussels to debate “Europe’s Retail financial Services: on the road to
integration, are we up to the challenges?”.

The first part of this report summarises the speeches and discussions which
took place during the two day event with sessions on: SEPA, UCITS, Corporate
Governance, Supervision, retail integration and the 6th regime, microcredit,
etc. This summary also contains the conclusions drawn from these debates
and the different proposals made to foster further integration of EU financial

The second part of the report is the Executive Summary of all papers prepared
by Eurofi on these subjects. These papers were distributed to the participants
and were used as an introduction to the various topics of discussion. They
can be found and downloaded from the Eurofi website,

This conference would not have been possible without the support of the
European Parliament who kindly provided the “Hémicycle” and other
conference rooms that hosted the event and its various sessions. Eurofi
expresses its sincere appreciation to the different participating mEPs for their
support and to all the European Parliament staff for their kind assistance and
hospitality during the two days.

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

Eurofi also expresses its gratitude to all of its members for their continued
support and also thanks the conference Sponsors, moderators and Speakers
for their support and participation in the discussions.

We would also like to thank our consultants Jean-marie Andres, partner of
ADS Conseil and marc Truchet, partner of ICmE (International Consulting
management & Engineering), who assisted Eurofi in preparing the studies
and workshops, and to Christian Hawkins and his colleagues at forum Europe
for the efficient handling of the organisation of the entire conference.

Didier Cahen                 Jacques de Larosière             Daniel Lebègue
Secretary General            Co-President                     Co-President
Eurofi                       Eurofi                           Eurofi

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

Axa, Aviva, bNP Paribas, Groupe Caisse D’Epargne, Crédit Agricole, Citigroup,
Deutsche bank, European Investment bank (EIb), Euronext, JPmorgan
Chase, Goldman Sachs, Groupe banque Populaire, La banque Postale,
Sanpaolo ImI, Société Générale, Unicredit Group ;

            EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

Of the Eurofi Conference

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

Retail financial services were top of the agenda at Eurofi’s 006 conference.
The subject was certainly a popular one as over 750 participants, from the
financial services and insurance industries, governments, European Institutions,
and the media, flocked to the European Parliament building in brussels.

The event was organised by Eurofi and Forum Europe in partnership with
Axa, BNp paribas, Crédit Agricole, Groupe Caisse d’Epargne, unicredit
Group and Visa, with the support of the Eurofi members namely, Aviva,
Citigroup, Deutsche Bank, Euronext, The European Investment Bank
(EIB), Goldman sachs, Groupe Banque populaire, JpMorgan Chase, La
Banque postale, san paolo IMI and société Générale. Additional sponsors
were: Caja Granada, The Forum of European Asset Managers (FEAM),
Fortis, ING, Natexis Asset Management.

Eurofi Secretary General Didier Cahen welcomed the delegates and was
supported in his opening remarks by Eurofi co-Presidents Jacques de Larosière
and Daniel Lebègue.

During the two days, the plenary sessions were devoted to answering key
questions concerning a raft of topics such as: further integration of the retail
markets, competition policy, the Single Euro Payments Area (SEPA), benefits
of the 6th regime, the supervisory authorities and the way ahead for financial

In addition, a number of workshops also examined: micro credit, consumer
protection, UCITS and shareholder rights.

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

representatives of the European institutions and industry leaders delivered
keynote addresses:

• José Manuel Barroso, President of the European Commission
• Neelie Kroes, Commissioner for Competition
• Danuta Hübner, Commissioner for Regional Policy
• pervenche Berès MEp, Chairwoman of the Committee on Economic and
  monetary affairs of the European Parliament
• Daniel Vegara, President of the financial Services Committee and Spanish
  Secretary of State for Economic Affairs
• Henri de Castries, Chairman of the management board and Chief Executive
  Officer, AxA
• Georges pauget, Chief Executive Officer of Crédit Agricole

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

   A call for closer cooperation and involvement of all stakeholders

member States that put national issues first and the lack of cooperation of
national supervisors were heavily criticised at Eurofi’s conference on Europe’s
Retail Financial Services. During the two days of the conference that brought
together many of the major players in the financial sector and where the
discussions were free and wide-ranging, it was widely acknowledged that
there was still much work to be done in order to give consumers the benefits
of a single integrated market. There was also much to be done to enable the
industry to reap the expected benefits of integration through economies of
scale and developments of new markets.

There were many innovative ideas placed on the table and lively discussions were
the order of the day(s). Proposals focused in particular on improving the coop-
eration and coordination of supervisors and on increasing the timely involvement
of all stakeholders in decisions made. Developing integration in retail markets
was overall recognized as a worthwhile but challenging objective. The need for
pragmatic and step-by-step approaches hinging on sound business models was
generally put forward as well as the need to ensure consumer protection effi-
ciently without overburdening the industry. Customer education and information
was also often put forward as an area of progress. Priorities were expressed for
major retail products consumer: credit, payments, UCITS, micro-credit…

Two EU Commissioners made keynote speeches, with Competition Commis-
sioner Neelie Kroes promising open markets, a series of sector inquiries, more
choice for consumers and a crack-down on excessive profits by the banking
industry. Regional Policy Commissioner Danuta Hübner called for a genuine
EU-wide strategy for the implementation of micocredit as it could be a massive
boost for SmEs and provide an impetus for jobs and growth across the EU.

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

Commission President José Manuel Barroso wanted tangible results from
the single integrated financial services market. A lot remained to be done for
retail financial markets integration. The EU’s citizens had concerns in the
face of globalisation and the EU was still seen as “important but remote”.
Concrete results would prove to citizens that the EU was part of the solution
and not the problem. When necessary, national regulatory approaches should
be aligned as this was the only way of introducing real cross-border competi-
tion and developing a spirit of partnership among supervisors was vital.

mEP pervenche Berès gave the conference its rallying cry, calling for obsta-
cles to the single integrated financial market to be attacked with the same
political determination as that given to the introduction of the euro. She also
called for pan-European initiatives when new issues were to be tackled rather
than specific national initiatives and encouraged assessment of further
coordination among supervisors. Credit Agricole CEO Georges pauget was
the first of many speakers to insist that national barriers had to be overcome,
but he also wanted consumers to be better and more efficiently informed
without overburdening the industry. Everyone had to play their part there,
including the national educational system themselves. mEP Arlene McCarthy
was convinced about the demand in the retail market, one that was being
driven by the Internet and an increasingly mobile population. Looking ahead,
David Vegara did not want an fSAP II, he wanted more innovation, a clear
methodology and political determination. He also encouraged “better regula-
tion” and supervisory convergence and gave his support to the 6th regime as
a possible option to favour harmonisation.

The Consumer protection workshop saw industry representatives arguing
the case for targeted full harmonisation, combined with mutual recognition.
bank of Austria Creditanstalt’s Marianne Kager argued that regulatory
fragmentation was not justified by different customer needs and wanted a
step-by-step approach that examined each case and type of product on its
merits to recommend the best harmonisation tool (targeted full harmonisation,

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

mutual recognition, 6th regime…). On the consumer side, the European
Consumers’ Organisation (bEUC) Jim Murray called for harmonised infor-
mation, guaranteed good advice and standardised products. Products were
seen by many consumer representatives to be over-complex and that led the
banking community to warn against information overload if they were forced
to provide too much data. The Spanish banking and Insurance Consumer
Association (ADICAE) Manuel pardos Vicente added a new issue, indebted-
ness, and called for suppliers to ensure that consumers could afford their
products. On the Commission side, Dirk staudenmayer highlighted the
balance the modified proposal on consumer credit was seeking, between a
high level of consumer protection, and a real opening of the internal market.
He also spoke of the need to get consumer information right, so it contained
all necessary information, but was easily understandable to the average

At the uCITs workshop, everyone agreed that improvements were needed,
that the main options were identified and that the time for action had come.
However, consensus on the way forward was not obvious from the contribu-
tions of the panellists. Natexis Asset management’s Daniel roy wanted an
open architecture with focus on global balanced funds and advice on asset
allocation and a genuine European market, while fEAm’s Elizabeth Corley
only wanted change to the regulation where it was necessary and insisted with
Jean-Baptiste de Franssu from Invesco on the need to implement proposals
made by the expert groups moderated by the Commission. She proposed
developing a voluntary industry code that with a check of the progress made
in say 1 months. Jean-baptiste de franssu also insisted on the potential
benefits facilitated cross-border fund mergers could bring to the industry.

The Committee of European Securities Regulators (CESR) Carlo Comporti
felt that the problems could be resolved if UCITS was Lamfalussy-compliant.
The Commission’s David Wright warned against this, as it would not be a
trivial matter. He was happy with the rate of progress, and he wanted more

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

trust between supervisors. A call that was echoed several times over the two
days. paul Bodart and Wolf Klinz also mentioned the need to improve the
efficiency of the processing of funds at the EU level.

One of the liveliest debates concerned SEPA. The European Central bank
(ECb) Gertrude Tumpel-Gugerell wanted everyone’s focus to be on meeting
the 008, and in particular, 010 deadlines. Implementation was the name of
the game and it was up to the banks to communicate the benefits. but there
were problems, the German Savings bank Association’s Bernd M. Fieseler
gave his support to SEPA but he could not see a genuine business case. He
also felt that the final system might be a compromise that brought no benefits
to consumers as many domestic systems were already cost efficient. So he
suggested a cautionary approach. Consumer representatives wanted to be
more involved in the discussions, but the real problem lay with industry. both
Unicredit Group’s roberto Nicastro and bNP Paribas’ Jean Clamon, in-
sisted that the deadline of 010 was totally unrealistic, it could only be a
milestone and the business case of SEPA needed to be worked on. They were
backed by visa Europe’s Johannes van der Velde, who said the banks would
spend EUR 1.75 billion on investment and development, even though the
business case was unproven. The Commission’s Elemér Terták put the focus
on the Payments Services Directive, “no Directive, no SEPA”. but he did
remind the conference that SEPA was a banking industry initiative.

Just as lively was the debate on the 6th Regime that looked at a Pensions case
study. There were many calls for pragmatism, perhaps best summed up by AxA
CEO Henri de Castries, who saw this as a voluntary option and a low-risk
opportunity to increase harmonisation. It was a way of demonstrating that the
financial services community could deliver solutions across the EU. Wright
was not totally convinced. There would be two sets of consumer protection rules
in a single market which could puzzle consumers and it was not necessarily
easier to implement politically. Everyone had to be realistic, and Wright saw
insufficient consensus for that route.

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

The national supervisory authorities also faced serious challenges, with
Goldman Sachs International’s Antonio Borgès defining two problems.
Supervisors had a domestic focus and there was a lack of innovation across
the board. former Chairman of Deutsche bank’s Supervisory board, rolf
Breuer gave a comprehensive overview of the current incongruence between
market needs and nationally organised supervisory structures. Dealing with
the deficiencies of the status quo he described the measures that could be
taken in the short, medium and long-term, to improve and tackle the obvious
inefficiencies under the current structure . He argued, that a pan-European
system of financial supervision would be the appropriate solution, but could
certainly only be achieved in the long run, by way of the “lead supervisor”
concept in the medium-term. In addition to this Henri de Castries estimated
the extra-costs represented by the fragmentation of supervision for Axa,
highlighted the downsides of solvency requirements regarding investments
and called for further innovation particularly related to securitisation in the
insurance industry. The Commission’s Alexander schaub wanted change as
well but he insisted he was just being realistic. The ideas being put forward
by industry had zero chance of success.

Speaking at the end of the conference, President José Manuel Barroso called
on all stakeholders to overcome short-term interests as that would be beneficial
for the EU’s companies and citizens. Those words were welcomed by Eurofi
co-President Jacques de Larosière. He had seen examples of insufficient
cooperation between the actors during the conference and some lack of political
motivation. However, everyone seemed to share the same goals and now
stakeholders had to work together to achieve concrete results. He particu-
larly insisted on the proposal made by Eurofi to set up a mission to better
define the conditions under which supervisors could cooperate within the EU.

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

Day 1 – Tuesday 6 June 2006

Plenary SeSSion 1:
Are Europe’s consumers well served?
Is more integration needed in retail financial services and what will the benefits
be for consumers? Do financial institutions and the end-users of their services
still share the same priorities?
Moderators: Jacques de Larosière, co-President of Eurofi
                 Daniel Lebègue, co-President of Eurofi
panellists:      pervenche Berès, mEP, Chairwoman of the Committee on
                 Economic and monetary Affairs, European Parliament
                 Arlene McCarthy, mEP, Chairwoman of the Internal market
                 and Consumer Protection Committee, European Parliament
                 Georges pauget, Chief Executive Officer, Credit Agricole
                 Chris redant, member of the Cabinet of finance minister
                 Didier Reynders, Deputy Prime minister and finance
                 minister of belgium
                 David Vegara, President of the financial Services Committee
                 and Spanish Secretary of State for Economic Affairs

WorkShoP 1:
Bringing Microcredit to Europe
Can the microcredit techniques originally intended for developing economies
help make an impact on Europe’s drive to promote entrepreneurship? What
roles should the EU and banks play in this area?
Moderator: Maria Nowak, President of the Association pour le droit à
               l’initiative économique (Adie)
panellists:    Francis Carpenter, Chief Executive, European Investment

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

               Antonio Claret Garcia, President, Caja Granada
               Catherine Guy-Quint, MEp, Committee on budgets, European
               Georges Kolivas, Policy Advisor Coordination and Solidarity
               fund, DG Regional Policy, European Commission
               Emmanuel de Lutzel, Head of Strategic marketing and
               Communication, bNP Paribas

WorkShoP 2
Consumer Protection
Should the harmonisation of protection rules throughout the EU become a
priority? What are the barriers to overcome for the industry to deliver added-
value for the consumers of financial services?
Moderator: Arlene McCarthy, mEP, Chairwoman of the Internal market
                and Consumer Protection Committee, European Parliament
panellists:     Jos Clijsters, Chief Executive Officer, Retail banking, fortis
                robin Jarvis, Chairman, forum of User Experts in the Area
                of financial Services
                Marianne Kager, Chief Economist, bank Austria
                Jim Murray, Director, European Consumers’ Organisation
                Dirk staudenmayer, Head of Unit, Protection of Legal,
                Economic and other Consumers Interests, DG Health and
                Consumer Protection, European Commission
                Manuel pardos Vicente, President of the Spanish banking
                and Insurance Consumer Association (ADICAE)

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

WorkShoP 3
Development of UCITS in the EU
An opportunity to assess EU and other reactions to Eurofi’s proposals on how
to better foster the use of UCITs, or Undertakings for Collective Investment
in Transferable securities.
Moderator: Wolf Klinz, mEP, Committee on Economic and monetary
                 Affairs, European Parliament
panellists:      stefan Bichsel, President, European fund and Asset
                 management Association (EfAmA)
                 paul Bodart, Executive vice President, bank of New york
                 Elizabeth Corley, Chairwoman, forum of European Asset
                 managers (fEAm)
                 Carlo Comporti, Deputy to the Secretary General, Committee
                 of European Securities Regulators (CESR)
                 Jean-Baptiste de Franssu, Chief Executive Officer, Invesco
                 Continental Europe Services
                 robert Hoffman, Director, Association of the Luxemburg
                 fund Industry (ALfI)
                 Alain Leclair, Chairman, french Asset management Association
                 Daniel roy, Chief Executive Officer, Natexis Asset management
                 paul salvidge, member of the Consumer Panel, financial
                 Services Authority (fSA) and member of fIN-USE
                 David Wright, Director financial Services, DG Internal market
                 & Services, European Commission

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

WorkShoP 4
Is there yet a “European Shareholder”?
A number of recent cross-border mergers and takeovers have raised fresh
concerns about the EU’s corporate governance standards. How are the EU
institutions reacting to Eurofi’s proposals in this area?
Moderator: sir Andrew Crockett, President, JPmorgan Chase International
panellists:     pierre Delsaux, Head of Unit, Company Law, Corporate
                Governance and financial Crime, DG Internal market and
                Services, European Commission
                Daniel Lebègue, President, Institut francais des Adminis-
                trateurs (IfA) and Honorary President of the European
                Confederation of Directors Associations (ecoDa)
                olivier Lefebvre, member of the managing board,
                piero Luongo, Head of the General and Legal Affairs
                Department, Sanpaolo ImI
                François Marion, President of the managing board,
                steffen Matthias, Secretary General, European fund and
                Asset management Association (EfAmA)
                philippe De Buck, Secretary General, Union of Industrial and
                Employers’ Confederations of Europe (UNICE)
                Tania Verrier, member of fIN-USE

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

Plenary SeSSion 2
Tougher competition: a threat or a promise?

Moderator:          Dirk Bruneel, member of the management board, Dexia

Keynote Adress: Neelie Kroes, Commissioner for Competition, European

La Bibliothèque Solvay

Networking for speakers, Eurofi members, sponsors and vIP guests
“The challenges and benefits of EU retail financial integration in Europe”

speakers :          sir Andrew Crockett, President, JPmorgan Chase
                    Gérard de La Martinière, President, European federation
                    of National Insurance Association

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

Day 2 – Wednesday 7 June 2006

Plenary SeSSion 3:
What is the outlook for the Single Euro Payments Area (SEPA)?
Moderator:         Tommaso padoa schioppa, minister for Economy of Italy,
                   Chairman of the Trustees, International Accounting Standards
                   Committee foundation and President of Notre Europe
panellists:        Jean Clamon, Chief Operating Officer, bNP Paribas
                   Bernd M. Fieseler, Executive member of the board,
                   German Savings bank Association
                   Nicolas Mérindol, member of the management board,
                   Caisse Nationale des Caisses d’Epargne and Chairman
                   of the European banking Industry Committee (EbIC)
                   roberto Nicastro, Deputy General manager, Unicredit
                   Elemér Terták, Director financial Institutions, DG
                   Internal market & Services, European Commission
                   Gertrude Tumpel-Gugerell, member of the Executive
                   board, European Central bank (ECb)
                   Johannes van der Velde, Deputy Chairman, visa
                   Manfred Westphal, Head of financial Services Depart-
                   ment, federation of German Consumer Organisations
                   and member of fIN-USE

Plenary SeSSion 4
Making the 26th regime an attractive option. Pensions as a case study
Moderator:         Jacques de Larosière, co-President, Eurofi
panellists:        Henri de Castries, Chairman of the management board
                   and Chief Executive Officer, AxA

            EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

                   Gérard de La Martinière, President, European federation
                   of National Insurance Associations
                   Jorge pegado Liz, member of the bureau, European Eco-
                   nomic and Social Committee
                   Ieke van den Burg, mEP, Committee on Economic &
                   monetary Affairs, European Parliament
                   David Wright, Director financial Services, DG Internal
                   market & Services, European Commission

Plenary SeSSion 5
Do Europe’s myriad national supervisory authorities raise costs for
the consumers?
Moderator:     Antonio Borgès, vice Chairman, Goldman Sachs
panellists:    rolf Breuer, former Spokesman of the board of manag-
               ing Directors and former Chairman of the Supervisory
               board, Deutsche bank AG
               Henri de Castries, Chairman of the management board
               and Chief Executive Officer, AxA
               Fabrice Demarigny, Secretary General, Committee of
               European Securities Regulators
               Alexander schaub, Director General, Internal market &
               Services, European Commission
               Ieke van den Burg, mEP, Committee on Economic &
               monetary Affairs, European Parliament

Microcredit: a strategy for Europe
Moderators:        Jacques de Larosière, co-President, Eurofi
                   Daniel Lebègue, co-President, Eurofi
Keynote Adress: Danuta Hübner, Commissioner for Regional Policy,
                   European Commission

            EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

Plenary SeSSion 6
The way ahead: how to leverage the existing opportunities and to improve
decision-making at the EU level
Moderators:       Jacques de Larosière, co-President, Eurofi
                  Daniel Lebègue, co-President, Eurofi
speaker:          pervenche Berès, mEP, Chairwoman of the Committee
                  on Economic and monetary Affairs, European Parliament
Keynote Adress: José Manuel Barroso, President of the European

CloSing of ConferenCe:
Jacques de Larosière, co-President, Eurofi
Daniel Lebègue, co-President, Eurofi
Didier Cahen, Secretary General of Eurofi

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

   DAy 1 – TUESDAy 6 JUNE 006


European Parliament vice-President Gérard onesta welcomed delegates to
the conference and to the impressive hemisphere where many directives
resulting from the financial Services Action Plan (fSAP) had been discussed.
Onesta looked forward to the conference facilitating the task of financial
integration acknowledging the challenge to do so in such complex markets
and reminded participants that Europe was there to create more wealth but
also to improve solidarity. Obstacles had to be removed and legislation was
required, the goal being to find an equitable balance between increasing
wealth and consumer protection.

Opening the conference, Eurofi Secretary General Didier Cahen put the
focus firmly on Europe’s fragmented retail financial markets. This recurring
problem was not only having an impact on the industry but also on the everyday
lives of consumers. Cahen argued that these consumers saw Europe as a
constraint as they did not see the total benefits of the European project and
politicians had failed to set the correct priorities.

The conference would aim to help correct the balance, by stressing the concrete
benefits of an integrated market for retail consumers and the financial indus-
try and by making proposals - via a number of workshops - to improve the
overall situation. Cahen stated that it was vital to involve all stakeholders
and focus on high-volume initiatives that could be implemented within a
reasonable timeframe. Giving industry a leadership role in bridging the gap
between itself and the European institutions was also high on the agenda.
After thanking the sponsors, Cahen handed over to the Eurofi co-Presidents.

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

UntaPPeD Potential
Eurofi co-president Jacques de Larosière reminded the audience of the
untapped potential for jobs and growth in the financial services sector. Despite
the significant progress brought by the 40-odd fSAP directives, consumers
could still not benefit from a broad range of pensions and savings products,
or from reliable and cheaper cross-border services.

As politicians had failed to take sufficient actions, de Larosière explained
that Eurofi wanted to contribute to a more closely integrated financial services
market. This objective would be underlined by a series of workshops that
would focus on the key topics:

   a) Single Euro Payments Area (SEPA): Eurofi would enable industry players
      and representatives of the EU institutions to make proposals to improve
      the efficiency and reduce the costs of the payments market
   b) Investment funds: it was necessary to implement the recommendations
      of the Commission’s green paper; asset managers and distributors had
      to share activities via an open architecture
   c) Consumer credits: a directive was under consideration and although full
      harmonisation was preferred, the 6th regime might be a valuable
   d) Microcredit: “an untapped source of potential growth and social cohesion”,
      there was insufficient progress in Europe and the workshop should
      enable to help identify solutions
   e) Regulatory supervision: there was a need to launch a European initiative,
      a “mission” based on adopting a common approach to, and appraisal
      of, modelling techniques; and on bringing together the resulting skills
      and resources and deciding jointly on a European-level and national-
      level supervisory function

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focusing on supervision, de Larosière called for a political initiative in the
form of a “mission” via the EU finance ministers (Ecofin). He added that the
existing regulatory and supervisory committees set up under the Lamfalussy
process could be used, together with central banks, the financial services
committee and a small number of senior managers of domestic and multinational
financial groups. The presence of the managers was vital to the success of the
mission. He added that the same group could look at a range of other topics,
including the development of a consistent pan-European approach to preventing
and managing crises, and the definition of key priorities and arrangements in
terms of responsibility sharing for stakeholders.

fellow Eurofi co-president Daniel Lebègue looked forward to the two-day
conference and elucidated how Eurofi had developed a number of proposals
that would aim to remove barriers to progress and also improve the processes
(that were fundamental to the workings of the financial services sector) and
related decision-making.

Lebègue highlighted three ideas:

   a) The removal of excessive legislation; it was necessary to find the right
      balance that protected both shareholders and consumers without creating
      unnecessary legislation; corporate governance and consumer protection
      are areas where EU legislation is specifically required
   b) The need to consult all shareholders as early as possible so that all
      ideas could be considered
   c) The need to implement European-wide legislation as coherently and
      as quickly as possible; recent events concerning the mittal - Arcelor
      take-over had shown that surprises were possible. Surprises that could
      be avoided if a true single market existed.

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2. pLENAry sEssIoN 1
  Are Europe’s consumers well served?

moderating the first session, Eurofi co-president Jacques de Larosière gave
the floor immediately to mEP pervenche Berès, Chairwoman of the Committee
on Economic and monetary Affairs.

berès spoke emotionally about a subject at the heart of the EU’s citizens fears
about the European project. She wanted the goal of a single integrated finan-
cial services market to be addressed with the same political determination as
the euro project. The latter would never have been achieved if it had been
left to market forces alone, the single financial market needed the attention
of political leaders and the many experts in the field.

Arguing that the creation of a true European stock market was in consumers’
interests, and that this objective was being hindered by a number of national
interests, berès said the subject was being met by a wall of silence from the
EU’s political leaders. Speaking with much sadness, she added that 10 years
of work could be jeopardised if the situation was not corrected. member States
were putting the priority on domestic consolidation before EU harmonisation.
It was protectionism, it was short-term thinking.

This lack of European joined-up thinking would mean that consumers would
lose the benefits of a single consolidated financial market. Courage was required
to develop European initiatives, especially in the areas of employee ownership
and in hedge funds. Europe should endeavour to develop its own solutions
rather than importing them from across the Atlantic.

While berès wanted efficient and profitable banking and insurance sectors,
she also wanted a balance that ensured that consumers were sufficiently
protected and that institutions were in a position to arbitrate if necessary.

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Transparency was the name of the game, and there was much to do in fields
such as consumer protection, SEPA and post-trading.

Positioning his company as the leader of the french retail banking and
bancassurrance markets, Credit Agricole CEO Georges pauget stated that
the European market would ultimately become the company’s domestic
market. The company has set up partnerships with leading EU domestic
banks such as banca Intesa and intends to play a major role in European
banking consolidation. Although Credit Agricole was using the full range of
available legal tools to offer its products and services on a pan-European scale,
Pauget said that these were insufficient to create a truly integrated market
and that many obstacles remained.

In terms of harmonisation of retail markets, there was a long way to go to
overcome the many national hurdles identified in the Commission White
Paper (in areas of consumer protection, supervisory fragmentation and tax
differences). While cultural barriers were also an issue, the main problem
was that of consumer protection:

      • Consumers themselves had to be better informed1in financial matters;
        all actors such as schools, consumer associations, supervisory author-
        ities, the financial industry itself had to play their part. Increasing
        constraints of information provision is useless before consumers are
        able understand its contents
      • Suppliers of financial services had a role to play: if not, they risked
        damaging their image through aggressive or unfair practices. There
        would be extra costs involved with creating an atmosphere of trust,
        but it was a price worth paying

    Pauget stated that 74% of french consumers had recently said they had insufficient knowl-
    edge to read the financial press, and 58% said they were unable to select the correct financial
    services products for their specific needs.

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   • The banking industry: Referring to the successful dialogue in france
     between the french banking federation and consumer associations,
     Pauget said that a similar dialogue would be useful between European
     actors (consumer representatives, banking industry and EU institu-
     tions) and it would be a pragmatic way of making progress
   • Rules: harmonisation touched on national practices that differed
     fundamentally between member States, e.g. credit agreements could
     differ widely and variations were accentuated by different court inter-
     pretations. Pauget recommended full harmonisation of certain aspects,
     particularly concerning information that enabled consumers to compare
     products on a pan-European level, rather than badly harmonising the
     entire contractual process

Noting that insufficient attention was being given to the problems concerning
supervisory fragmentation and tax differences across member States, Pauget
passed to the priorities as seen by the Credit Agricole:

   • SEPA: the European payments industry was effective and playing its
     part in meeting the Lisbon objectives; it would be a mistake to make
     “a one size fits all” system, competition and innovation must be allowed
     to continue and the development of value-added services should be
     encouraged particularly in payment cards.
   • Savings products: Pauget considered savings and investment products
     are a second area where pan-European product ranges are likely to
     develop gradually; he welcomed Eurofi’s proposals for a pan-European
     retirement savings product and also saw the benefits in an eventual
     Europe-wide company savings scheme
   • UCITS: Pauget brought his support to the proposals made by the
     Commission in the Green Paper and called for a real asset management
     European platform

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   • Credit: Pauget reasoned that full harmonisation of laws concerning
     contracts and loan security would be hard to achieve in a reasonable
     timeframe and was not a top priority and that efforts should be focused
     on harmonising pre-contractual information

mEP Arlene McCarthy, Chairwoman of the Internal market and Consumer
Protection Committee, highlighted the benefits of the retail financial services
market. It played a role in citizens’ everyday life, was important for the
functioning of modern economies and was a motor for jobs and growth.
Citizens would support Europe if they see what’s in it for them.

Looking back, mcCarthy said financial services were traditionally subject to
stringent legislation that varied from one member State to another. However,
despite the fSAP, the retail markets remained extremely fragmented. The
demand for further integration was there (driven by the Internet and by
increased consumer mobility) and a successful integration would bring:

   • benefits for service providers, as they could achieve economies of scale,
     benefit from more cross-border movement and operate on a level playing
   • added-value for consumers if the implementation was correct, better
     comparison of offers, higher quality products, more competitive pricing
     and a wider choice

mcCarthy insisted that consumers had to trust the system. She reasoned that
the Commission’s pragmatic approach might be the right one given the
circumstances. All stakeholders had to be consulted and the principles of
subsidiarity had to be applied. A major debate was the choice between
maximum, minimum and targeted harmonization that needed to be decided
with the consumer credit directive.

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 Adding that discussions were at a critical point as to how best protect consumers
in these new EU markets, she said that a new set of core principles in regard
to the conduct of financial transactions across the EU was required. A market
was developing spontaneously in consumer credit so progress in the financial
services market was essential.

financial Services Committee (fSC) President and Spanish Secretary of State
for Economic Affairs David Vegara admitted that the focus on financial
integration had been mainly on wholesale markets. While this was not always
visible to citizens, they would see benefits via safer financial institutions and
enhanced transparency of capital markets.

Progress on the retail sector was now a priority. Although the European
institutions were committed to action via the White Paper on financial services
strategy, 005 – 010 and the Council was giving the subject priority, vegara
said progress would be “easier said than done”.

many initiatives had failed to make an impact, and any future actions had to
include more innovation from all stakeholders, a clear idea of the status,
priority-setting and the agreement on a methodology to adopt the targeted

vegara argued for a pragmatic approach. There were integration market
dynamics at play, even though price convergence had stabilised. The Treaty
allowed groups to develop new strategies in retail markets, but differences in
consumer protection rules made integration difficult. vegara concluded that
many retail markets would never work in a fully harmonised way – and perhaps
there were good reasons for that.

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However, barriers had to be tackled and vegara wanted to simplify the task
by advising policymakers to avoid unrealistic attempts at tax harmonisation.
To make progress, there had to be:

   • political determination: support existed but the fSAP had shown the
     need for compromise by accepting the European standard within the
     national systems; vegara added that it was not certain that all member
     States would share this view
   • broad consultation of all interested parties: building on the extensive work
     done by the Commission to include consumer views into the legislative
   • “better regulation” principles: these principles were a pre-requisite but
     the net benefits to be gained should not be paralysed by national

In order to resolve the broad harmonisation dilemma, mutual recognition
should be improved and all options had to be examined including the possible
adoption of the 6th regime. There had been objections in some capitals and
some corporate headquarters, but vegara argued that the co-existence of
domestic and European products could bring substantial advantages.

vegara said that supervisory convergence was needed and also reasoned that
the search for cross-border deals might improve the market dynamics towards
integration. He then focused on two priorities:

   • credit mortgages: the extensive analysis on the subject had shown that
     benefits existed and that cross-border activity would have far-reaching
     economic implications
   • long-term savings products: more integration will help to cope better with
     the challenges set by an ageing population

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Winding up his remarks, vegara said that an fSAP II was not required but
a more dynamic financial market for the EU’s citizens was a priority. He was
not sure what the future had in store, but more technical and policy analysis
was required and the fSC was willing to play a useful role in the intense
discussions to come.

Replacing belgium’s finance minister Didier Reynders, Chris redant, member
of the minister’s Cabinet, looked at the benefits of an integrated financial
services market. These included better risk sharing, a more equitable alloca-
tion of capital and better prospects for economic growth within the EU.

However, Redant insisted that risks for consumers had to be thoroughly
assessed as they could not suffer from increased prices or a lower quality of
service. Despite progress towards an integrated market, Redant listed the
remaining obstacles in three key areas:

   1. SEPA and retail payments: over 0 billion payments are executed in
      the EU annually, amounting to EUR 5 trillion (according to mcKinsey
      & Co.); the planned SEPA could only succeed if a harmonised legal
      framework was achieved by competent national authorities. The
      Directive would allow payments institutions to be authorised to offer
      services in all member States (via a single passport) and give grant-
      rights and obligations to payment institutions
   2. mortgages: outstanding mortgage loans across the EU amounted to
      40% of GDP (at the end of 004, Commission data), however packag-
      ing and distribution remain national and only 1% of the market is
      cross-border. Despite the reduced proportion of the cross-border market
      integration, it should be further developed particularly in funding or
      back office operations. A remaining question is whether further
      integration of residential mortgage distribution is desirable when
      taking into account consumer needs.

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   3. Savings and investment products: although minimum protection in case
      of a crisis (via the Deposit Guarantee Schemes Directive) had been guar-
      anteed since 1994, the Commission felt that fixing a minimum level across
      all member States would not harmonise protection, and more analysis
      was required. Euronext was also pointed out as a successful example with
      an evolving model possibly allowing further integration.
   4. With regards to the political consequences of further integration,
      although national pressures tended to predominate, there were clear
      trends to higher levels of integration, either via cross-border products
      or via major cross-border players emerging and integrating components
      of the value-chain. Redant concluded that signs of partial or complete
      integration had been seen in all of the three segments that he’d outlined,
      but that benefits of integration should not hinder looking at risks in-
      volved also. This was especially true in regard to the effectiveness of
      supervisors in cross-border trading.

Q & a – Plenary SeSSion 1
“The Eurofi Mission”
Eurofi’s Jacques de Larosière returned to the idea of improving the system
for regulatory supervision in Europe, given the various and complex national
agreements in existence. Eurofi’s proposal was to launch a “mission” with a
“committee of experts” who could examine the current situation with a view
to removing the excessive number of “silos” and national differences across

David Vegara argued that progress had been made, via basle II for example,
and that the fSC had identified certain steps that could be taken. These
included improving mediation mechanisms, delegation mechanisms, and IT
and data-sharing techniques. However, no political consensus for rapid change

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in supervisory arrangements existed, so the process would take time. As for
the Eurofi proposal, this was interesting and vegara felt that the fSC should
welcome such a development.

L’Agefi’s Florence Autret asked how the “mission” would be presented to the
Ecofin ministers, and if a particular agenda existed. In response, de Larosière
stated that Eurofi would write to the Commission and to the Ecofin Council
after the conference, briefly drafting their ideas and proposals.

pervenche Berès added that although there was a gap in the regulatory
system that had to be addressed - as without further regulation no satisfac-
tory solution could be found - she thought the Eurofi mission should be
given a much broader remit and examine the functioning of financial markets
in the Euro zone. She also referred to the ideas she had developed in a recent
paper (“The five challenges of the euro”) on how the currency’s potential
could be realised. Although welcoming the intervention, de Larosière said
that experience had shown that such a group should focus on a particular
objective. In the event of success, there would be room for other topics to be
reviewed by the Committee.

3. WorKsHop 1 :
  Bringing Microcredit to Europe

The workshop “bringing microcredit to Europe” facilitated by Maria Nowak,
President of Adie and the European microfinance Network (EmN), drew an
audience of 150 people.

According to maria Nowak, 18.5 million in the EU-5 are unemployed, 8
million people of working age are living below the poverty line, and micro-
enterprises account for 9 per cent of all European firms. The experience

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gained by Adie and the EmN’s member organisations shows that there is a
tremendous entrepreneurial drive in Europe, where the potential market for
microcredit is estimated at more than 11 million customers.

maria Nowak also told the audience that there was still no generally ac-
cepted definition of the term “microcredit” in Europe. Some people charac-
terise it as a system of low-value loans, while others include criteria such as
the target population or the lending methodology. To enable microcredit to
develop, it is important to agree on a stable definition while preserving the
system’s two key features: a social target and a financial approach aimed at
creating sustainable microfinance institutions (mfIs) or microfinance pro-
grammes capable of extending financial services to those who are currently
unable to access them.

Francis Carpenter, Chief Executive of the European Investment fund (EIf)
discussed the EIf’s past experience as a microcredit guarantor and stressed
the diversity of target borrowers. Together with Georges Kolivas (DG Re-
gional Policy, European Commission) mr Carpenter presented the JEREmIE
initiative (for “Joint European Resources for micro-to-medium Enterprises”),
calling it “one of the most interesting European programmes”. JEREmIE
aims to foster microcredit during the period 007-01 as a part of the European
Regional Development fund (ERDf), which seeks among other things to
compensate for the significant market shortcomings that exist in all member-

Catherine Guy Quint (mEP) said that microfinance was a remarkable tool
for building solidarity and that it added “a measure of compassion” to the
world of finance. moreover, it is fully in line with the Lisbon strategy, combin-
ing economic growth and social cohesion.

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Emmanuel de Lutzel from bNP Paribas, stressed the difference between
commercial banking and philanthropy. He pointed to the low level of default
risk (between 0.5 and 5 per cent) but the high cost of managing a large number
of small loans, which is why commercial banks like bNP Paribas prefer to
partner organisations such as Adie rather than enter the market directly. Re-
sponding to a question about the profitability of mfIs, he pointed out that
ProCredit bank had a return on equity of 1 per cent in Serbia, 14 per cent in
bosnia and  per cent in Kosovo despite growing at between 80 and 100 per

Antonio-Claret Garcia, President of Caja Granada and the International
Association of Pledging and Social Credit Establishments, discussed Caja
Granada’s experience of microcredit and expressed his determination to see
microcredit expand.

The panellists remarked that mfIs were highly diversified so that they could
respond more effectively to the needs of different segments of the market.
These institutions range from down-scaling commercial banks to associations,
credit unions and specialised banks. They operate within a much broader
institutional framework that involves a host of other participants, such as
national and local governments, the European Commission, the European
Investment fond (EIf), the European Parliament and financial institutions,
as well as public opinion. These protagonists need to work together to build
a financial sector that is open to everyone.

In conclusion, it was proposed that the European institutions should instigate
a plan to encourage microfinance. The proposal touched on some of the im-
provements that could be made under the plan, especially as regards the
regulation of microcredit and microfinance Institutions (mfIs). Among the
key measures would be to ease restrictions on interest rate ceilings in order

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to cover more of the cost of microcredit; to allow non-banks to borrowing in
order to on-lend; and to clarify how the basel II rules apply to microcredit.
A communication policy is also important, with a view to changing the image
of people who are excluded from credit facilities and are thus hindered in
their efforts to set up a business.

The workshop presentations were followed by a lively debate, with questions
about the impact of basel II, the partnership between Adie and Cetelem for
the development of a decision-support system to facilitate risk prevention,
the complementary aspects of microcredit and savings deposit taking, and
the financial flows generated by migrant workers, which amount to
€00 billion worldwide.

4. WorKsHop 2:
  Consumer protection

mEP Arlene McCarthy, the workshop moderator, placed consumer protec-
tion at the heart of the debate. With the Consumer Credit Directive making
progress, mcCarthy asked if the present proposals were the right way forward
for business and consumers. With a patchwork of national consumer protec-
tion regimes in place, the question was how could industry be allowed to sell
products and gain the economies of scale while ensuring that consumers had
confidence in their rights and that remedies existed in case of problems.

mcCarthy asked if differences between member States could be explained
by varying needs and concerns across the EU. And how could sufficient con-
sumer protection and synergies for industry be achieved, in parallel, while
the focus was on harmonisation?

fortis bank’s Retail banking CEO Jos Clijsters kicked off the workshop by
describing the harmonisation of regulations (in order to offer products across

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borders) as both a priority and an opportunity. It was the only way for com-
panies such as fortis established in several major EU markets (benelux,
Poland, france, Germany, Turkey…) to be able to offer products that met
cross-border needs in an efficient and cost-effective manner.

focusing on mifID, Clijsters welcomed the Directive as it would give a
greater choice of investment services as suppliers would have to conform to
higher standards of behaviour. but he warned that directives such as mifID
could have adverse affects, such as:

   • information overload: that could lead to more confusion and vulnerabil-
     ity for consumers and higher costs for all.
   • increased liability for banks: that could limit choices and information for
     investors, as some banks might decide to operate “execution only”
     services. banks may indeed choose to restrain services in order to reduce
     risks of a damaged image if they are not able to prove they had given
     the correct advice.

finding the correct level of regulation and regulation that brought added
value was therefore vital. Otherwise we might obtain the opposite of what we
want to achieve.

Clijsters suggested that an approach based on the application of core princi-
ples (targeted full harmonisation), could be the right balance and should be
tested with respect to mifID. This would enable to focus harmonisation on
key requirements while other issues could be resolved by mutual recognition.
He added that this approach was supported by the European financial Services
Roundtable (EfR). Clijsters wanted clarity for his consumers and regulations
that took account of the day-to-day realities of life for his employees and his

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robin Jarvis, Chairman of the forum of User Experts in the Area of financial
Services (fINUSE), recognised that an efficient and well-integrated financial
market was vital for consumers and SmEs. It would impact their pensions
savings and their mortgage costs. However, he insisted that consumers had
to be able to make informed choices in a competitive marketplace. Looking
at the related problems and issues, Jarvis focused on:

   a) concentration of the financial services industry: what is the right balance
      between what is necessary for efficient financial services markets and
      what is good for consumers ? Despite regulators making enquiries (as
      to a lack of competition), there were seldom any real conclusions;
      consumers needed protection but the correct level was difficult to
      determine and was only assessed when there was a new crisis.
   b) complexity of products and education: there were problems of limited
      understanding of technical language; many argued that education
      might help, but it is unlikely to fully resolve the problem; the role of
      intermediaries was vital, together with the need for regulations to guard
      against poor and negligent advice.
   c) greater consumer involvement: required if regulators and industry were
      to respond to consumers’ needs; the consultation process had improved
      thanks to the Commission’s efforts but “full involvement” of consum-
      ers was an absolute necessity.

bank of Austria Creditanstalt’s Chief Economist Marianne Kager described
consumer protection as a sensitive area as financial products impacted everyday
lives. She looked at three issues in detail:

   1. a possible contradiction between effective consumer protection and harmonisa-
      tion: Kager argued that there is no contradiction. fragmentation could
      be explained mainly by political sensitivity due to the impact of financial

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       products on everyday life and by the fact that many rules are not specific
       to financial products but relate to general legal dispositions – making
       harmonisation difficult; in addition some of these national legal
       dispositions are “non-disposable provisions” for contracts with
       consumers. These are one of the sources of fragmentation and not
       so much possible differences in consumer needs or behaviours across
       member States.
   2. the needs of industry versus the interests of consumers: reasonable standards
      for consumer protection needed to be defined taking into account the
      need for financial institutions to develop economies of scale and scope
      and their distribution challenges; industry needed efficient access to
      markets, the ability to create synergies & economies of scale, a level
      playing field and standards for consumer protection; consumers needed
      easy access to efficient banking services, a competitive environment,
      a sufficient level of consumer protection (quality of information over
      quantity), transparency of pricing, obligations and rights, and a stable
      financial system.
   3. the next steps to make progress in the interest of consumers and the industry
      – how and what?: consumers should not be treated in a patronising
      manner and should be in a good negotiation position; intermediaries
      were aware that they have a particular responsibility and industry
      agreed that consumer protection must be based on a high quality of
      information, that included the opportunity for reflection, the right of
      withdrawal and the right to obtain advice.

Regarding the tools to be used – targeted full harmonisation, mutual recognition,
industry standards, the 6th regime – the choice would depend on products
and distribution channels.

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In terms of what needed to be harmonised there are at least some require-
ments which apply to most or all retail products, and which could be fully
harmonised: definitions (such as “consumer”, “entrepreneur”, “collateral”,
“advice”), requirements pertaining to information, reflection period and right
of withdrawal, costs related to a product (effective interest rate and other
product-related costs), rights and obligations of consumers. Targeted fully
harmonisation would mean that there is an additional requirement for
harmonisation for identified products over and beyond what has been said

In the context of the Consumer Credit Directive this would for example ap-
ply to the following provisions: access to data, rules governing long-term loan
agreements or loan agreements without a specified term, loan agreements
with a specified term, early repayment, overdrafts.

Kager gave her support to the Consumer Credit Directive but felt that some
items were not specified enough to achieve full harmonisation in all member
States. Adding that products such as current accounts and UCITS, as well as
the activities of financial intermediaries (e.g. licence, minimum requirements
for capital, and qualifications) should also be subject to full harmonisation,
Kager noted that the role of financial intermediaries was becoming more and
more important. for mortgages, the parts that needed to be harmonised should
be defined more precisely. Overall, she called for a step-by-step approach that
examined each case where products and distribution channels were involved.
Agreement had to be reached between all stakeholders on a case-by-case

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European Consumers’ Organisation (bEUC) Director Jim Murray was
pessimistic about achieving a single market in financial services as there were
many challenges to be overcome. These included:

   • product complexity: many consumers were dependent on intermediaries
     when they had to compare and choose financial products as these are
     becoming more and more complex and bundled, are intangible and
     are related to specific legal regimes; murray expressed his agreement
     with Kager on the need for quality over quantity; too often though
     “marketing wins over substance” leading to an inefficient market where
     customers are obliged to make sub-optimal choices.
   • “some suppliers do not want a single market”: they did not see free move-
     ment as an opportunity and did not want the “burden” of harmonisa-
     tion; part of the opposition to the Consumer Credit Directive came
     from such sources; in addition “most consumers do not want
   • the inherent difficulty in harmonising products: as no member State had
     succeeded in developing a simple regulatory regime for financial

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

murray moved on to answering some of the questions posed by Eurofi:

             QuEsTIoN                                         ANsWEr
                                                 There were real and tangible needs in
 Could differences in consumer
                                                 member States and consumers might
 protection in member States be
                                                 differ in their understanding and
 explained by different needs?

 What should harmonisation focus on              Information: a guarantee of best advice
 in order to balance consumer protec-            and standardisation of financial
 tion with better synergies for industry?        products – to make it easier to choose.

                                                 Any harmonised measure had to
                                                 have the capacity to adapt quickly
 How to ensure that the Directive                to marketplace changes; the current
 achieved the above balance?                     proposal was flawed in areas such as
                                                 linked credit agreements, responsible
                                                 lending, etc.

                                                 Definitions must be very clear. All
 How could “targeted” and “full” har-            “fully harmonised rules” had to be
 monisation be clarified, and what was           made (and amended) at the EU-level.
 adequate harmonisation?                         “Targeted” harmonisation must be on
                                                 a case-by-case basis.

                                                 Perhaps but with no enthusiastic
 Was the 6th regime an alternative to
                                                 endorsement. Could be a possibility
 targeted or full harmonisation?
                                                 over a long period of time.

 In what areas of consumer protection
                                                 very few areas where it is appropriate,
 could mutual recognition be
                                                 mutual recognition is very complex

                                                 No as there are too many areas
                                                 where education would be needed,
 Could customer education be an
                                                 this seemed to be an attempt to shift
 alternative to consumer protection law?
                                                 responsibility. It is not consumers to
                                                 adapt, but industry to adapt

 Could industry-driven codes be an               Not an alternative, but maybe an
 alternative or addition to consumer             addition – however experience spoke
 protection law?                                 against this for the moment.

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

Providing a further voice of the consumers, Spanish banking and Insurance
Consumer Association (ADICAE) President, Manuel pardos Vicente, said
experience had shown that minimum harmonisation tended to relate to
consumers’ rights while maximum harmonisation was usually used to control
consumers’ obligations.

As for the legislative process, Pardos vicente said the Commission seemed to
have little interest in ensuring consumer participation, with hardly any time
being accorded to consumer associations. He wanted more consultations with
consumers on the question of further integration – by whom and why was
this being done?

Pardos vicente described a situation where financial companies could already
set-up across Europe, developing complex schemes in each member State.
However, this “single market” was not based on consumer preferences, as it
did not offer the scope for companies to offer pan-European services.

Turning to market integration, he raised concerns about the possible levels
of indebtedness that might arise. With credit levels increasing, there had to
be a guaranteed overall contribution to the welfare of European families and
citizens. With an increasingly volatile labour market, Pardos vicente argued
that credit should not be provided without any review of the social responsi-
bilities that this entailed. In that respect, harmonisation was required. He
concluded by repeating that the participation of consumer associations was
vital to the development of a single harmonised market that would truly
benefit consumers.

The Commission’s DG Health and Consumer Protection’s Dirk staudenmayer
initially looked at the need for minimum or maximum harmonisation and the
role of mutual recognition. He reasoned that in the past 0 years, consumer
protection laws in the EU had matured to the extent that a “diverse picture” had

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

emerged, where many member States had gone beyond the minimum levels
decreed in the 1986 Directive. This makes harmonisation more difficult to achieve
as countries with a higher level of protection did not want to reduce it.

These 5 different national laws were now a legal “obstacle to an internal
market”. facing this situation, the Commission wanted to achieve both a
genuine harmonised internal market for financial services (suppliers could
market products on a cross-border basis) and a high level of consumer protec-
tion and confidence.

The Commission’s initial proposal of 00 had “clearly gone too far” (too
broad, too detailed) and the modified Consumer Credit Directive with less
detail and less breadth of scope had been drafted to allow member States to
adapt to new challenges. It had focused on key issues (pre-contractual and
contractual information, a right of withdrawal, harmonisation of the percent-
age rate of charge and repayment) and the Commission had noted that this
had been encouraged by the European financial Services (EfR).

 The Commission felt that member States would welcome more flexibility,
so a limited mutual recognition clause had been created for those areas (where
national laws still existed) in order to help banks enter foreign markets.
However, a majority of member States were against this and it is likely that
this will not be present in the final text of the Council.

Other points raised by the panel
   • Information overload: Staudenmayer said the Commission wanted the
       “golden middle way”; consumers had to have all the essential informa-
       tion to make a reasonable decision but not too much that they would
       not be able to process it. member States had asked for additions /
       reductions – Commission felt full harmonisation would bring the
       benefits of a single market (everyone seeing the same information: pre
       contractual information and obligations)

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

   • Over–indebtedness: protection against debt was not part of the proposal
     but was very important; pre-contractual information might help. The
     Commission would be arranging a major conference in 007 on financial
     Capability, which would among other things look at credit and debt
     – Staudenmayer felt that the EU’s added-value may be limited if it was
     mainly a national problem
   • Consumers’ participation: A European consumer consultative group had
     been created in order to give input to the Commission policy making
On the political objectives, Staudenmayer saw the Consumer Credit Directive
as a first step towards achieving a genuine single financial services market
with a high level of consumer protection. Providers should be able to market
one single cross-border product across 5 member States to consumers who
had the confidence to make the right choice based on the correct amount of

Q & a - WorkShoP2: ConSUmer ProteCtion
the Pannel SPeakS
Protectionism & harmonisation
bNP Paribas’ Dominique Graber spoke out against member States trying to
protect their national markets. Companies had to be allowed to sell products
on a cross-border basis, as this would be good for the industry, for consumers
and for European growth.

On the subject of financial services suppliers and mutual recognition, Marianne
Kager added that times had changed. Cross-border business had been reduced
and there were now more entities established in member States. In such
cases, mutual recognition did not help providers to offer products at a good

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

How broad should advice be to consumers?
The fT’s yuri Bender asked if fortis bank would be advising on all products
in the marketplace or just on their own, in the event that a potential client
asked for advice. fortis bank’s Jos Clijsters insisted that his staff could not
be knowledgeable on all products in the financial world. fortis would be
educating its staff on its own products. Consumers had a responsibility to
provide the correct background information to their queries and requests,
and they were always free to go elsewhere.

Information storage
paul salvidge, member of the Consumer Panel of the financial Services Authority
(fSA), was concerned that fortis might not be keeping all the information relating
to advice given to customers. Surely it was not thinking of leaving the marketplace
because of such regulations and to the obligations they imply.

Jos Clijsters wanted people to be realistic. There had to be a trade-off between
documenting everything (and keeping information for many years) and sim-
ply selling products based on a bank’s existing knowledge of its clients.

Educational expenditure vs. marketing costs
Dominique Graber insisted that industry was best placed to define what
consumers wanted, but that it lacked credibility. She therefore wanted three
issues to be addressed: a neutral stakeholder was required – probably the
Commission ; consumers had to be given the right platform and they had to
be treated as adults.

The Irish financial Regulator’s John Maher, was concerned about the way
to spend money efficiently for increasing the knowledge of consumers on
financial services products. ”billions of euros” were being mentioned, so
wasn’t there a case for spending this money on education rather than on exist-
ing marketing programmes.

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

Jim Murray welcomed the idea of a certain standardisation of products (that
would reduce the educational requirements) but he added that certain play-
ers of the financial services marketplace did not want a single market; in some
member States, both governments and industry were in opposition.

Jos Clijsters argued that more money was being spent in a number of areas to
benefit the consumer. These were on more information being presented to con-
sumers, more tracking of consumer profiles and more information being avail-
able via the Internet and via branches. Marianne Kager felt that advertising was
inevitable in a competitive world, but that some of the money spent was because
of obligatory rules on the provision of information to consumers.

The Commission – more internal collaboration required?
Manuel pardos Vicente wanted more collaboration between the
relevant branches of the Commission – DG mARKT and DG SANCO.
Dirk staudenmayer saw no reason for those comments, as he felt that his
DG’s collaboration with DG mARKT was excellent – “it could not be better”.

Learning from financial scandals
ULb student Giuseppe Mazzoni wanted to know if there had been an in-
depth study, on a European basis, on the lack of consumer protection, following
the Parmalat and Ahold scandals. Dirk staudenmayer said it was not really
his area but that the Commission had adopted a Green Paper (in early 005),
launched studies and created some expert groups.

pardos Vicente agreed that there was insufficient protection for investors
and that there had been similar cases in Spain (two ratings agencies). Where
new types of products were envisaged, he wanted the regulators to bring
added-value for the EU’s citizens.

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

robin Jarvis said that more scandals would occur, that was inevitable. but
the introduction of Sarbanes-Oxley had shown that it was possible to over-
react, causing damage to the marketplace.

5. WorKsHop 3:
  Development of UCITS in the EU

The UCITS workshop was moderated by mEP Wolf Klinz, member of the
Committee on Economic and monetary Affairs. Opening the debate, Klinz
said that the aim of UCITS had been to create a “well-functioning single
European market” and this had only been partially achieved. Looking at the
workshop’s objectives, he stated that even though all stakeholders had analysed
the situation for some time, there were still questions that had not been
fully addressed. So it was time to hand over to the experts.

European fund and Asset management Association (EfAmA) President
stefan Bichsel was the first speaker. He looked at the goal of the UCITS
review which was “the realisation of a single market of investment funds,
together with a level playing field.” Choosing to define these terms, bichsel
   • Single market: one without frontiers, where investors had a free choice
     from all European funds with a high level of protection; but also
       – the successful development of industry was facilitated
       – global competitiveness was increased, including the export of Europe’s
   • A level playing field: implied an equal treatment of foreign and domes-
     tic funds in all different jurisdictions, together with comparable con-
     ditions for all competitive investment products at point of sales and
     tax treatment.

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

Overall, bichsel had welcomed the Commission’s Green Paper as it had raised
nearly all the important issues. He also considered mifID tackled the right
issues for distribution. It was now necessary to wait for the proposals in the
forthcoming White Paper. As for issues, some could be handled within the
existing Directive, while others would need significant changes within the

Those that can be met within the existing Directive
  • Notification procedure: “lengthy, complicated and inefficient”, CESR
      had been working in this area but the results were “disappointing”.
   • Simplified Prospectus: described as the “best example of gold-plating”,
     it was not working at all; it needed to be brought back to being a
     fully-harmonised marketing tool – there was “a lot of room for
   • Implementing CESR’s advice on eligible assets: CESR had done a good
     job and the proposal was eagerly awaited.

Issues (dealing with economic efficiency of the industry) requiring changes
to the Directive
    • The possibility of cross-border mergers and pooling.
   • The management company passport.
   • Less detail in the UCITS Directive – it should be Lamfalussy-compliant.

bichsel closed his remarks by adding some principles. There should be as
little legislation as possible, and as much as necessary. The regulations should
advance the single market, improve investor protection and bring an acceptable
cost/benefit relationship. In addition, there had to be trust among regulators
(this was said to be missing at the moment) so there was a need for regulatory
convergence and less gold-plating.

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

Klinz observed that these remarks showed that there was still disagreement
about the level of legislation required. He added that the European Parliament
was advocating selective changes of the Directive (to be made Lamfalussy-
compliant) rather than a major overall, but that bichsel wanted more funda-
mental changes.

french Asset management Association (AfG) Chairman Alain Leclair
described the investment fund market as one of the best solutions to comple-
ment retirement funds.

Arguing that the retail investment market was much bigger than one that
just consisted of private individual investors, Leclair said that the investors,
and not the intermediaries, were taking the risk. focusing on non-regulated
UCITS such as hedge funds real estate funds, he said these had increased by
0%. With the increased risks being faced, Leclair wanted all the actors
including non-regulated UCITS to be regulated – as they all had an impact
on investors.

He also bemoaned the fact that a European fund management status did not
yet exist and that investment managers are not able to offer a European
product yet. So, for example, french companies could not go to India or
China and offer a European product. There had been progress towards
removing barriers to harmonisation (mergers, cross-border selling, pooling
etc.) but this was a second-best solution in comparison to a European-level fund.

He considered that distributors have an essential role, that is recognized with
mifID and that developing their level of competence and information is
essential. Consumers are not supposed to know what is inside the product
and the asset managers’ job is to create and manage products and not to ex-
plain how they work.

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

He concluded by regretting that so far the Green Paper of the Commission
does not address the pensions’ dilemma, described as the “ticking bomb”.
Proposing the European Personal Pension Account (EPPA), which was IORP-
compatible, Leclair said that EPPA and UCITS could fix the pension problem
– with help from national regulators.

The Association of the Luxemburg fund Industry (ALfI) Director robert
Hoffman spoke about Luxembourg’s long history in the fund business, that
outdated UCITS. Luxembourg had put a regulatory framework in place and
had become the first country to transpose European legislation into national
law. He explained that Luxembourg, as a small country, could afford to be
non-protectionist. foreign providers were welcome and there was hardly any
domestic market. funds based in Luxembourg were being sold in 150 countries
and they hoped to expand into others such as Russia, brazil, China and India.
The growth rate of the Luxemburg fund industry was very strong. Asset
managers wanted “a one product fits all” solution with a single underlying
investment policy. Hoffman’s message was “duplication costs money”. He
also invited players involved to be careful in making changes in the existing
directive as these changes cost money.

Speaking in a personal capacity, paul salvidge, a member of the Consumer
Panel, financial Services Authority (fSA) and member of fIN-USE, initially
focused on distribution and the issue of customer protection. He described
the UCITS marketplace as “working well and not mis-sold”, but added that
much of the landscape would change with the introduction of UCITS  (Prod-
uct Directive). This led Salvidge to argue that progress towards a single retail
market could only be achieved if the spotlight was on distribution. but he
saw problems. There were some moves in some markets towards an open
architecture, which he welcomed, but he questioned the transparency of costs
for investors, the effectiveness of competition and asked if that meant that
third-party products could no longer be excluded. He pointed out that open

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

architecture may lead to extracting large payments from third party funds
that would have to be payed by the investor. Given these possible problems
– especially in the smaller / newer member States, Salvidge welcomed the
potential European Parliament investigation from a competition

Consumers faced complex choices he said. The Simplified Prospectus had to
be fixed but the key issue was that consumer needed advice. And that brought
another problem, as they faced sales personnel that worked “on commission”.
There had to be clarity in regard to those people who advised consumers,
whether they were independent or tied to particular products. He asked for
effective assurance that advisors know the needs of customers and the products.
Salvidge wanted robust policing systems as the situation could well be exacer-
bated with the move towards a single market. That objective would never be
met unless the consumer had confidence (regardless of passports or initiatives
such as 6th regimes). So it was vital to get the distribution issues right.

Questions answered by Salvidge.

           QUESTIONS                                       ANSWERS

 making the fund passport better?        yes, of course

 Clarifying asset definition             yes

 Substitute products                     must be regulated coherently, as UCITS

 Alternative investment funds?           Due to complexity and difficulty in offering
                                         consumer protection, probably best not to
                                         be opened up to mass markets

 Optimisation of fund processing?        yes, of course

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

Natexis Asset management CEO Daniel roy opened up with clarification of
customer needs. It was a bIC business (business–to-intermediary-to-
customer) and the intermediaries were essential. Roy argued that customers
had no time and lacked the skills to delve into the information on the vast
numbers of available products, whatever the quality of the information. They
needed advice on the right asset allocation if they were to match up assets
with, for example, their pension needs. Price transparency was not an issue;
people are ready to pay if they get a good return.

The solution was open architecture. Global balanced funds were perfect for
the man-in-the-street whereas alternative solutions such as fund supermarkets
and guided open architecture are not so good in the long term. The size of
the funds was not important, as very good results could be gained form small-
sized funds.

What was needed was pro-European regulatory support for an open archi-
tecture. The UCITS Directive was good but it was hard to introduce funds
into foreign “European” markets (e.g. french fCPs in the UK), primarily
due to the lack of a unified tax structure. And if a company wanted to use its
portfolio management resources, it was necessary to open up a local office to
cope with regulatory issues. Roy appreciated the evolution but he wanted a
genuine European market, in which the consumer could select a product from
a wide range.

Roy concluded with a comment on the US. It was ahead of the game, and that
was where future competition would come from. The goal was the management
of pension funds and Roy said that Europe had to wake up, the quicker
the better.

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

The forum of European Asset managers (fEAm) Chairwoman Elizabeth
Corley gave fEAm’s collective view – that UCITS was a successful global
brand but that there was a failure to execute UCITS’ full potential. There
was no shortage of ideas and “everybody agrees on what should be done and
yet things do not move”.

Starting on a wider topic, Corley called for equivalence between products
(e.g. certificates, unit-linked products, pensions, mutual funds, etc). All of
these products were sold to consumers, and there must be fair treatment of
these and UCITS. Consumers should not need to be concerned about the
vehicle they used to reach the investment market.

This led Corley to argue that distribution was vital to the success of the
industry “the distributor is the pilot in the plane”. She expected that mifID
would bring progress but was concerned that mifID would not remove the
need for local regulation.

Unnecessary regulatory impediments had to be removed, so the notification
process had to be improved and made easier. Here, Corley expressed her
disappointment that in the second round of consultation of CESR, regulation
is still needed to solve the problems relating to the notification process for
UCITS. She added that there was insufficient transparency within CESR - she
had no idea which members were objecting to change. Corley wanted to
implement all the possible changes that do not require regulating through a
voluntary code after having agreed on a common timeframe. An idea could
be to check within 1 months how effective the voluntary code as well as
mifID can be and to define further improvements from there if needed.

In conclusion, Corley looked at how much change was needed in the UCITS
Directive. It did need modernising, and she proposed to look at it as a prod-

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

uct strategy: Corley insisted that before change was agreed, there had to be
three tests: was it a change for the better, was it cost effective and could it be
delivered? Caution was the watchword, before a “successful global brand”
was changed. It was working and it did not need fixing.

With a nod to Roy’s warning about the US, Invesco Continental Europe
Services CEO Jean-Baptiste de Franssu, said that UCITS was a successful
brand that may soon overtake the US mutual fund market. Its rapid growth
was impressive, and was in some part due to its highly-developed consumer
protection features. He was therefore disappointed to see that some EU member
States had delayed the lifting of barriers to protect their home market and
he found this to be against the spirit of Europe.

He considered that efforts had to be made on the supply side. Cross-border
fund mergers were one of the most difficult issues although progress had recently
been made to recognize this issue. facilitating cross-border mergers could bring
economies of scale and efficiency gains through the rationalisation of the range
of funds leading to increased performance and reduced fees. At present the EU
counts  times more funds than the US for a market that is / the size, 90%
of funds have less than 50 m E assets under management and 4900 funds have
less than 10 m E assets under management. He estimated it could bring a 5 to
15 bp boost to fund performance, and that savings could be in the region of
EUR -6 billion, improving the attractiveness of UCITS.

This rationalisation would not be easy however and de franssu said it would
require a common definition of what constituted a cross-border merger and
enhancements to national legislation enabling fund managers to do interna-
tionally what they can do internally. In parallel with the work being under-
taken by the Commission, de franssu therefore called for all local fund
management associations to work closely with local regulators to make UCITS
cross-border mergers possible, starting off with bilateral agreements. He also
pointed out that Ireland was taking the lead on these issues.

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

bank of New york Executive vice President paul Bodart examined the process-
ing side of the business and concluded that more automation was essential
to achieve more efficiency.

On the fund accounting side, he saw  main challenges: a need to shorten
valuation cycles and the increasing complexity of valuation in a world where
instruments were becoming more complex. The only way to address these
issues was to invest in more technology.

Examining transfer agency activity (registrar function in the UK), bodart said
that this activity that supported funds distribution had to face the total lack
of standardisation across Europe.There are different distribution models with
the predominance of IfAs and fund supermarkets in the UK which is not the
case in other EU countries. There is also an opposition between the CSD
model that prevails in Germany, france and the US (in this case the transfer
agency is done through the CSD and costs have gone down dramatically) and
the transfer agency model that can be found in the other EU countries. He
also saw Clearstream and Euroclear moving in the right direction on the
international side of the business, although they were using different platforms
and models, which was an issue to be looked at. He finally pointed out the
consolidation conducted by Euroclear that had led to establishing fundsettle
in france and Next in the UK.

His third point covered the depository bank side (trustees in the UK) and here
bodart described a business that was both fragmented and expensive. In most
cases UCITS need to be deposited in the country where the transaction is
settled leading to fragmentation. bodart mentioned  improvement actions
that need to be accomplished to make processes more efficient:

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

   • He described the work of the EfAmA fund Processing Standardisation
     Group that was working on developing Europe-wide standards as ex-
     tremely important. Industry-wide standards had to be implemented,
     the example of the ISO 000 was given.
   • He mentioned the fund processing / depositary passport as an impor-
     tant initiative that did not require specific intervention from the EU
     Parliament or the Commission.
   • And he insisted on the need to agree on harmonised roles beforehand.

If these recommendations were implemented, there would be efficiency gains
resulting in a more effective business.

CESR’s Deputy to the Secretary General, Carlo Comporti, had one main wish. He
wanted the UCITS Directive to be adapted to the Lamfalussy process. That would
give CESR much more scope to bring about the necessary improvements.

CESR activities and progress made
There have been two main thrusts in support of the UCITS Directive: the
adoption of guidelines on provisional dispositions of the UCITS Directive
and the advice given to the Commission on the clarification of definitions,
particularly on eligible assets .

The other major area had been work on the fund notification procedure, seen
as one of the main barriers to efficient cross-border fund distribution and one
of the priority actions in the Green Paper and the Klinz report. CESR has
been working on simplifying and streamlining the process to strengthen the
single market. The revised CESR document, submitted for second round
consultation, addressed several requests from industry that fall within the
level 1 legal framework. Comporti was confident that CESR would adopt the
final measures by the summer.

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

He stressed that the work covering eligible assets and the work on the noti-
fication procedure were part of a single package. In less than two years, CESR
had produced visible results. Answering possible criticism, Comporti agreed
that more could have been done but he reminded the conference that as the
UCITS Directive was not a Lamfalussy-compliant directive, the scope for
change was reduced. Nevertheless, the improvements that could be made
under the existing Directive should not be underestimated. CESR was also
monitoring the progress on implementation and the development of standards
and Comporti added that full details, including the degree of implementation,
could be seen on the CESR website

The future work programme
Key tasks for the investment management expert group were defined as:
   • finalising the simplification of the notification procedure
   • finalising the level  measures on eligible assets
   • Analysing hedge fund indexes (by October 006)
   • Observing (and giving input to) the Commission’s White Paper

In addition, there would be more on the conduct of business rules in relation-
ship with mifID, supervisory techniques and on the Simplified Prospectus
(development of a common format). Another issue was the growing awareness
of the need for a level playing field across sectors, however pre-requisites were
greater clarification on the actual players and their deliverables.

Comporti added that there was strong political expectation that the three
level  committees, for Securities (CESR), banking (CEbS) and Insurance
(CEIOPS), would be able to solve many of the problems raised in the
Commission Green Paper and in the Klinz report. However, he warned that
new regulatory issues might be required as it was unjustifiable to impose
different treatments on similar products at the expense of the investor.

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

The future in general
Several of the issues raised were already in the CESR work programme. These
would bring major challenges, as most related to typical level  exercises for
which all the functionalities of the network (e.g. mediation, strengthening of
internal review through the review panel, etc.) should be explored. At this
point, Comporti repeated that the UCITS Directive would benefit from being
adapted to the Lamfalussy process, pointing out the difficulty to adapt
legislation to product innovation. The impact of the work on clarifying the
eligible products could not be ignored but if more was needed, it was necessary
to adopt the legal framework. That would allow the regulatory system to
exploit the full possibilities offered by the process to exploit financial innovation
and market change.

The Commission’s DG Internal market & Services Director David Wright
stressed the importance of the topic. The financial services industry had a
capitalisation of EUR 6.5 trillion – 50 to 60% of Europe’s GDP.
The “great challenge” ahead was to make long-term provision for pensions,
especially as the projected changes in age-related public expenditure would
amount to a change equal to between % and 4% of GDP. Such amounts were
“absolutely enormous”.

Agreeing that UCITS was a quality brand and able to bring innovation needed
by investors, Wright agreed with Klinz (in his opening remarks) that the
single market was simply not working sufficiently well. Costs in certain
segments were too high, returns for investors were less than optimal, barriers
remained: “some deliberate, some bad, some ugly, some fiscal, some company
law-related”. Wright was adamant that the situation could not be allowed to

Describing the Commission’s current activities – leading to new proposals
in November 007 – Wright added that some observers might feel the pace

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

of change was too slow. It was not, this market was very important and changes
needed to be “proportionate, well-judged and built on consensus”. Achieving
the goals would not be easy, and the Commission would be looking at both
short-term and medium-term objectives.

The main issues were: making the passport work (essential), completing the
transitional arrangement towards UCITS  and defining what exactly “eligible
assets” were. There was some tidying up to be done but Wright was happy
with progress. more complex areas included the “host country responsibili-
ties” and he saw opportunities here for “radical and bold thinking”. He
pointed out the changes that mifID would bring. He also wanted regulatory
authorities to start trusting each other and he welcomed the creation of the
CESR mediation mechanism.

Wright acknowledged that the Simplified Prospectus did not work. The Com-
mission was working on this to simplify the results. Another key issue was
the need to educate the consumers for the future by introducing programmes
in schools for example. There were also several core issues needed to make
UCITS function more efficiently. These covered:

   • Simplifying the notification process.
   • Ways of removing legal tax and other obstacles to cross-border fund
   • Ways of removing regulatory resistance to pooling arrangements.
   • Allowing fund managers to manage funds domiciled in other
   • Steps to increase access to competitive custodian services.

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

Good work had been done in identifying the themes, moving from there to
actual operational implementation would not be easy and would be the next
issue to be tackled. Wright concluded by commenting on some issues raised
in the conference. Although everyone seemed to be in favour of making UCITS
Lamfalussy-compliant, this was not a trivial task as it required significant
changes to the Directive and a successful end to the comitology dialogue
between the Council and the European Parliament.

Other topics mentioned included: the need for a level playing field (as some
products could not be privileged over others), an end to “market distortion”,
the importance of globalisation, the need to monitor progress (in order to
gain encouragement) and the role of regulators – and the need for an increased
level of trust between them so that useless barriers might fall away.

Q & a – UCitS WorkShoP

Wolf Klinz agreed that strong personalities were needed and that there was
certainly a requirement to solve the comitology question. On the subject of
education, he was not sure if it was feasible to expect young teenagers to suf-
ficiently understand the complexities of the financial world. Klinz therefore
asked paul salvidge what could be done.

Salvidge rather liked Jim Murray’s earlier suggestion that the industry should
be the ones that did the educating and also producing simple products that
met requirements. However, Salvidge was not convinced that young people
could be sufficiently interested in savings plans and products and pointed
out that they were already faced with many subjects. On the financial front,

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

they should be more concerned about avoiding long-term debt. His main
recommendation was for a programme, either government or industry-funded,
that gave solid “generic education and advice” about financial products and
how they could be used to avoid problems in later years.

David Wright said that it was a responsibility of the member States but the
Commission wanted to pass the message that individuals needed to accept
responsibility for their own future – especially as life expectancy was increas-
ing. He described the lack of education in this regard (as to how people should
manage their finances) as a “huge market failing”. Alain Leclair agreed,
calling for everyone to think about their probable retirement date and their
financial requirements. stefan Bichsel put more importance on picking the
right (sales) people and by ensuring they followed a strict code of conduct.

An over-complex market
financial Consultant Jaime Kcomt described the European financial market
as the “most imperfect” one that he knew. It was hard for consumers to under-
stand and was becoming too complex in places even for financial specialists.
Wright had some sympathy for that view but that was why the Commission
supported the idea of replacing 5 member State markets by one single Euro-
pean one. It was also the reason why the Commission opposed the requests
form member States to add new rules (exceptions).

Focus and go for quick results
Eversheds financial Services forum’s Wilfred Aspinall had listened to the
shopping list of changes requested to UCITS and he asked if it was best to
opt for a “big bang” approach (where the White Paper covered everything
and was open to massive interpretation and amendment with results two years
down the line) or to do something more pragmatic in order to compete with
structured products (e.g. change the notification procedure and do something
on article 46 – which CESR could not do) and go for quick results - as recom-
mended by the Klinz report. Elizabeth Corley gave her 100% agreement. It
was necessary to focus on key feasible changes and results.

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

Dublin funds Industry Association’s Gary palmer also agreed that results
were needed quickly. Jean-Baptiste de Franssu had earlier praised Ireland’s
initiatives in the financial services sector, but Palmer felt that any medal
might have to be awarded posthumously. The environment was good for
consumers but the existing jurisdiction was a major problem.

Is everyone rowing the same way?
Giuseppe Mazzoni felt that some of the problems facing the industry were
the same ones that he had seen 10-15 years ago. He reasoned that that some
of the actors in the sector must be deliberately stopping progress, so how
could these forces be opposed.

In response, de franssu did not totally agree. He argued that the opposition
to progress was considerably less now than it was two years ago, for example,
and that there was a much better cross-border flow of UCITS funds nowadays.
He added that the more investors can compare and shop around, the more
national markets will open up their markets and that it was necessary to
ensure that local associations go towards “more Europe”.

Klinz wrapped up the session by saying that the dialogue would have to
continue. He added that Eurofi would be studying two key topics: further
improvements needed in the distribution and the processing of investment
funds within the EU. As Wright had said, it was in everyone’s interests to
develop a market that was effective, competitive and consumer-friendly. Klinz
personally wanted to see the development of a system that was sufficiently
flexible to cope with the myriad of changes in the marketplace that would
undoubtedly be surfacing in the coming years.

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

6. WorKsHop 4:
  Do “European Shareholders” really exist?

With cross-border mergers and takeovers raising concerns about EU corporate
governance standards, this workshop - moderated by JPmorgan Chase
International President sir Andrew Crockett - examined how EU institutions
were reacting to Eurofi’s proposals.

the Debate

  Eurofi’s definition of a European shareholder:
  “An investor who decides to buy / sell shares, regardless of the nationally
  of the company or the location of the trading siteWith the same conditions/
  same facilities as exist for national trading, i.e. access to information, cost
  of transaction, taxation of revenues, etc…”

Daniel Lebègue, President of the Institut francais des Administrateurs (IfA)
and Honorary President of the European Confederation of Directors Asso-
ciations (ecoDa), was first to the podium. Defining a “European shareholder”
as one who had the same facilities for both cross-border trading and na-
tional trades, he declared that true European shareholders did not exist.
Lebègue put the blame on the diversity of company laws and corporate gov-
ernance rules, the multiplicity of share-holding structures and compositions,
and the numerous “technical and tax obstacles” facing potential shareholders.

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

He could see no consensus for a recommended approach towards corporate
governance, as there were unanswered questions:

   • Would it be beneficial for companies to encourage individual / employee
   • Were major financial institutions (hedge & pension funds) creating
     greater instability?
   • Should “one share, one vote” be a basic principle for all?

However, Lebègue recognised that European corporate governance values
and best practices were converging. Acknowledging positive signs in the UK,
he recommended a pragmatic approach for the EU (benchmarking, broad-
casting best corporate practices, etc.) as opposed to the US’s more prescriptive
strategy via legislation such as Sarbanes-Oxley.

Seeing other differences between the EU and the US, Lebègue argued that
corporate governance was an issue for all stakeholders (especially the em-
ployees). He added that Europe preferred “direct shareholders” democracy,
rather than action via intermediaries (proxy voting, via lawyers, “class action
specialists”, etc.).

fIN-USE’s Tania Verrier described the final goal as further integration of
Europe’s capital markets. Arguing a case for an increase in the numbers of
retail shareholders, she said their role in generating economic efficiency was
underestimated. fIN-USE was certainly in favour, as wider and deeper mar-
kets would be created. verrier gave her support to the Commission’s draft
directive. It would encourage individual shareholding in Europe, as it would
help in areas such as:

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

   a) the “one share, one vote” principle: which had to be retained as a
      fundamental right
   b) access to information: currently insufficient and where the issue of
      language was important, especially for cross-border shareholders, so
      that they at least understood major issues

      Results of studies
      • Retail shareholding should be stimulated as it contributes:
            - to liquidity
            - to market integration
            - to more efficient markets
      • And lowers the cost of capital

   c) meetings management: “share blocking” should be abolished, the
      notice period (ahead of meetings) harmonised and the necessity to
      attend in person, to vote, removed.

Other barriers were seen to be in fiscal matters and in post-trading. verrier
gave the example of baltic banks’ charges being 5 times higher for trades in
the new EU member States compared with local trades. In conclusion, she
said the importance of retail shareholding should not be under-estimated
and called for simplified cross-border trading.

The European fund and Asset management Association (EfAmA) Secretary
General steffen Matthias commented that while he shared Eurofi’s views,
there were two different issues on the table:

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

   a) There were actions required to make capital markets more attractive
      for shareholders.
   b) There was work needed to integrate capital markets, i.e. by improving
      the infrastructure.

matthias did not see these as being directly related. In regard to the first point,
matthias insisted that a “European shareholder” did exist, as cross-border
trading had increased dramatically since the euro. He could not agree with
Lebègue that cost was a factor, as investors would trade in a fund if they liked
it. However, there was a need for trust in the marketplace, and matthias
reminded his audience that this took time to develop. Investors had to be
educated and governance guided trust. He was not convinced that the intro-
duction of corporate governance rules resulted in more business (in buying /
selling shares) and he stressed the importance of industry integrity.

As for the Commission’s directive, it was going in the right direction. However,
matthias disagreed with obliging shareholders to participate in company
management and he did not want voting to be obligatory. The publication of
votes cast at the AGm (as was done in the US) did not find favour either; a
voting policy was required and views should be expressed in annual reports
(as to how companies behaved) – that was enough. In conclusion, matthias
said tax was the major issue – but it could only be solved in the long-term
(clean, easy-to-handle taxation of savings required).

CACEIS’s President of the managing board François Marion explained that
his organisation was at the crossroads of legal, financial and operational
services. To set the scene, he ran through what he could offer as a service

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

   • CACEIS serves foreign investors, where a key element is information
       – messages have to be sent frequently to all shareholders (AGms
       – Specific information (balances of security by customer, etc.) has to
         be distributed.
       – Transmission of votes for AGms (for example) has to be safe and
   • CACEIS can provide total outsourcing services for all tasks relating
     to AGms
       – Production of legal documentation
       – Collection of votes (paper, electronic, etc.)
       – Registration and other logistical aspects – a fully-owned subsidiary
         is available

Describing European (cross-border) integration as promising, marion said
caution along this process, was necessary as the job has to be completed in a
professional and secured way. He underlined the need for “dematerialisation
of shares” as this would lead to a better control of stocks and flows. This would
eliminate over-voting situations and 0 years of experience in france had
proved it to be efficient. marion also called for “dematerialisation of votes”
via e-voting procedures. This was, however, described as a major challenge,
as additional voting procedures will create multiple flows of information with
the risk of dual voting. In addition, the financial industry will have to deal
with new actors, such as website hosting companies, and new processes, audit
trails, the need for confidentiality. These were described as having “possibly
contradictory constraints”.

                 EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

As a service provider, marion supported the various initiatives – to encourage
shareholder views – but more analysis was needed. He was also in favour of
the “recorded concept”, which could easily be implemented alongside
e-voting. marion concluded that the electronic participation at AGms should
be encouraged (cost efficient, allows greater participation) when sufficient
anti-fraud measures are in place. for marion, indeed, in this matter as many
in the financial environment, trust in the process and in the intermediaries
is of the essence.

EURONExT’s Director International Affairs, robert Thys, referred to the
“big bang” – the euro’s introduction – that had led to many market opportu-
nities. Emphasising the role of the private sector (banks, brokers, exchanges),
Thys looked at what had happened since then. Using EURONExT as an
example, he initially focused on liquidity - a “major factor” as without adequate
liquidity, spreads (bid and offer) could reach 00 basis points. EURONExT
was aiming to accumulate liquidity across markets – brussels, Amsterdam,
Paris, Lisbon, etc. – and reduce fees charged to intermediaries.

Turning to open issues, Thys saw the main obstacles as being: double taxation
(a problem that required more priority) and post-trading issues (“much to
be done”). He then turned to the new make-up of the investment world. Hedge
funds could not be ignored, they were “a new and interesting development”
that provided liquidity and (perhaps) accelerated volatility, while bringing
systems that prevented too much instability. In the case of EURONExT, over
60% of shareholders were now Anglo-American – “power trading”
had arrived.

    In france the “D-” rule is under implementation, where all shareholders who have settled
    their trades three days before the AGm have the right to vote.

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

The Commission’s Head of Unit, Company Law, Corporate Governance and
financial Crime, DG Internal market and Services, pierre Delsaux, stayed
firmly on the fence when it came to saying if a real “European shareholder”
existed. He had heard two definitions: one from Eurofi (shareholders with
the same rights - national and international) and one from EfAmA – “not so
ambitious”, simply investing on a cross-border basis.

In order to achieve Eurofi objectives, there had to be harmonisation of company
law and corporate governance. but Delsaux warned that the Commission no
longer sought to achieve “one size fits all” solutions, as different systems
brought welcome competition. Intervention was needed, but only in certain
key aspects: e.g. shareholders’ rights on a cross-border basis (as shareholders
had to be able to decide how companies were operated, regardless of whether
those shareholders were domestic or non-domestic). Delsaux described three
main elements of the European Commission’s proposal:

   a) Information to be sent well in advance of shareholder meetings.
   b) “Share blocking” (a major problem) to be removed.
   c) Use of proxies to be facilitated (to avoid need to travel).

Reaction so far has been positive, but further discussion was needed in all
three areas. That was also the case in the areas of

   a) “one share, one vote” – opinions were split,
   b) institutional investors to disclose voting policies – “regulation or self-
   c) corporate governance – probably sufficient to “share best practices”.

Delsaux gave his vote to pragmatism over regulation, with the overall objec-
tive being to turn both definitions of “European shareholders” into reality.

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

The Union of Industrial and Employers’ Confederations of Europe (UNICE)’s
Secretary General, philippe De Buck, wanted all European shareholders to
have the rights to hold shares and all companies to have sound financial
situations. Given the current diversity of shareholder approaches in member
States, laws and practices had to be combined, perhaps by self-regulation and
the exchange of best practices.

De buck welcomed the Commission’s agreement that a “one size fits all”
approach was no longer favoured, as companies required flexible solutions.
Looking at the Commission’s proposals, he added his (and UNICE’s) comments:

   • Information should only be distributed to shareholders where it was
     useful (“too much information kills information”).
   • All shareholders (individuals and institutions) should have the right
     to exercise control on investment and management of a company
     regardless of its location (within the EU): here De buck wanted
     “minimum standards” and the Commission proposals to be adopted
     to reflect “business realities”, as there were potential drawbacks in
     e-voting and room for abuse if there were no limits on the number of
     questions that could be asked at an AGm.
   • UNICE favoured employee share ownership, seen to be “good for
     motivation” – but schemes had to be voluntary for employers and
     employees; however differing situations across member States could
     pose difficulties.
   • UNICE also wanted employers to provide clear information and called
     upon member States to provide a tax and legal environment that
     facilitated the gradual move to a financial participation culture in
     the EU.

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

   • On “one share, one vote” – De buck wanted the bigger picture to be
     examined as it was not clear if one system should be favoured over
     another; any study should involve a “sound economic corporate law

Debevoise & Plimpton LPP Counsel, Noëlle Lenoir, wanted European citi-
zens to be more aware of the EU’s economic achievements and the success of
the market. She saw two main issues that had to be resolved:

   1. Was it necessary to encourage more individual shareholdings (as in
      the US)?
   2. What was the role of corporate governance vs. hedge funds, was it
      necessary to do something at the EU level?

Lenoir was all in favour of encouraging individual shareholdings. However,
she saw problems ahead if the EC adopted a “minimal harmonisation”
approach. This would encourage so-called “foreign shopping” (where companies
searched for the lowest form of corporate tax), different levels of national
legislation and resulting confusion for the EU citizens. Lenoir called for a
return to the old “community spirit” and a situation where citizens could
benefit from both capital and labour.

She also saw “dematerialisation” as a big issue; it would attract the younger
generation and lead to greater participation in shareholder meetings. On the
issue of hedge funds, Lenoir also saw this as a “hot issue”. The Commission
should be thinking of establishing principles of transparency, and she was
concerned about actions being taken for short-term yields as opposed to long-
term company stability.

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

Q & a – eUroPean ShareholDer WorkShoP
the Panel SPeakS

Hedge funds
Crockett reasoned that it was perhaps necessary to reduce voting rights of
institutional voters in order to lessen the destabilisation effect. Delsaux
replied that there was no support for community intervention in this area – it
was for the market to decide. De Buck wanted minimum standards to be
adopted, and he saw companies leading the way in terms of spreading best

Individual shareholding
De Buck saw no place here for harmonisation but he did want a greater equity
culture to be developed. However, that did not imply changing rules and the
corporate governance forum would be looking to find common ground.
Lebègue agreed with Lenoir that “foreign shopping” was akin to weak
regulation. Citizens would not be able to understand why there were
fundamentally different financial situations between EU member States.
Instead he opted for no regulation at all. In that case, the investors would be
the driving force by choosing to invest in companies that followed best
practices. Delsaux preferred the term “regulatory competition” to “foreign
shopping”, but he added that it should result in a race to the top, not to the

Role of shareholder associations
An audience member suggested that the Commission look at shareholder
associations, as they were another influential player and there was potential
abuse due to the introduction of “fake associations”. Delsaux said the issue

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

should be debated but that the question was premature. Matthias took the
opportunity to react to marion’s suggestion that proxy voting be allowed for
a limited time span. He argued that this would kill shareholder associations,
as they would continually have to ask for mandates. Marion replied that
associations could sell the right to vote, although that could mean that iden-
tification of voters would not be possible. Delsaux agreed as there were many
new techniques, which made it hard to say who was actually voting.
John Maher, a member of the Consultative Consumer Panel, at the Irish
financial Regulator, did not want the Commission to waste money on look-
ing at voting rights when most votes were pre-determined. He wanted the
institutions and consumer associations to focus on delivering better returns
to shareholders. Delsaux stated that the corporate governance forum would
study if there was a real problem for the market, adding that a person could
be an owner of a share for 64 days of the year and sell his voting rights for
one day. Was that a problem? The forum would give the answer.

7. pLENAry sEssIoN 2:
  Tougher competition – threat or promise?

moderating, Dexia bank’s Dirk Bruneel highlighted retail as an area that
had lagged behind the rest of the financial sector. He argued that huge invest-
ments were being made with the aim of giving better prices to consumers, a
broader range of products and better quality.

However, in parallel, laws and regulations obstructing further cross-border
integration had to be addressed. The costs involved in providing a level play-
ing field, cross-border standards and consumer protection rules had to be
evaluated and actions prioritised and implemented in a phased approach.
They should not become a significant burden on the financial sector.

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

Neelie Kroes, EU Competition Commissioner

                     Opening up with a few words on the Commission’s
                     objectives, Commissioner Kroes said the aim was to work
                     with the financial industry to build a single market, as it
                     was a vital part of the renewed Lisbon strategy. Competition
                     was needed in the sector as it was important for Europe’s
                     overall competitiveness, and it managed and generated
                     wealth for all stakeholders.

Competition – threat or promise?
Commissioner Kroes argued that it could be both, and that it would only
threaten those who were unwilling to adapt. It was actually a promise that
was already being fulfilled, with deeper and more efficient financial service
markets arriving across Europe. This progress was being driven by the euro’s
introduction and by the fSAP.

With parts of the fSAP still being implemented, the policy agenda was now
moving beyond the Action Plan. The White Paper, endorsed by the Euro-
pean Parliament, called for all available tools to be used to develop a single
market. Competition policy was at the heart of the strategy, as it opened
markets, promoted transparency, identified and tracked the full range of
market barriers, and went hand-in-hand with internal market policy.
Commissioner Kroes then looked at recent activities in the banking, insurance
and securities sectors.

Competition in the banking sector
Competition was lagging in the retail sector – bringing insufficient benefits
for consumers, SmEs and the European banking fraternity. The Commission
had launched a sector inquiry into retail banking, looking at:

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

   1. Payments cards (preliminary findings available): fragmented along
      national boundaries, high fees (varying by up to 400% between member
      States) for these cards which were being passed to consumers; very
      high profits for banks across the board.
      Resulting conclusion: in view of competition problems in the payments
      cards market, the Commissioner was not convinced that the profits
      were “a just reward for risk-taking and innovation”
   2. Wider market for current bank accounts and related services (savings,
      loans): from a consumer perspective, the inquiry asked if there was
      sufficient innovation and choice in the market, if consumers could
      switch between providers and examine the barriers to entry in the
      banking market.
       – the inquiry would provide a wealth of information; a preliminary
         report on current accounts and related services would be produced
         in July for consultation
       – it will be discussed at a public hearing on July 17, together with
         results of the payments cards inquiry.
   3. banking mergers: certain mergers have been successful such as
      Santander and Abbey National, but several other cross-border mergers
      such as AbN & Antonveneta, bbvA & bNL, Unicredito & Hvb are,
      or have been exposed to legal uncertainty due to current national
      banking legislations and lack of procedural transparency although
      they had been approved by the Commission. This is damaging for
      customers as mergers can bring more competition and enable prices
      to go down. The Commission would take action to create a level play-
      ing field, abolishing unlimited state aid to public banks

Competition in the business insurance sector
A sector inquiry was being launched to see if the current level of cooperation
between the various players is healthy for competition. Insurance is not a
network industry but cooperation may be necessary and may generate

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

efficiencies in certain instances by having standard clauses or dispositions in
certain areas, developing insurance pools… However it remains to be seen,
whether the current level of cooperation, as allowed by a European block
exemption regulation, is justified or whether it entails a risk for competition.
At present there are radically different conditions of entry across member
States, remuneration of intermediaries, etc. Interim reports are to be issued
and stakeholders are to be consulted.

Competition in securities trading
Competition policy has a vital role to play as the potential prize is great. The
current fragmentation of capital markets cost the EU economy an estimated
1% of GDP. National markets were taking on an increasing cross-border di-
mension (bringing opportunity and risk) and the Commissioner believed that
competition between trading platforms was both possible and desirable.
However, there was a competition issue in post-trading activities: it was cur-
rently difficult for potential challengers to use post-trading infrastructure on
equal terms

Commissioner Kroes mentioned other issues, such as potentially excessive
inter-mediation costs in the brokerage layer. Regulation might be needed but
she added that competition law and policy might also have a role to play. The
Commissioner concluded that the Commission and the financial services
industry had to work together to develop a policy approach that was based
on best evidence and the market’s healthy future.

As for whether competition was a threat or a promise, the Commissioner
insisted that “tougher competition” was a promise. There was a lot of work
to be done to complete the single market in financial services, but the full
range of competition tools was being used: to open-up markets; to create new
opportunities for the best firms; and to deliver more benefits for consumers.
Commissioner Kroes saw competition policy and internal market policy
working hand-in-hand to meet the challenge.

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

Q & A - TouGHEr CoMpETITIoN - THrEAT or proMIsE?

Dirk Bruneel took the opportunity to ask the Commissioner several questions
prepared by Eurofi about competition policy:

   1. Did the Commissioner agree that cross-border mergers should leverage
      competition and therefore bring benefits to consumers?
      Answer from Commissioner Kroes: Certainly as financial services were
      parts of the key infrastructure for EU’s competitiveness. Cross-border
      consolidation was the right way forward to achieve the single market.
   2. The banking sector was building the single market via its major invest-
      ments in infrastructure, wasn’t that a better approach than complying
      banks to act in a certain way via directives?
      Answer from Commissioner Kroes: It was not the Commission’s role
      to define how a market should evolve, but merely to say what was and
      what was not acceptable.
   3. What was the role of DG Competition, in that it seemed to be stimulating
      competition while the EU member States were stimulating inter-bank
      Answer from Commissioner Kroes: There was no contradiction, there
      needed to be a consolidated network, but financial services had been
      protected from integration for too long; the justifications for delaying
      access to banks had not always been made in good faith
   4. As banks had made huge investments to achieve the integration process,
      how could access be fairly regulated for newcomers?
      Answer from Commissioner Kroes: It was a classical case of price
      regulation; the complexity lay in the fee-setting, it should be high
      enough to provide an adequate return on investment (but not too high)
      and not too low in order to avoid free-riding and inefficient entry.

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

A member of Ireland’s Consumer panel warned against over-use of the word
integration as this could give the wrong message to Europe’s citizens in the
current climate. He suggested the use of coordination, unified systems or stand-
ardised information.

both bruneel and Commissioner Kroes agreed, the Commissioner saying
that such a situation existed in the Netherlands. She argued that there had
been a communications problem, heading up to the referendum on the
Constitution, and that there now had to be more focus on delivering results,
in areas such as roaming tariffs, payments cards, energy tariffs etc. People
wanted the Commission to be practical, to do something instead of simply
talking about European dreams.

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

   DAy  – WEDNESDAy 7 JUNE 006

1. pLENAry sEssIoN 3:
  What is the outlook for the Single Euro Payments Area (SEPA)?

The second day’s first session was moderated by Jacques de Larosière, co-
President of Eurofi. Prior to giving the floor to the panel, de Larosière asked
ADS Conseil’s Jean-Marie Andres, a Eurofi consultant, to set the scene.

Andres gave some of the key conclusions from the Eurofi SEPA study, stressing
that a strong commitment was required from policymakers. He added that concerns
in the area were causing widespread uncertainty in the marketplace.

   • The 2008 deadline: whereas banks and companies would play a leading
     role in the initial roll-out (direct debit and credit transfers) they have
     strong expectation from the European institutions with their respon-
     sibility to create on time an efficient legal framework.
   • Technical standards: created by the European banking community, they
     were “just” a crucial building block in the overall integrated payments
     sector project, and therefore huge domestic adaptation are still neces-
     sary to widely catch potential benefits from existing domestic elec-
     tronic-payment volumes
   • Fees discrepancies reduction: while for Institutions a major goal was to
     reduce the fees discrepancy, actually main economic stakes originate
     in the reduction of the use of non effective payment means; this implies
     to reach similar maturity and habits across member States with respect
     to the use of e-payments, and specific domestic provisions to reduce
     the use of cash and cheques

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

   • The need for creativity and reliability: e-payments implies significant
     investments and this could only be achieved if long-term commercial
     stability was guaranteed, underpinned by a sound legal basis particu-
     larly on the area of “multilateral interchange fees” (mIf)

The European Central bank’s (ECb’s) Gertrude Tumpel-Gugerell opened
the SEPA debate proper. Looking at the balance sheet, she saw several posi-
tives, including: a strong commitment from the banks, a clearly defined set
of SEPA instruments and precise project deadlines. She was therefore adamant
that it was time to stop talking, to concentrate on getting all stakeholders on
board and to focus on implementation and the 008 deadline. Going into
detail, Tumpel-Gugerell looked at the main issues to be faced:

National migration
An organisational structure representing all stakeholders has been put in
place in a number of countries. finland, belgium and france had all made
good progress, while the ECb will closely monitor the implementation steps
of the SEPA project.

A clear communication strategy had to be developed and used to bring
everyone, customers, public administrations, merchants and SmEs into the
picture. This strategy should include targeted messages and concrete exam-
ples for the regular customers of high street banks.

Analysis of legal basis
The proposed Directive on Payment Services would establish a legal frame-
work for EU payment services and assist the banking industry in the realisa-
tion of SEPA. Tumpel-Gugerell was therefore happy to see that the European
Parliament and the Commission were confident that the Directive would soon

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

be adopted. However, she wanted the legal and technical aspects kept separate
and warned that she would challenge attempts to misuse the discussion on
the Payment Services Directive as an argument for delaying project work.

2010 deadline
Tumpel-Gugerell admitted that some people were questioning the 010 dead-
line, as there could be a lack of demand for SEPA instruments and therefore
a lack of economic benefits. She agreed the jury was still out but said that
usage was dependent on implementation and communication. She stressed
the benefits (savings of hundreds of millions of euros) of consumers using,
for example, cards instead of cash. This was the responsibility of banks and
merchants to get their customers to change habits.
She also wanted to remove barriers, to introduce competition and to allow
the market to take up business opportunities. Standardisation, choice of
processing systems and single pricing for all SEPA domestic transactions
were steps in the right direction. Tumpel-Gugerell acknowledged that there
would be some economic uncertainty during the transition phase until a new
framework was reached. That would not be easy for the banks, but the rapid
expansion of business should allow a smooth switch to new practices and
contractual solutions. That was why deadlines were important as that clarified
the situation.
Tumpel-Gugerell argued that the revenue side could be enhanced, especially
by exploring the potential of offering e-invoicing. mrs. Tumpel also argued
that this should not be left entirely to the corporate sectors as in this case,
banks may miss the business opportunities that SEPA offers to them. On the
demand side, adopting one standard for domestic and cross-border business
would allow banks to reorganise and modernise payment services, to pool
business across borders and complement the growing cross-border exchanges
of goods and services. She concluded by saying that SEPA was on track. but
everyone had to concentrate on real issues. It would only be a success if it
delivered and won over the customers.

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

Unicredit Group’s Deputy General manager roberto Nicastro welcomed
SEPA as an opportunity for lowering entry barriers to operating in different
countries and implementing one common IT platform – which is particu-
larly important for the Unicredit Group with a retail presence in 19 countries,
representing 0 mio customers, 50% of which are in the EU and 50% in
countries to become part of the EU. He described the current activities being
undertaken by the banks in terms of achieving SEPA compliance: moving
credit transfers to the step  infrastructure, working on direct debits and
upgrading debit cards (chip & pin). However he saw the need to be realistic
as he underlined different points of attention:

Issues across Europe:
   • the 2010 deadline was feasible given there was a critical mass of commitment
       of banks across Europe to invest in SEPA: he recognised the importance
       to have a deadline, but pointed out the many tasks to be accomplished
       by all the actors in the market (banks, Companies and Institutions),
       including a massive consumer education effort - “a daunting task”.
   • the returns on investments required were not clear and the stakes are huge;
     multinationals could see the benefits, but for domestic banks (single
     players in single markets), at present it was not obvious how a win-win
     situation could be set up.

Differences between Member States
   • Nicastro warned that due to major differences between member States
       (average individuals income, costs of security, tax rates, density of
       banking networks, etc.) the introduction of SEPA would not necessarily
       imply neither the same transaction costs nor the same payment habits
       in all countries, although prices should be expected to be the same

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

The “eight-monks” paradox
• Nicastro used a scenario, involving two men in an office using a PC and
  eight monks in a room working with quill pens and paper, to show that
  SEPA was focusing on changing the electronic chip in the PC (ie the 0%
  of EU payment transactions represented by modern electronic payments),
  while it was doing nothing for the eight monks (note: 80% of EU payments
  transactions are done via cash and cheques)
• In particular EU Institutions focused on lowering electronic payments
  banks incomes instead of reducing cash losses

In conclusion, Nicastro argued that by focusing on getting consumers to
change from cash and cheques to electronic payments, there would be a good
reason for smaller domestic banks to come on board. Improving cross-border
payments and having a concerted efforts by governments to change consum-
ers’ payments habits (through education efforts and/or regulation) would
make it a better world for everyone.

The German Savings banks Association’s Bernd M. Fieseler said, that the
German Savings banks see SEPA as a need for European integration. A project
of this scale needs to be market-driven. benefits for citizens, small and medium
enterprises and corporates as well as benefits for banks have to be ensured.
He aired concerns about SEPA, primarily that it could increase costs for
consumers. That could not be allowed to happen.

fieseler reasoned that the costs of making payments via SEPA might double,
although he hoped it would not. With new software being needed for online
transactions and a -digit bank code becoming part of the deal, fieseler
could see few obvious benefits for the consumer.

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

That was the real challenge SEPA was facing:
   • how to keep payments inexpensive and attractive,
   • how to justify very high investments in platforms and high migration
     costs required, in those countries that already had efficient systems.

If there were not enough customer needs and possible cross-subsidies to
support these investments this would be problematic.

That was the case for Germany, where fieseler said there had been 40 years
of step-by-step development of cost-effective systems in a situation of com-
petition. The feeling was that any Europe-wide system would be a compromise.
There was a need to find some short term benefits and keep already efficient
systems. fieseler concluded that there was no real business case, and that
implied an evolutionary approach (“quick and easy to implement to lower
implementation costs”) that would give the consumers what they needed.

However, that did not mean that German banks were not fully supportive of
SEPA and they were proving this by taking positive steps. 150 German Savings
banks experts have already been working on the project during the design
phase. They already have products prepared for the beginning of 008.

      German Savings Banks Group
      • EUR ,000 billion balance sheet
      • 40 million customers
      • 4 million current accounts
      • 45 million debit cards
      • 10% of the European payments volume
      • 80% of European countries accept German debit cards
      • 99% of payments are domestic
      • Of international payments, 60% are standardized and can use
        bIC / IbAN codes

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

but fieseler knew what was needed to ensure that the project could meet its
   • No changes in the specification before 008 and on time new legal
   • A minimum legal framework for direct debit
   • more promotion of SEPA
   • Ensure a viable and coherent implementation of D+
   • A business case for EU products eg interchanges – if there is a business
     case banks will migrate

fieseler added that electronic-cash was a priority and that the 45 million
German Savings banks cards circulating in Germany would be SEPA compli-
ant by the end of the year. German systems were being interlinked with those
in other countries – via the Euro Alliance Group – and progress was being
made with four countries (Italy, Spain, Portugal and the Netherlands). Other
German domestic brands would also become SEPA-compliant. He added that
an internal clearing house is being developed in Germany that will handle
10% of EU payments. The aim was to cover the whole of Europe without
major investments. That could only be achieved if there were open standards
and a step-by-step approach.

The federation of German Consumer Organisations’ Manfred Westphal
(also a member of fIN-USE) provided a consumer viewpoint. first he welcomed
the integration in the field of non-cash payments. but as in some member
States efficient national payment systems exist that consumers are used to
SEPA faces a problem here. The integration would have to be “best of breed”
and no agreement on the smallest common denominator.

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

       Consumer requirements for an effective payment system, which
       SEPA has to be:
       • Short transaction times
       • Quick and easy to use
       • A variety of payments products and services
       • Inexpensive
       • Secure, transparent and easy to understand

Westphal called for a full cost-benefit analysis to be performed because no
clear figures are on the table up to now. As to fees, he referred to the Interim
Report of DG Competition arguing that banks could well live without a good
part of the interchange fees.

Westphal then defined the steps that should be taken to avoid failure and to
build up confidence:

   1. Avoiding negative effects: migration must not lead to decreasing service
      levels or increasing price levels. This would be a very sensitive topic
      for consumers and users who must be made familiar with the benefits
      of SEPA which otherwise would be a flop from the beginning.
   2. Greater transparency: too many decisions had been taken “behind closed
      doors” by the EPC, and there was an urgent need for effective consul-
      tation which so far hasn’t taken place in most countries. This should
      include in-depth discussions about concrete examples of SEPA in
      everyday life situations, and rule books should be adaptable to user

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

   3. A broader working process was needed: the Commission and the ECb
      should be more directly involved and should assume more responsi-
      bilities. A European working group should be installed and groups
      working on the national migration plans with representatives of all
   4. The legal framework on Payment Services should to be finalised soon, but
      this process should not lead banks to work half-heartedly on the logis-
      tical and technical implementation.
   5. An open system: essential that SEPA was open so that all service providers
      would be able to participate allowing competition on a high level.
   6. Open to all groups of consumers: problems for disabled, seniors, “financially
      excluded” people must be avoided. Attention should also be given to
      those people not usually using e-payments.
   7. Mini-SEPA was not wanted: the European Payments Council (EPC)
      was saying that adoption should be entirely market-driven ‘depending
      on user interest’ and acceptance, Westphal did not want users to be
      responsible for SEPA’s success; concrete measures by industry and
      policy were needed to ensure that deadlines were met and consumers
      should have trust and confidence. Otherwise the success of SEPA would
      be left to coincidence

visa Europe’s Deputy Chairman Johannes van der Velde wanted more trust
between the various players – banks, business, consumers, the Commission,
the ECb and – especially – the member States’ Competition Authorities. A
shared agenda had to be agreed upon, as without that, SEPA would not be
successful. He identified three major issues to be resolved:

          EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

1. more recognition wanted: the European Payments Council’s (EPC’s)
   SEPA Cards framework should be applauded as a “brave and decisive”
   step and van der velde wanted the regulators to acknowledge the banks’
   efforts and to reciprocate with “support, consistency and stability”.
2. economic realities of the situation to be acknowledged: according to the
   boston Consulting Group (bCG), the banks would spend EUR
   1.75 billion on investment and development, even though the business
   case was unproven; this would cause “substantial harm” to the card
   issuers. Therefore
   – payments had to be treated as a commercial business, if no accept-
     able returns on investment were possible, van der velde said that
     banks might abandon the card business.
   – interchange had to remain and not be subject to constant regula-
     tory threat; it was a “joint-enterprise, multi-party, highly competitive
     system” which must be attractive for all the players and not only for
     the merchants.
   – cash payments which represent 80% of the payments below 0€,
     had to be replaced by card payments, but that required innovation
     and therefore investment, so a business case was paramount.
3. no more populism: he denied that international schemes were more
   expensive and that domestic schemes delivered higher levels of usage;
   he precised that pricing discrepancies between EU countries correspond
   to different realities and costs; he understood the cautious approach
   by some players but he insisted that visa Europe was a truly independ-
   ent and truly European bank controlled payment system.

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

In conclusion, van der velde wanted a reformed payments market that led to
barriers being removed, competition increased and greater economic growth.
The next step was to decide – jointly – how those objectives could be

The Commission’s DG Internal market & Services’ Elemér Terták wanted
to clarify the situation. SEPA was not an idea originating in the Commission.
It had been suggested by the banks themselves, together with the European
Credit Associations back in 00. They had set the deadline of 010 in a self-
regulatory statement.

Outlining the Commission’s view, Terták said that SEPA would only succeed
if citizens could make payments through a single payments system as easily
and as safely as was at present possible via the best national systems.

but there were over 50 retail payments systems operating in Europe, many
with legacy features and developed for different cultures and working meth-
ods. Technical and regulatory barriers to progress had to be made and the
rapid adoption of the Payments Services Directive was a top priority - “no
Directive, no SEPA”. He called for the banks to implement the SEPA tools
so that benefits could emerge from streamlined processes and efficiency gains.
These benefits had to outweigh the necessary investments. In that respect he
recalled among others, the benefits expected from e-invoicing. On the subject
of execution times (and the discussion of D+1, D+, etc.), Terták said the
Commission was willing to discuss such issues but that it could not compro-
mise on goals or deadlines: above all, the deadline had to be met and the
target shall be maintained. In particular, a mini SEPA is excluded as it would
discourage the users. He wanted users to be more involved in the implemen-
tation than they had been in previous phases. Terták was confident about the

                  EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

The sectoral inquiry into financial Services by DG Competition showed that
there were “huge differences” across member States on prices in the payments
cards business. In that respects, regulating or not upon mIfs depends on the
way the discussions go in the context of the sectoral enquiry. There would be
a public hearing on July 17.

bNP Paribas Chief Operating Officer Jean Clamon closed the session with a call
for realism. Although the banking community strongly endorses SEPA, he did
not think that the 010 deadline was achievable. It is impossible that customer
behaviour in all EU member States be altered in four years. french banks had
spent 0 years reducing the use of cheques from a figure of 57% of all payments
to 0%, and to increase the use of cards so that it was level with cheques. In
addition, the use of payment instruments and legal frameworks differed from
country to country, and a “one size fits all” approach would not work. migration
had to be slow and progressive.

Clamon argued that SEPA was a bigger challenge than the introduction of
the euro (at that time it was only one payment mean – cash), but the manage-
ment of the process was much weaker. In order to achieve success, he agreed
with previous speakers and called for the Payment Services Directive to be
finalised, the requirements to be stabilised (e-invoicing issues should not be
mixed up with SEPA), and all stakeholders to be fully involved (banks, con-
sumers, corporate treasurers, major corporates, utilities, telecom, national
administrations, etc.). With respect to the payment services directive, Clamon
expressed his concern on the fact that non-banking institutions would get
involved in payments systems but with lower levels of regulation, as that
implied unfair competition.

    full details of the Sector Inquiry into competition in financial Services are on http://

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

He concluded by arguing that the SEPA business model was not clearly defined
and that it was very difficult to make sure there was sufficient return on
investment. The business model for cards was very complex as it depended
on 4 different fees (cardholders, merchant fees, interchange fees and interest
margins) that all varied from country to country. He was afraid that the
Commission would look at it slice-by-slice rather than evaluating the business
model as a whole.

Q & A sEpA

Europe or Eurozone?
balatro Ltd’s Chris skinner asked for confirmation if the SEPA programme
was for the EU in total or just for Eurozone countries. Gertrude Tumpel-
Gugerell said SEPA was a Eurozone project but that the steps being taken
by the Commission applied across the EU. If SEPA succeeded, then it would
be extended. There was considerable interest from the UK and the new member
States. Elemér Terták added that SEPA was an industry project and there
was nothing stopping other countries joining as far as technical standards
are concerned .

Higher charges ahead?
With low rates of cross-border transactions, Skinner asked if banks would be
allowed to charge higher fees (at the customers’ expense) for domestic business
in order to harmonise across domestic and cross-border systems. Tumpel-
Gugerell said banks had been obliged to charge the same fees for domestic
and cross-border payments since 001.

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

The need for a open system
Shell’s Tom Buschman, representing the Transaction Workflow Innovation
Standards Team (Twist), wanted more attention shown to making SEPA a
truly open system, transparent, customer choice, customer access. He also
wanted more focus on the customer-bank interface, so corporates could choose
the provider that suited them best. finally, he called for portability of bank
accounts, so corporates could migrate from one provider to another. This
would be vital if, following consolidation, infrastructures of existing banks
had to be incorporated into another.

Bernd M. Fieseler agreed that open standards were needed to allow compe-
tition, and added, that was the existing situation in Germany – no license
fees and customers could easily change providers, no interface change

Realistic deadline?
Terták responded to Clamon’s comments on the need to be realistic in terms
of deadlines by saying that the Commission had strong arguments to answer
to his points (but there was no time to elaborate). He insisted that people
would change their habits if there were good reasons to do so.

Summing up
Jacques de Larosière summed up the SEPA debate by saying the banking
sector was clearly committed to the project and that it was vital for national
migration plans to be implemented in a timely fashion. Communication to
all stakeholders was also a high priority, as was the implementation of the
new legal framework via the Payment Services Directive.

However, he reminded the conference that several speakers had called for
realism. With all member States being different (culture, legacy systems, tax
regimes, legal frameworks, networks) it might not be possible to treat every-

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

one in the same way. Requirements had to be stabilised if the deadline was
to be met, while there had been warnings about the amount of work to be
undertaken by all stakeholders prior to 010.

In conclusion, Jacques de Larosière said everyone wanted a SEPA that was
consistent, realistic, competitive and innovative. However, significant invest-
ment was needed and that had to be based on a good return on investment
and a solid business model. Open and fair competition was also required, but
above all SEPA had to allow users to make choices and go where they found
the most benefits. There was a high degree of consensus but issues remained
and they would surface during implementation.

9. pLENAry sEssIoN 4:
   Making the 26th regime an attractive option (pensions as a case study)

Jacques de Larosière also presided over the next session which looked at the
option of the 6th regime. In particular, it focused on pensions as a possible
use of such an alternative regime.

Providing background information, European federation of National Insurance
Associations President, Gérard de La Martinière, explained that there was
a strong wish in the industry for pan-European products. However, there was
uncertainty in the air; about the size of investments needed, about the time-
frame and about the returns. The answer, according to de La martinière, was

He suggested a pilot project of the 6th regime linked to the key problem of
the day – that of Europe’s ageing population and the need to satisfy pension
demands. There was no doubt about the need for pan-European corporate
pensions, with employees expecting companies to find a solution.

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

On the supply side, de La martinière stated that there were already between
15 and 0 pan-European insurance groups able to provide services in several
countries. Adding that the new Institutions for Occupational Retirement
Provision (IORP) Directive had clarified the possibility to provide pensions
services as well as pension funds, de La martinière argued that the scheme
would focus on Companies voluntary-subscription pension plans (nd Pillar)
and that there was no special need for customer protection schemes as deal
frameworks would be previously negotiated between Companies human
resources divisions and Insurance Groups.

He reasoned that once the scheme was launched there would be sufficient
interest for it to drive itself. EU lawyers would have the final say on the process,
but de La martinière argued that it could use EU regulations linked to a
general framework such as the 6th regime, together with exemption from any
provision in national regulation. He argued for going ahead with the pilot
scheme paying specific attention to the impact of such European schemes on
an effective enhancement of competition, on production cost reduction and
on customers’ satisfaction.

AxA CEO Henri de Castries provided the view of a pan-European services
provider. While acknowledging that it was difficult to provide guarantees on
pensions, especially with changing demographics, de Castries said financial
services companies had to provide competitive products adapted to consumer’s
needs. but there were important issues on the table:
   • how much capital would pension products require?
   • what product framework was to support those products, given Europe’s
     fragmented background?

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

Looking at the US picture, de Castries said AxA despite current discrepancies
between 50 states, had a successful range of pension products US wide, dis-
tributed and rapidly rolled out, as there was legal consistency due to the work
of the National Association of Insurance Commissioners. Since uniformity
did not exist in Europe and convergence among the 5 EU countries could
not be forced, the idea of the 6th regime – from the EfR – was an acceptable
and pragmatic approach. Agreeing that the demand, for pan-European pen-
sions was not heavy at the moment, de Castries said this would grow as more
people began to make careers with different companies across Europe.

It was just necessary to agree on a single legal framework so that people could
be offered, by financial providers, on a voluntary basis, common products in
the 5 member States. Such products would be portable, simple, not compulsory
(an alternative) and consistent with local regulations. for the companies as
well as for policymakers, there was no failure cost. moreover, it would be a
clear signal, especially for Europe’s younger people, of the attractiveness and
the positive impact of EU value added, and that financial services could
provide clear, flexible and pragmatic solutions.

mEP Ieke van den Burg, member of the Committee on Economic & monetary
Affairs, saw the 6th regime as a possible temporary solution to tackle problems
faced by policy makers as mutual recognition is not fruitful. She saw it as
being particularly pertinent to mobile users, who live and work in more than
one member State and who are confronted with legal barriers when moving
from one country to another. It could be tested for pension plans, insurance
cover, etc. She thought there might be problems in developing such a scheme
alongside existing systems, but solutions might be found, given the existence
of the European Company Statute.

As for the use of the 6th regime to solve the pension’s crisis, van den burg
felt it was a good choice for a pilot project as the current situation could lead
to less mobility between member States. She had not been impressed by the

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

attempts at European regulation, as the IORP Directive, for example, was
not a solution for individuals. Although such a trial might hit similar problems
to those that the European Company Statute had met, van den burg said it
would be worthwhile examining Eurofi’s proposals in detail. Is Europe able
to go beyond the blockage on the way for convergence and really open up
retail markets on the short term? Those are the stakes.

The European Economic and Social Committee’s (EESC’s) Jorge pegado
Liz agreed with van den burg that the 6th regime might solve the problems
caused by the various differences between member States, as an optional
regime in very specific matters to be identified. He wanted a solution that
would help safeguard the (financial) future of Europe’s younger citizens. The
EESC had first discussed the 6th regime in 00 in the insurance area, and
it was an idea with a lot of support from eminent members of the financial

Pegado Liz had been surprised that the Commission had never asked the
EESC to look into the advantages of the 6th regime. The Committee was
certainty not as sceptical as the Commission was thought to be. He felt that
it might be a good short-term solution to the pension’s problem and Pegado
Liz was confident that the EESC would support the idea if it was presented.

Arguing that it might be useful in other financial sectors that were not work-
ing in a harmonised way, Pegado Liz said his ideas were shared by industry
and by financial professionals. He wanted the Commission to push ahead
with the scheme and he offered his full support.

The DG Internal market & Services’ David Wright returned as the final
speaker and he found himself in the position of responding to the panel’s
strong support for the proposed 6th regime.

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

Wright kicked off by saying that the Commission welcomed all ideas, as its
aim was to drive forward the idea of European financial integration. Giving
his total agreement to the idea that the pension’s crisis was the greatest fi-
nancial challenge currently facing Europe, Wright said the Commission would
judge the work when a concrete proposal was finalised. It might help but the
Commission had to be rigorous in the way it looked at proposals and it had
to ensure a level playing field between all institutions providing long-term
savings products.

If the idea was to progress, and if it was legally possible, the opportunity costs
had to outweigh the costs of full harmonisation. So, convincing arguments
had to be developed. After describing the various ways in which cross-border
products could be distributed, Wright argued that the way in which the 6th
regime had been proposed (services designed on a pan-European basis and
registered and distributed locally) was similar to that used for UCITS and
could be problematic. During the UCITS workshop, this had indeed been
criticised as being “bureaucratic” and liable to cause high costs and a slow-
down in product circulation.

Wright questioned whether a specific regime was needed for pensions. He
also reminded the conference that mifID allowed to passport services. He
argued that the classic approach was harmonisation backed by mutual
recognition and pan-European passports. This worked for UCITS and his
preference was to check out that approach in regard to pensions. There was
a need for more evidence that the addition of an optional regime would make
harmonisation any easier.

for Wright, the 6th regime’s Achilles Heel might be the need to have two sets
of consumer protection rules in the same market. He was not convinced that
this would work. He raised two main questions:
   1. What would happen if domestic protection rules were higher than those
       of the optional EU product?

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

   2. Can one have in a given national market two sets of rules or does this
       force to harmonisation? He thought that this could lead to potential
       miss-selling and ambiguities that should be assessed in further detail.
       The Company Statute Law had been optional and was not particu-
       larly popular, and might be described as “flawed”. So overall, he felt
       the idea was interesting but economic and political issues had to be
       faced. Wright looked forward to working with the various actors on
       the ideas put forward.

Q & a – 26th regime: PenSion CaSe StUDy

A pragmatic approach that may (or may not) succeed
Henri de Castries argued that customers did not want complex products and
that a “pragmatic approach” was a way of helping consumers. He was calling
for a trial as he saw a market and he felt that something could be designed
to fill the gap: this is not an attempt to fully harmonise so there is room for
experimenting. It would be a fresh approach and de Castries could see the
benefit in producing something that, while maybe not perfect, could produce
quick results at a low cost. It needed an act of faith and it required construc-
tive leadership from the Commission.

David Wright repeated that the Commission had an open mind, but there were
important issues involved, such as the existence of parallel consumer protection
regimes in member States. This had been a fundamental point in mifID and
Wright thought it inconceivable that investment services could have worked
on the basis of a 6th regime. He saw member States’ governments paying
particular attention to the consumer protection aspects. Wright accepted that
solutions had to be innovative, and he was willing to look at the product when
it was ready. but he thought that it would not necessarily be simpler for the
member States to agree on a 6th Regime than on harmonisation.

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

In response, Jacques de Larosière did not agree at all on Wright’s description
for pensions products as he saw this as a distortion of the actual situation. It
would not be a question of parallel regimes, but more of the optional 6th regime
existing alongside national regimes and that did not prevent from going back
to the national regime. It was voluntary and de Larosière argued that Wright
might be over-stating the issue when he said it would be difficult to get politi-
cians on-board. This project was not as complex as full harmonisation and there
was legal opinion stating that new legislation was not necessary.

Wright referred de Larosière to the Eurofi position paper that had raised
various issues including regulatory supervision and consumer protection.
The need for lighter or higher protection (than current domestic practices)
was part of a “critical political problem”. It was not just a matter of letting
the consumer “take it or leave it”. Having such approaches accepted by 5
member States would be complex. His experience was that governments
would attach much attention to consumer protection rules and would ques-
tion whether the protection brought by the optional regime was at the same
level as existing national legislation. It would therefore be a political question.

Ieke van den Burg agreed that politics was not that simple and that it would
be difficult for politicians to accept to have two parallel systems. She thought
that the rules of the 6th regime should be clear: the optional regime is not
replacing local products. She repeated her view that the optional regime
should be primarily aimed at mobile users and not at clever shoppers par-
ticularly as governments are not always encouraged to provide solutions for
mobile citizens and that this was an issue for EU institutions. The mission
for European politicians was indeed to provide solutions that brought added-
value to domestic solutions. In addition, van den burg suggested that tax
harmonisation might be looked at as well as it could be an obstacle also.

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

Continuing the debate, de Larosière did not see consumers being less pro-
tected under the 6th regime. The group working on the product would not
want to produce such products. He preferred to reserve judgement until the
product was ready. besides, he did see advantages in the European Company
Statute, and he expected more companies to take up this option in coming
years, especially as more takeovers came along.

Jorge pegado Liz could understand that the Commission might be cautious,
but he reasoned that such a 6th regime would be legally possible. Arguing
that any complexity would not be a problem for the Commission’s experts,
Pegado Liz demanded that it was time to “let the consumer decide”.

ULb student Giuseppe Mazzoni could see the benefit in such a product for
mobile citizens in particular and thought that the average European citizen
would appreciate something being produced with a “European” stamp.

Tax harmonisation – needed or not?
Société Générale’s Frédéric de Brouwer expressed doubts about the feasibility
of such an approach, as it might require European tax harmonisation.
Responding, de Castries said there were technical problems but that the
concept of a “common envelope” being used during an employee’s total con-
tribution period (in several member States) would solve most problems and
avoid the need for full tax harmonisation across the EU.

Keeping regulations up-to-date
The fSA’s paul salvidge also had doubts as there was evidence of insufficient
understanding by consumers of such products, but his main concern was the
ability to keep (Non-Lamfalussy-compliant) regulations up-to-date. Wright
did not see that as a problem, as long as there were appropriate delegated
powers in technical areas to update regulations and directives. However, it
might lead to a “more dense” text.

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

“Let the consumer decide”
Salvidge was insistent that “letting the consumer decide” was a not a real-
world solution. Wright argued that two schools of thought existed:
   a) inform consumers and let them decide
   b) bring in harmonisation across the board
He did not see governments or regulators letting consumers decide (on any type
of product), so the question was how much regulation was needed and how would
it fit in with current consumer protection regulations – that was fundamental.

De Castries argued that the 6th regime should not be restrained to mobile
citizens. It was difficult to anticipate what the needs of consumers would be
in 5 years time. The optional regime should be seen as an opportunity to move
towards further harmonisation. Regarding consumer protection issues he
added that mobile customers (of the type under discussion) were certainly
capable of analysing the benefits of competing products and that the 6th
regime would result in the short term in a “niche product” that would be
introduced carefully so that the providers’ reputations would be safeguarded.

A scheme to be conside red: EPPA
Société Générale’s Jean-Baptiste segard suggested that the European Per-
sonal Pension Account (EPPA) proposed by EfAmA might be worth consid-
ering as a vehicle for the 6th regime prototype. He described it as simple and
portable. AxA’s de Castries said that could be an interesting approach.

The legal framework
Commission Legal Advisor George Zavvos wanted a sound legal basis to be
demonstrated. He didn’t see a level playing field either, and the national and
global issues would have to be resolved there. His final question concerned
the authorisation and supervision of the products, would it be done by na-
tional regulatory authorities or via European licensing?

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

On the legal side, Jean-Marie Andres said that lawyers were used to working
with several legal systems and that once the proposed system was seen, there
might be less gaps in consumer protection than there appeared at the moment.
Andres remarked that insurance companies were managing products for
clients who travelled extensively and they did not have major problems.

A comparison with the European Company Statute
The ECb’s Corinna Freund referred back to the European Company Statute
(that she compared to the 6th regime), an initiative that had met many prob-
lems: lack of tax treatment, deposit guarantee options, transfer of registered
office, etc. There was a problem of “legal certainty”, high transition costs and
it was hard to communicate the structure to capital markets. She felt that
there were “huge costs” involved in such a structure and that there were
major difficulties in getting it to work in practice. Not showing total agree-
ment, de Larosière felt that interest was growing in such structures, although
he did not want to bring the subject of the European Company Statute to the
panel as that would need more knowledge of that particular subject.

Summing up
Ieke van den Burg wanted the focus to be on mobile users and she was pleased
to hear that the Commission was open-minded. Jorge pegado Liz added the
EESC’s support to all well-founded projects, while de Castries described an
initiative backed by many important actors, with significant resources behind
them. He did not want the focus to be purely on mobile users, as he saw a
growing market for all in the next 10-15 years.

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

       Wright’s Hexagon
       Agreement needed from the following players to bring a project to
       • 5 member States
       • European Parliament
       • Regulators and supervisors
       • markets
       • Consumers
       • The international actors

Wright wanted the project to be refined, with more detail on the methodology
and the scope. but he also called for realism as the project had to be supported
by all the players, there had to be a consensus for change.

Summing up, Jacques de Larosière said he had been encouraged by the
discussion. He argued that industry was proposing a solution for people who
worked and travelled across Europe. It was up to the Commission and the
European Parliament to bring solutions to such problems. The various play-
ers had to avoid looking for difficulties and to show a desire for success.

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

10. pLENAry sEssIoN 5:
   Do Europe’s myriad national supervisory authorities raise costs for

Goldman Sachs International vice Chairman Antonio Borgès took control
of a session that examined how to organise regulatory supervision in a large-
scale market with many regulatory bodies. With everyone understanding the
well-explained problems in retail markets, borgès described the regulatory
barriers to progress:
   • regulators focused on domestic problems
   • regulators too concerned with stability to look for innovation
The consumer was paying the price as such barriers were having an impact
on both national and European consolidation.

rolf Breuer, former Spokesman of the board of managing Directors and
former Chairman of the Supervisory board, Deutsche bank, was the first
speaker. In a highly-structured set of remarks, he looked at the problems
inherent in the current system and recommended ways of moving forward in
the short- and long-term.

An incongruence betwee n markets and supervisors in Europe
breuer outlined a “simple problem” – the markets had a global outlook and
the supervisors did not. The EU was on the right road in terms of financial
integration, except in one area – supervision.

breuer commented that the the growing gap between the global scope of fi-
nancial institutions and markets on the one hand and the still national reach
of financial supervision on the other hand was of increasing concern for the
financial industry. This problem is of particular importance in the EU, as
monetary Union and EU financial market integration spurred the mergence

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

of pan-European institutions. With a centralised risk-, liquidity and capital-
management within such institutions, they would need a more integrated
system of supervisors. However, financial supervision remains rooted at the
national level. The deficiencies of the status quo would require an urgent
re-thinking of the existing supervisory structure.

breuer reasoned that both consumers (through higher prices) and shareholders
(through reduced profits) were paying the price for this inefficiency. Although
he thought that the various committees had worked and continued to work
hard, the current pragmatic approach was no alternative to the real thing, i.e.
a move away from national supervision.

Deficiencies of the status quo
breuer categorised these in three areas:
   1. The effectiveness of financial supervision: there was a need to look at
      companies at a group level, where key decisions were taken; domestic
      supervision gave only a limited insight. furthermore, there was a risk
      that crisis management may prove ineffective, where the various play-
      ers had to work closely together.
   2. The efficiency of financial supervision: with human resources being scarce
      and expensive, the duplication and inconsistencies of supervisory
      activities were inefficient both for supervisors and the financial indus-
      try; in addition there was no level playing field for the market par-
      ticipants and the global competitiveness of Europe’s financial firms
      was compromised.
   3. Accountability: the current situation could be described as a “financial
      grey area” with unclear responsibilities; the close cooperation of the
      three committees was in general appreciated, but there were concerns
      when they acted as de-facto rule setters, a role for which the Level 
      committees have no mandate. Legal clarity was required.

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

The way forward
   • Short-term actions: Although breuer acknowledged that it was relevant
     to improve the framework of the level  committees (e.g. common
     guidelines, score cards, staff exchanges, peer reviews, crisis simulation,
     etc.), he argued that the problem was that these committees had an
     inter-governmental status only and therefore had no possibility to rule
     against national interests.
   • Medium-term actions: Here, breuer referred to the EfR’s proposal of
     the “Lead Supervisor Concept”. Companies such as Deutsche bank
     and AbN AmRO or others would have under this idea only one point
     of contact for supervisory matters in Europe. This lead supervisor
     would coordinate reporting requirements, approve capital allocations,
     etc. breuer added that it was also recommended to create a “college of
     supervisors” composed of the lead supervisor and the national super-
     visors with a particular interest in the financial group; in this college,
     possible disputes could be arbitrated. Lead supervisors would have an
     obligation to communicate with national supervisors of branches and
     subsidiaries and would commit to take their advice into account. They
     would not be dictators, they would be mediators.
   • Long-term actions: breuer described his vision of a “transparent, stable,
     consistent supervisory structure in the EU”, that was effective, efficient
     and politically accepted. He foresaw a pan-European system of finan-
     cial supervision comparable to the European System of Central banks
     (the ESCb). This would include a European fSA function that would
     supervise those financial institutions operating on a European basis.
     They would also have financial authority on the interpretation and
     implementation of European rules in cases of conflicts between na-
     tional regulators. Small and domestically-oriented institutions would
     continue to be supervised by the national regulators.

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

breuer concluded that Eurofi’s proposal to create a “committee of wise men”,
similar to that established at the start of the Lamfalussy process, was interest-
ing. but he was unhappy about the lack of progress in this area. He called for
more ambition in order to stop consumers paying for current inefficiencies.

AxA CEO Henri de Castries took a different angle, saying his company was
looking for supervision that enabled insurers to take risks that consumers
want to transfer provided safety at the right cost and not stability. He wanted
a system that ensured that operators had the right level of capital, that incen-
tivised players to invest capital in the right kind of assets and that encouraged
innovation and progress. The concern was that the current system was leading
to exercise capital investments that were costly to the consumer. He estimated
the current regulatory obligation were excessive as the profession faced in
the recent period a turmoil without equivalent in the 0th century, without
facing any major fail among the players.

There were three reasons for de Castries’ thinking:
   1. Not consolidated supervision and regulatory provision leading companies to
      use too much capital at the detriment of costs for customers: it was estimated
      that AxA spends €4 billion more than necessary (€ billion equivalent
      to a bbb rating due to all requirements of local regulators added up
      versus an estimated €19 billion required for an AA rating group with
      an efficient integrated management), leading to a charge of +/- € 900
      mio (€4 billion in excess at 15% interest rate without taxes) to customers;
      half of this could be saved if there was European leadership of
      supervision. This is due to the fact that local regulators add “bells and
      whistles” to the EU texts with legal frameworks less and less convergent.
      Alternatives were that capital could be invested outside of Europe or
      consumers would pay higher prices.

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

   2. Poor investments due to inadequate solvency requirements: many players
      through solvency requirements had invested more in bonds and less
      in real estate and equity over the recent years, what was not the right
      way to go (over investment in bond markets which demonstrated being
      also risky, inappropriate matching between assets and liabilities…).
      He commented on the fact that after the huge cost represented by IfRS,
      European companies were now burdened by the high cost of capital
      required for solvency.
   3. Innovation should be encouraged: securitisation should be supported in the
      insurance industry in a similar way as in the banking industry as it allows
      for a mutualisation of risks; but an excessive amount of discussion with
      the supervisors would be needed at present to allow this.

Overall, de Castries wanted a strong European agenda consisting of:
   -   Same safety with lower use of capital
   -   EU lead supervisors
   -   flexibility in investments e.g. wider choice in assets, better fitting with
       liabilities and economy financing needs
   -   Supervisory framework encouraging innovation.
CESR’s Secretary General Fabrice Demarigny came to the point, stressing
that the subject of efficient supervision has been at the top of CESR’s agenda
since the publication of the Himalaya Report. In CESR’s view, there had to
be a pragmatic bottom-up approach. The integration of the single market was
the driving force, but there would always be different types of players: local,
pan-European and fully integrated ones. They would all need different types
of supervision. Given this situation, Demarigny said CESR would further
develop the network of national supervisors under the current legal framework.
However, even that would not work unless a way was found for supervisors
to talk to each other on an equal footing.

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

In parallel, CESR would focus more on operational issues by drawing on a
network of experts and specialists to promote convergence. In order to set
priorities for its work plan, it had set up criteria, upon which tasks would be
   1. Would they help identify future failures?
   2. Did they have a broad EU dimension?
   3. Were they in an area where CESR could act efficiently?

based on these criteria, Demarigny outlined the following likely areas of
   • monitoring and improving home-host relationships
   • Developing IT data-sharing relationships
   • Practical work to facilitate the implementation of mifID
   • Ensuring consistency in the application of IfRS
   • Ensuring the proper functioning of the Prospectus Directive
   • Evaluating the need for common approaches for the Takeover Directive
     and corporate governance issues
   • modernising asset management activity

In addition CESR would cooperate with sister committees on cross-border
aspects of banking and insurance and study options provided by self-regulation.
It would also be contributing to the “better regulation” agenda. Demarigny
added that dedicated groups (e.g. on investigating market abusers, application
of IfRS) were being created to improve CESR’s focus. Data-sharing would
be increased, accompanied by a move to a more common supervisory culture.
Systems were also needed to handle conflicts between national supervisors,
and a review panel was already in place.

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

Responding to criticism, Demarigny said that the Himalaya Report had
included five tests (based on efficiency, subsidiarity, balance, integration and
uniformity) that had to be passed to show that the current system was failing.
He remarked that so far, no issue had passed these tests. Demarigny con-
cluded that CESR was moving in the right direction.

Internal market & Services Director General Alexander schaub was in total
agreement that profound change was needed. However, there were several
questions to be answered: what type of change, at what speed and how could
it be achieved?

Type of change?
Schaub said that there had originally been talk about the concept of “single
European supervisors” but this had stopped. He argued that experience
showed that this was too simplistic a view of harmonisation, as sometimes
such an approach was good, sometimes not necessary and sometimes com-
pletely wrong. Subsidiarity had to be respected in this sensitive area, but that
did not take away the need for a “European system of supervision”. This
would incorporate closely-cooperating bodies at both national and European
levels, and those bodies would be organised so as to supply answers.

 How to get there?
Schaub warned that not all ideas worked, as support was the key: from na-
tional governments, the European Parliament and from the man-in-the-street.
These realities” could not be ignored. many of the in-place structures were
extremely traditional in nature and the process of change would not be easy.

In addition, looking at the European scene was insufficient as there were
parallel processes of change occurring in transatlantic and Asian markets.
Global financial markets were the future and the search for the “right” solu-
tions could not be ignored. Having said that, Schaub welcomed the ideas

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

coming from his fellow-panellists as such initiatives would force the deci-
sion-makers to be innovative. However, he concluded that it would be too
risky and probably unrealistic to go ahead with such actions as there was a
lack of political support.

Outlining the current strategy, in line with Demarigny, Schaub added that
the aim was to achieve the consistent application of European rules by national
supervisors (said to be 74) acting within the European framework. The im-
mediate priority was to change the mindset of those working in the national
bodies of supervisors and to improve day-to-day cooperation. Schaub under-
stood that this would not be enough (in terms of change) but if that could not
be achieved then there was no point in being more ambitious. He added that
CESR would be developing collaborative tools to assist the process.

Schaub also argued that the chance of such ideas gaining political support
was zero. but the work towards change had to continue, and it had to be

mEP Ieke van den Burg made a distinction between the big-hitters on the
European scene who needed European-level supervision and the smaller
players who were well-served by the current system. The most important
aspect for van den burg was “public interest”. With major differences exist-
ing between retail practices and industrial banking, something was certainly

Public authorities had to be involved and the end result had to be flexible,
innovative, fair and equitable. It had to result in more jobs and greater social
cohesion. The current supervision picture was deeply fragmented and strong
European-level supervisors were required. Agreeing with Schaub that national
feelings dominated, van den burg wanted a European approach that went
beyond the concept of lead supervisors. She wanted a system that brought

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

together home and host supervisors, as some member States were not really
thinking in a European way. In that respect she welcomed the Eurofi mission
to contribute to the formulation of an EU vision of Supervision.

The mEP also objected to the UK’s attitude. It had a sophisticated system of
supervision but it was not interested in this being used as a model for the rest
of Europe. As with other major players in Europe, there was a tendency for
nations to keep themselves to themselves. Her final plea was for the EU to be
more pro-active. With issues like stock exchange mergers on the table, van
den burg wanted a real European response as its vital infrastructure would
be impacted. And certainty in that sector was a pre-requisite for stable and
flexible markets.

Q & a – national SUPerviSory aUthoritieS

The system must reflect reality
Jacques de Larosière was first to the podium. He agreed that a “mega-
institution” was not required, but that there was a pressing need for a cohesive
“European system of institutions”. The panel members from industry were
not suggesting that the national supervisory framework be dismantled, but
that because companies had new business models (e.g. incorporating treasury
operations in one location, etc.), then the supervisory system had to reflect

Given that background, de Larosière recommended the “mission” as defined
by Eurofi, as it would bring together a committee of “wise men” to see what
type of institution was needed and report back in, say a six-month timeframe.
Alexander schaub was not in the mood to disagree. He encouraged Eurofi
to continue in that direction, but wanted to emphasise that there was a lot of

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

resistance (to change) to be overcome. Adding that the people (supervisors)
on the ground could improve cooperation today if they so desired, Schaub
reiterated his viewpoint that de Larosière should not underestimate the
power of opposition.

Bring on the “wise men”
rolf Breuer had been encouraged by the discussion and the support, espe-
cially from the European Parliament. He knew that resistance existed and he
simply advised everyone to keep pushing forward in the agreed direction.

Henri de Castries wanted a no-nonsense solution that would bring consist-
ency across Europe. The costs of diversification had to be recognised and the
whole process of renewal would benefit industry and customers alike.

Fabrice Demarigny agreed with Schaub, the concept of a “process led by
crisis” was dangerous. The tools had to be ready and any preparatory work
was welcome.

Ieke van den Burg acknowledged that good work was being done, but she
wanted the Commission, and preferably the Commissioner, to step forward
with a forward-looking vision.

Antonio Borgès summed up the debate by saying that the markets were
changing rapidly and Europe’s solutions were out-of-date. The solutions be-
ing put forward by industry were of the no-nonsense variety and that seemed
to be the way forward. Perhaps the council of “wise men” could move things

                  EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

10. MICro CrEDIT : A sTrATEGy For EuropE

Danuta Hübner, EU Commissioner for Regional Policy

                          Eurofi co-President Daniel Lebègue introduced
                          Commissioner Hübner, saying that Eurofi was fully behind
                          the microcredit initiative and that it recommended:
                          a) the creation of an inventory of best practices,
                          b) increased awareness for JEREmIE, and
                          c) the creation of a detailed action plan so the full benefits
                          could be reaped.
Commissioner Danuta Hübner came quickly to the point. microcredit4 could
be used to develop SmEs. That meant more growth, jobs and innovation. To
achieve those objectives, an EU-wide strategy had to be put in place. but not
only was microcredit essential for that reason, in a period of rapid techno-
logical change, it took on added importance. It was now spreading through-
out an EU where 19 million people were unemployed and a further 70 million
lived below the poverty threshold.

    microcredit usually involves making small loans, usually of around a few thousand euros, and
    mostly to individuals who have insufficient access to bank credit.

                  EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

          SMEs in the European economy
          Agreement needed from the following players to bring a
          project to fruition:
          •  million SmEs in the EU
          • Accounting for 99% of all enterprises
          • 75 million jobs
          • micro-enterprises (less than 10 people) account for 9% of
             SmEs in the EU and 5% of employment

The Commissioner added that microcredit was a way of getting people out
of the extensive “informal economy”, thereby contributing to the financial
sustainability of social security and pension systems.

How could that be achieved?
Commissioner Hübner acknowledged that the potential customers for mi-
crocredit might appear risky. She was aware that various solutions had been
developed in different countries, ranging from credit unions to specialised
microcredit institutions to microcredit windows in commercial banks. That
meant there was a large scope for the exchange of best practices.

Commissioner Hübner had signed, with francis Carpenter, CEO of the
European Investment fund (EIf5), a memorandum of Understanding on
JEREmIE – a joint initiative to promote access to finance for micro to medium-
sized enterprises in European regions. This was the first time that finance
had been made available at this level.

    The EIf has substantial experience in securitising loans to micro-finance institutions, no-
    tably in Romania, bulgaria and the balkans. It also manages the SmE Guarantee facility
    together with the Commission. This includes a microcredit Guarantee which has supported
    over 5,000 small businesses with loan guarantees totalling around EUR 00 million.

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

      Results of Microcredit workshop
      Agreement needed from the following players to bring a
      project to fruition:
      The challenge is to:
      • to develop appropriate risk management of micro finance,
         by both public and private sectors
      • to make available an appropriate institutional, regulatory
         and administrative framework, both to specialised financial
         intermediaries and to new entrepreneurs
      • to develop skills, entrepreneurship and initiative of indi-
         viduals, through information, training and exchange of best

As part of JEREmIE, the EIf was conducting a thorough evaluation of the
gap between demand and supply of finance for SmEs. The microcredit
Guarantee program would continue from 007, when JEREmIE would be
fully operational, under the new Competitiveness and Innovation Programme,
which included a microcredit window to share the risks taken by micro-
credit institutions and provide grants to partly offset operating costs.

The Commissioner recognised that without the support of national and re-
gional authorities, as well as financial institutions, the programme would not
deliver results. She therefore urged member States to prepare the necessary
national measures, whether legislative, regulatory or administrative, to fully
exploit the opportunities offered through JEREmIE.

Another new area mentioned by the Commissioner was the provision of
microcredit for disadvantaged groups. One concrete initiative would be the
provision of microcredit to help promote the inclusion of Roma and other
ethnic minorities.

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

      JEREMIE, as of 2007
      Agreement needed from the following players to bring a
      project to fruition:
      • allows regional authorities to combine grants from the
        European Regional Development fund with loan finance to
        set up a variety of financial instruments, one of which is mi-
      • specialised microcredit organisations act as financial inter-
        mediaries for JEREmIE in the regions
      • can also be used to provide other financial products for micro
        enterprises, for instance micro-insurance or loan guaran-
      • it offers member States and regions supported by the EU
        Structural funds a flexible and efficient framework to oper-
        ate and develop innovative forms of finance for SmEs
      • more efficient use of resources to promote regional convergence
        on a sustainable basis

With significant cooperation already taking place within the Commission,
DG for Enterprise, DG Economic and financial Affairs, DG Employment
and Social Affairs, the Commissioner wanted to expand the efforts into a
fully-fledged strategy for EU microcredit. There was also unprecedented
cooperation between the Commission and financial institutions such as the
European Investment bank group, the European bank for Reconstruction
and Development, the Council of Europe bank and others. She wanted eve-
ryone to work together to ensure that every European had the chance to shape
their own economic destiny, to bring more growth, employment and cohesion
to every region in Europe. The Commission was open to ideas and it would
take on board the output from the workshop and the plenary sessions.

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

11. pLENAry sEssIoN 6 - THE WAy AHEAD

José Manuel Barroso, President of the European Commission

                      Eurofi co-president Jacques de Larosière welcomed José
                      Manuel Barroso, President of the European Commission
                      and gave him the floor.

                     President barroso wanted concrete benefits that would
                     come from an efficient and fully integrated financial serv-
                     ices market. The Commission had recently unveiled a
                     “Citizens agenda” and a stronger financial market would
mean the possibility of lower mortgages, higher returns on investments and
better ways of saving for the future. The EU’s citizens had concerns in the
face of globalisation and the EU was still seen as “important but remote”.

Tangible results would prove to citizens that the EU was part of the solution
and not the problem. Europe needed a vision and it had to be a democratic
one, it had to bring added-value to EU’s nation states that were under increas-
ing pressure from globalisation. Progress had been achieved, especially with
the pioneering role played by the Lamfalussy decision-making process. This
had included much in-depth dialogue with all stakeholders and this would
continue in the future.

but that was not all. member States had to consider how they could better
educate their citizens about financial products in general and about financial
risk in particular. The subsidiarity principle would be followed, with regula-
tory actions being taken at EU-level only when appropriate and where a
compelling case was demonstrated.

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

Two areas where action was required were:
   1. An integrated payments area (SEPA): this would complement the euro
      and reduce the costs of payments; the Commission and the ECb were
      fully behind the banks’ program to achieve SEPA by 010.
   2. Insurance: huge benefits could be gained by reviewing and modernising
      the regulation of insurance companies and of improving the provision
      of insurance services.
President barroso concluded that a fundamental review of the remaining
obstacles to a single market would be undertaken, by 007, and that this would
include concrete recommendations. A lot had been done for capital markets
and a lot more work was necessary in the retail sector, so that the full benefits
could be gained. If it was necessary to align national regulatory approaches,
this would be done even if it would not be easy, as aligning regulations was
the only way of introducing real cross-border competition.

President barroso added that the situation was extremely positive for many
financial companies but that in the sectors of payments cards, the insurance
business and post trade services, “alarm bells were ringing”. Profits there
might be excessively high and it was the Commission’s duty to see that the
market was functioning correctly. Reduced costs had to be passed on to con-
sumers and DG Competition would be examining the situation in these

All stakeholders had to overcome short-term interests as that would be
beneficial for all – the EU’s companies and citizens. Concrete results were
needed as part of the push to generate a “Europe of results”.

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

How to leverage the existing opportunities and to improve decision-making
at the EU-level

Jacques de Larosière had welcomed President barroso’s words as, during
the two-day conference, de Larosière had seen many examples of insufficient
cooperation between the actors. There had been a lack of political motivation
and a certain unwillingness to progress towards goals that everyone shared.
Stakeholders had to work together to achieve concrete results.

making the final contribution to the conference, mEP pervenche Berès
applauded an exceptional event, held in the European Parliament, a location
that had been the home of much creative and innovative legislation in the
financial services domain. The conference had shown the way to achieve
concrete results that would bring benefits to consumers in an increasingly
international and global marketplace.

berès added that the conference’s focus, harmonisation of the retail market,
was a complex subject. Often, the progress towards an integrated marketplace
had been stalled by practical difficulties, traditional and nationalistic prac-
tices. That meant that citizens were not receiving the benefits that they should
but the alternative was convergence and that was expensive due to the wide
fragmentation of today’s market. The conference had discussed the so-called
6th regime, as suggested by Eurofi. This initiative had received a measure of
support in the European Parliament and it was another potential way forward.
Retail products were becoming increasingly complex and that meant that the
EU’s citizens were in need of more practical financial education.

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

Commenting on the Commission’s “better regulation” initiative, berès hoped
that one example would be the Commission’s response on post-trading, as
any further delays would be counter-productive. When a regulatory response
is necessary and can bring some added-value it should be implemented.

During the conference, there had been a heated discussion on supervision,
and berès referred to four main preoccupations in that domain:
   • The supervisory committees had to be accountable, and that meant an
     in-depth look at the way they functioned and their responsibilities;
     benchmarking and peer pressure were insufficient; the “mission” sug-
     gested by Eurofi comprising regulators, legislators and representatives
     of the industry could be a way to achieve such a goal
   • Supervisory responsibilities had to be reviewed from two viewpoints:
     European and an international, and berès saw a role for the European
     Parliament and its experience
   • New issues such as hedge funds or employee shareholding should be
     addressed at the pan-European level rather than having each member
     State develop its own national framework
   • Although there were said to be 74 supervisors in the EU, the US had
     almost as many and it was not considering convergence as an option

berès finished by giving her support to the Eurofi “mission” as it could point
the way forward to escape from the current fragmented situation. The agen-
da set out by Eurofi during the conference was in line with the renewed
Lisbon goals. The construction of an integrated financial market would bring
efficiency and security and place Europe’s capital in the service of the drive
for more growth and jobs.

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

Summing up
Jacques de Larosière thanked Pervenche berès for her effective support and
inspirational guidance. Referring to the Eurofi “mission”, he argued that in
the field of supervision, this could change the way in which the major players
cooperated. The Lamfalussy process was helping but he saw a need for an
additional impetus that required support – that had been received from many
sectors in the discussions - from all stakeholders.

José Manuel Barroso, President of the European Commission, responded
by stressing the importance of financial integration. He also stated that he
would review the “mission” in detail and discuss it with the Commissioners.
A “Spirit of Partnership” was vital and this had to be tinged with a touch of
reality. All the institutions had a role to play and a real engagement was
needed in order for financial services to play a part in the renewed Lisbon

Daniel Lebègue, co-President of Eurofi, closed the conference by thanking
president Barroso and pervenche Berès.

After warm words for Alexander schaub and Henri de Castries, Lebègue
brought the two-day 006 conference to a close.

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

On the road to integration, are we up to the challenges?

exeCUtive SUmmary
of the studies conducted by Eurofi

The financial services sector of the European Union (EU), which comprises
banking, insurance, securities and asset management, still has untapped
potential for economic growth and jobs. And this, despite the significant
progress achieved through the forty or so directives implemented under the
financial Services Action Plan (fSAP).

As a result of European integration, consumers are not yet able to benefit
from a broad range of pension and savings products or from cheaper, more
reliable financial services. Europe’s retail financial services markets remain
fragmented; cross-border activities are still emerging; cross-border mergers
are taking place, but in limited numbers; and pan-European products and
services are being held back by regulatory complexity, among other things.
member States do not always apply directives uniformly, which limits their
scope. meanwhile, the need to update European laws and regulations to reflect
market developments, and recurring discussions on the same topics, have
given some market participants the feeling of regulatory fatigue.

Aside from the European institutions, the plan to integrate financial services in
Europe is being carried forward only by large multinational groups, who often
realise that it is nearly as hard to expand in another European country as it is
elsewhere in the world. Despite the potential impact on growth and employment
of a united European financial services market, politicians have so far failed to
set priorities or translate their desire for integration into concrete action.

financial integration, like market integration in general, is too often seen as
a constraint rather than a dynamic force that will serve Europe’s citizens.

               EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

1. Building an integrated European market in retail financial services must
   be a shared priority.
In response to these difficulties, Eurofi has initiated an approach to achieve
a more closely integrated financial services market in Europe, which will
benefit both businesses and consumers as it advances. Integration should not
be seen as an objective in itself or as a plan promoted solely by multina-
tional financial groups. On the contrary, it should be considered as a priority
goal shared by domestic and European market participants and by users,
namely consumers and investors.

This will mean focusing on the activities or services most likely to generate
value in the short term and communicating in a concrete fashion with con-
sumers and investors about the practical benefits of a single market in finan-
cial services. It will also mean weighing up the problems encountered on the
way to integration and inferring complementary approaches to harmonising
or integrating those services.

That is why Eurofi has decided to address these issues at a two-day conference
   -   users
   -   a broad range of financial institutions that vary in terms of size, na-
       tionality, business lines and structures (commercial firms, mutualist
       companies, cooperatives) and that operate in insurance, banking or
       asset management
   -   European and national members of Parliament, finance ministers, and
       representatives of member States’ Treasury departments as well as
       regulators and supervisors.

The aim is to identify priorities and avenues of progress that are likely to win
the necessary political backing at European and domestic levels.

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

2. Eurofi has initiated in-depth cooperation and dialogue among key players
   to go beyond stereotypes

We have adopted an approach aimed at promoting mutual, constructive
understanding of each key topic: consumer protection applied to consumer
credit, UCITS, the single payments area (SEPA), European shareholding and
corporate governance, regulation, and supervision, microcredit,. To develop
a shared vision of an efficient Europe, it is necessary to acknowledge the
constraints felt by all stakeholders, as well as the pace at which they evolve,
and to concentrate mainly on integrating areas that can generate meaningful
cross-border industrial synergies as well as potential benefits for consum-

This approach has made it possible to go beyond fruitless preconceptions and
stereotyped positions, such as conflicts of interest between national and in-
ternational players, mismatches between consumers’ and financial institutions’
interests, and systematic defence of proprietary interests by domestic finan-
cial industries. With the 6th Regime, we can sidestep the current stumbling
blocks and, in principle, build together an ambitious, realistic plan focused
on the real needs of the various players.

Analyses have shown that no miracle products should be expected from an
integrated financial services market, such as a pan-European payment card
more attractive than the existing 5 member States cards, or the savings
product that will solve the pensions shortfall. Nor should we seek at all costs
to harmonise or standardise all national frameworks: a process that has proved
to be long, complex, costly and unsatisfactory in the past.

The real benefits will come from the emergence of European regulatory
frameworks and working processes involving all stakeholders that will stim-
ulate the creativity of financial institutions, foster their cross-border business,
intensify competition between them, and unlock synergies in the context of

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

a broader market. This will result in retail financial products and services,
cheaper and better suited to consumers’ diverse needs. Consequently a bigger
dose of Europe will encourage more attractive pricing of financial services at
the national level and drive the development of offerings more adapted to

These European regulatory frameworks and working processes will mean
greater flexibility for financial firms, but they will not weaken consumer
protection. Advanced risk measurement and assessment techniques have
allowed financial firms to offer products that have so far been prohibited,
while providing consumers with appropriate information and charging at-
tractive prices. And as consumers become better educated in financial matters,
they should gradually be able to access more sophisticated products. Develop-
ing a common level of reasonable protection for consumers in Europe is not
unfeasible provided that harmonisation efforts are focused on the key factors
which allow the industry to generate cross-border synergies, leaving the
other aspects of protection to the national authorities.

3. Eurofi has highlighted five tangible benefits that should result from the
   construction of a European market in retail financial services

   • The plan for a single euro payments area (SEPA) will shortly provide
     citizens with Europe-wide payment instruments. At present, domestic
     payment instruments cannot be used elsewhere in Europe with the
     same execution time standards and pricing structures. by 008, Europe
     will provide its consumers with a direct debit that can be used domes-
     tically or across borders and will standardise execution times for cross-
     border credit transfers. by the same deadline, it will be possible to use
     payment cards anywhere in the Euro zone.

          EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

• In addition, if Europe allows financial firms to reap the full benefits
  of using internal models for risk assessment and management, the
  construction of an integrated market will make it possible to develop
  insurance and savings products that are not available at present in
  some countries. for example, savings products that pay a guaranteed
  annuity following a vesting period are unavailable in certain countries
  because of high regulatory capital requirements. Another example is
  the recognition of a special status for microfinance institutions, a move
  that would encourage the development of microcredit in member States
  thanks to easier access to refinancing facilities.
• European integration of retail financial services should also result in
  a larger number of firms doing business in each market, thereby
  fostering competition and providing consumers with cheaper and more
  attractive products and services.
• A genuine retail financial services European market will generate
  economies of scale for firms in their processing operations as well as
  in trading and clearing systems (securities, payments). These savings,
  which hinge on the harmonisation of legal and tax rules and market
  standards, will impact the prices of consumer services, since com-
  petitive forces will be at work.
• for example, an increase in the average size of investment funds – cur-
  rently five times smaller in Europe than in the USA – resulting from the
  possibility of cross-border mergers of funds will help reduce management
  expenses and the volatility of risks. In addition, a bank that operates in
  several EU countries will no longer have to develop an interface for each
  payment and securities settlement system in those countries. And it will
  be able to market similar products (consumer credit, pension savings
  products) throughout the EU on the basis of a single industrial tool.
• most EU countries must cope with new common challenges. It is better
  to address these collectively rather than wait for different solutions to

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

       emerge at the national level and then harmonise them. Several examples
       can be mentioned: developing employee shareholding and Pillar  pen-
       sion schemes, which are becoming increasingly necessary as industrial
       and commercial firms expand across Europe; taking measures to encour-
       age shareholder stability; defining jointly the split of responsibilities
       between investment funds producers and distributors; standardising
       settlement procedures for investment funds in the context of a develop-
       ment of open architecture models (third-party distribution of funds);
       and dematerialising retail payments to reduce the use of cash and cheques,
       which expose retailers and consumers to the risk of crime (fraud, assault)
       and are exceedingly expensive to process.

4. Main integration drivers identified

stable, common economic and technical rules
To reap these tangible benefits, it is first necessary to develop genuine Euro-
pean passports for savings vehicles such as UCITS. In addition, standards
and technical procedures for settling trades in securities and UCITS shares
and for processing payment transactions must converge; access to national
infrastructures for securities and retail payments must be made easier (af-
fordable entry fees, governance rules that take account of users’ needs); cross-
border mergers and acquisitions should be governed by the same rules as
domestic deals; and the rules on fees and charges need to be stabilised, par-
ticularly in areas that depend on system-based processing (payment instru-
ments and securities trading and post-trading).

To enable banks to see the economic and commercial potential of Europe-wide
markets for payments and securities trading, it is vitally important to stabilise
the rules on payment system fees (i.e. payment for interbank services), which
form the basis for making and sharing investments and for developing the

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

use of payment instruments. for the same reason, it is important to assign
stable roles to the various players in the investment funds post-trade value

The technical and financial developments needed to build these European
markets are being delayed by the prevailing mood of uncertainty which is
illustrated by a certain number of pending issues: the Commission’s sector
survey on payment cards, the interchange fee procedures in various EU
countries, the lack of economic groundrules to support the mandatory roll-out
of payment instruments due by 010, the lack of decisions about the scope of
activities and governance of securities post-trading central providers…

A uniform regulatory environment for legal and tax issues is needed to
ensure effective freedom to provide services and to encourage econo-
mies of scale
Subsidiaries and branches of financial institutions must have effective freedom
to provide services throughout Europe. This will require a uniform regula-
tory and supervisory environment as well as consumer protection and tax
measures that emphasise industrial synergies but that can be adapted at
national level to allow for specifically local cultural and historical factors.

A series of common mechanisms covering consumer protection, taxation of
financial products, and the solvency and liquidity of financial firms must be
developed at European level. These mechanisms, which include for example
methods for establishing tax bases, right of withdrawal for borrowers, the
calculation of insurers’ technical reserves, … must be detailed enough to be
used directly by the financial industry.

In particular, to ensure an effective freedom to provide services across Europe,
the local arms of cross-border financial firms should not be subject to addi-
tional regulatory and administrative constraints and capital requirements,
besides those applicable at group level. In other words, such firms must be

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

considered as single entities doing business in a single EU market; they must
be regulated and supervised accordingly and must not incur additional costs
for having to comply with 5 sets of national regulations. At present, they are
forced to develop a new offering from scratch in each market because of these
heterogeneous constraints.

Better regulation
most of the measures in the fSAP, such as the directives on UCITS, life in-
surance, Pillar  pension funds, and distance marketing of consumer financial
services, were adopted before the Lamfalussy Process came into effect. When
transposed into national law, they created differences in national legislative
frameworks, which continue to hinder the Europe-wide development of fi-
nancial products and firms. Despite European-level political agreements to
achieve the harmonisation needed to integrate markets, firms are still unable
to take advantage of that integration. In this regard, targeted full harmonisa-
tion and the 6th Regime are additional factors of progress.

furthermore, European institutions should operate in such a way as to allow
EU-wide measures to emerge before member States address similar issues
with no prior consultation. for example, the development of new types of
investment funds, such as real estate funds, private equity funds and hedge
funds, is being handled differently from country to country. This will require
a harmonisation process that ought to have been in place beforehand.

The Lamfalussy Process allows the Commission to focus its legislative ini-
tiatives after consulting systematically with stakeholders. Nevertheless, its
consultation methods can be improved. Instead of asking the market to react
bilaterally and sequentially to its proposals, as is often the case at present,
the Commission could adopt more systematically a participative and con-
sultative approach at the earliest possible stage of the process – as it has already
done for example by setting up expert groups on investment funds.

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

In addition, methods must be put in place to coordinate market initiatives.
While it is up to the market to handle technical standardisation issues in
particular in areas such as the processing of payment instruments, investment
funds and securities, steps must be taken to ensure firstly that the resulting
solutions reflect the needs and constraints of the main players and secondly
that they are implemented on schedule.

5. Progress areas proposed

single Euro payments Area (sEpA): A new focus on dematerialised pay-
ment instruments, underpinned by stable economic ground rules

banks must continue to make profits from the payment instruments business.
Therefore, in light of the 010 deadline, the legal rules governing fees for
services rendered by banks, both to each other and to customers, must be
stabilised as soon as possible. These fees and the arrangements for charging
them must be set in relation to banks’ investments and the services they
provide to each other, as well as the maturity of their systems. market partici-
pants must be closely involved in setting the economic rules on this subject.

for 010, Eurofi believes that the real benefits for consumers, companies and
government departments will come mainly from greater use of electronic
payment instruments rather than from efforts to seek unified European pay-
ment instruments. It is the first step towards infrastructure consolidation,
made possible by the implementation of technical standards that will de-
liver economic benefits to users in the form of lower prices.

Investment funds: To create an efficient European fund market, the policy
guidelines of the Green paper must be implemented quickly and uniformly
and additional action must be taken at market level

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

The European fund market is growing strongly and looks set to rival its US
counterpart in the near future. To ensure that it remains competitive and
appealing to investors over the long term, it must be integrated so that costs
can be gradually reduced and investors gain access to top-performing products.

The market regularly acknowledges the potential for significant progress
contained in the Green Paper guidelines, namely passports for funds, man-
agement companies and depositaries, fund mergers, pooling techniques (eg
virtual pooling or master-feeder), cross-border development of non-UCITS
products such as hedge funds, real estate and private equity funds. This sum-
mer, the two expert groups set up by the Commission are due to determine
what action to take and how to implement the guidelines.

This will naturally entail targeted adjustments to the UCITS Directives, al-
lowing them to evolve in line with market innovations. This is not possible
at present since the two existing directives are very detailed as they were
adopted before the implementation of the Lamfalussy process.

Recasting the directives would take too long, making it impossible to meet
the industry’s needs. A solution must therefore be found as quickly as pos-
sible so that the Lamfalussy principles can be applied to the new measures.
The solution recommended by the European Parliament (based on the recom-
mendations of the Klinz report) would be to apply the Lamfalussy principles
to the modified dispositions without modifying the complete contents of the

further thinking is needed on three additional regulatory developments in
order to build a European fund market: clarifying the split of responsibilities
between asset managers and fund distributors, establishing procedures to
ensure equivalent treatment of UCITS and competing investment vehicles,

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

and specifying any changes in tax treatment that may be necessary to support
the necessary evolutions.

Alongside these regulatory issues, initiatives must be taken at market level
to determine how asset managers and distributors will share activities and
evaluate more precisely the related legal and economic impacts and how to
improve the processing of funds across Europe in the context of developing
open architecture models.

It is necessary to build an optimised, target vision of distribution and process-
ing based on existing solutions, the interests and competitive advantages of
market participants, and the potential benefits for final investors. The aim is
to establish an overall roadmap for optimising the European fund industry
in the years ahead.
These market-led actions need to be further coordinated at the EU level to
favour their implementation and should be put in the perspective of a
common medium term target for EU funds distribution and processing
that is lacking at present.

This target should take into account the current solutions developed by EU
market players, the competitive positioning and interests of the different
market players and the potential benefits for investors and should enable to
develop a pan-European roadmap for the optimisation of funds distribu-
tion and processing.

Microcredit is a tool for promoting growth and social cohesion in the Eu.
It must be encouraged by European institutions

According to the European microfinance Network, the potential microcredit
market in Europe is estimated at at least 11 million potential. It is profitable,
and market participants create sustainable financial institutions that are

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

efficient and effective, both financially and socially. Developing microcredit
will mean supporting microfinance institutions (mfIs) in the start-up phase
and lifting a number of institutional barriers, such as rules that prevent mfIs
in some countries from borrowing in order to lend, interest rate caps that
make it impossible to cover the excess costs inherent in distributing small
loans, and basel Committee regulations that are not entirely suitable to

A Commission initiative to draw up an inventory of European best practices
in terms of the legal and regulatory environment for microcredit would help
this technique to develop in the EU. The inventory would also specify the
status that should be given to European mfIs. five points are essential: mfIs
should be allowed to borrow in order to lend; the basel Committee’s regula-
tory capital requirements should be adapted to microcredit portfolios; mfIs
should have an appropriate supervisory regime; interest rate caps should be
removed so that mfIs can recoup their costs; and legal measures should be
defined to encourage securitisation.

In addition, the Commission and the European Investment fund should
launch an intensive communication initiative focusing on Joint European
Resources for micro to medium Enterprises (JEREmIE) so that member
states may take it into account when preparing the next generation of ERDf

The Commission should prepare an action plan to foster the expansion of
microcredit across the EU.

European shareholders rights: priorities for action must be defined at
European level, alongside the Commission’s current proposals, to make
our capital markets more attractive to investors

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

The proposal for a European directive on shareholder rights, together with
the Transparency Directive, should enable shareholders to play a more active
role in key decisions affecting the companies they invest in. Among other
things, it would make it easier for them to attend general meetings, ensure
they have adequate information, and help them exercise their voting rights
across borders.

Consideration should be given to two other questions. The first is how to build
a stable base of shareholders that are involved in the development of their
company and how the regulatory framework can be adjusted, if necessary, to
take into account the specific characteristics of each category of shareholder.
Discussions under way at present have shown that the traditional categories
– individual, institutional, domestic, foreign, etc. – make it difficult to iden-
tify those shareholders that remain with the company over time. Accord-
ingly, new rules are needed to attract stable shareholders who play a part in
the long-term growth of European firms. The second question is what pos-
sible evolutions are needed in particular to corporate governance rules to
enable unlisted or small and midsized companies to gain easier access to
capital markets in the EU.

Consumer protection (consumer credit): finalise an agreement on the
precise measures to be included in the draft directive for the seven priority
areas identified for harmonisation

Pursuant to the concept of targeted maximum harmonisation, the market has
identified seven priority topics that can ensure adequate and uniform protec-
tion for European consumers while allowing the industry to generate sufficient
economies of scale. These topics are advertising, pre-contractual and contrac-
tual information, definition and calculation of interest rates, right of with-
drawal, linked credits, early repayment.

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

Although the draft directive does address these issues, precise measures have
yet to be finalised for all seven topics. This needs to be done in order to find
the best trade-off between country-specific situations and the constraints of
financial services suppliers and distributors, without giving rise to undue
complexity or unnecessary detail. The common proposals of the market were
published in may 005 by the Euroepan banking Industry Committee

Once these additional precisions have been specified, member States should
not be allowed to introduce specific domestic consumer protection require-
ments regarding these topics as they would hinder the potential for financial
institutions to develop industrial synergies.

more generally, targeted full harmonisation (ie full harmonisation of the main
dispositions that are necessary to guarantee an adequate level of consumer
protection adapted to the average needs of EU consumers while enabling the
industry to develop synergies and cross-border business), appears to be an
adequate solution for many industry players and observers in particular for
consumer credit as detailed above but also for mortgages and savings

full harmonisation indeed enables financial institutions to offer their prod-
ucts under the same key legal requirements in all member States (enabling
them to develop economies of scale in product development, marketing and
processing) and prevents consumers from being confronted with different
legal regimes for the same product without losing protection.

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

However the scope of topics selected for harmonisation and the degree of
precision required for harmonising dispositions on these topics needs to be
determined on a case-by-case basis (depending in particular on the product
/ service considered) to avoid creating unnecessary complexity.

If it proves impossible to agree on targeted full harmonisation measures or
to guarantee uniform transposition of the directive, a 6th Regime with an
adequate level of consumer protection could be a possible alternative.

The 26th regime: A complementary regulatory approach that mitigates
local transposition differences

The 6th regime is a complementary regulatory approach that will help to
overcome the difficulties arising from differences in local transposition. New
directives will be needed to overcome these disparities, a process that will
take at least five years (based on the time between the inception and na-
tional-level implementation of the markets in financial Instruments Direc-
tive, now being applied) even with the benefits of the Lamfalussy Process.
The 6th regime avoids having to harmonise domestic legal frameworks and
allows local firms to adapt to these measures at their own pace.

This approach should be tried out in the field of retirement savings, for ex-
ample. In practice, this would mean amalgamating the political agreements
arrived at through various directives (occupational retirement provision,
distance marketing, Third Directive on life insurance, etc.) in a single Euro-
pean Regulation. At the same time, care would be taken to closely involve
national parliaments in the approach: the aim is certainly not to circumvent
them but, on the contrary, to ensure that vital national interests do not take
second place to the demands of harmonisation.

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

To that end, and to demonstrate the regime’s benefits to European and na-
tional authorities, it would be useful to summarise the differences between
pension products that can be attributed to the transposition of EU directives.
The Commission White Paper on financial Services Policy (005-010) pro-
vides for “a full economic and legal assessment of all fSAP measures”. This
summary of transposition differences should be reviewed at that occasion.

It would also be helpful to describe differences in tax practices, to assess their
negative impact on the integration process – regardless of the method chosen
to reach that end – and to show that member States can maintain fiscal au-
tonomy while harmonising their tax practices.

Having done this, the feasibility of the new approach can be shown by prepar-
ing a draft regulation. based on that document, which the EfR is due to
release in the near future, representatives of consumers and investors must
be mobilised and brought together. It will then be necessary to approach the
members of the Economic and financial Committee and the main repre-
sentatives of the finance commissions of National Parliaments in order to
take account of reactions and get them on board. This is a vital precondition
for initiating political momentum and reaching agreement at European

6. A political initiative on supervision is urgently needed

In the field of supervision, Eurofi has identified a pressing need for a shared
vision of the economic and prudential benefits to be reaped from centralising
the functions and business lines of financial firms and on the advantages of
basing supervisory assessments on their internal risk-measurement models.

             EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

In particular, it is necessary to launch a European initiative based on adopt-
ing a common approach to and appraisal of modelling techniques, mustering
the resulting skills and resources, and deciding jointly on group-level and
local-level supervisory functions. It is also necessary to check the quality of
the legal framework for intra-group agreements guaranteeing the solvency
and liquidity of subsidiaries and branches. Last but not least, it is vital to
build a coordinated framework for management and responsibility-sharing
in crisis situations.

The only way to address the true issues underlying the current work on su-
pervision is through a political initiative – in the form of a mission – from
the council of EU finance ministers, ECOfIN. This does not mean creating
new organisations from scratch; it will be possible to rely on the members of
the European regulatory and supervisory committees set up under the Lam-
falussy arrangements (CEbS, CEIOPS), on the European System of Central
banks, on the financial Services Committee, and on a small number of sen-
ior managers of domestic and multinational financial groups.

The chief priorities in this mission are to identify opportunities for using
internal models for regulators and supervisors, to identify the benefits of an
integrated approach, and then to work out the conditions for an effective
pan-European approach. The presence of managers of insurance and
bancassurance companies is absolutely vital in this respect.

Another area of concern is the case of multinational banking groups that
could create systemic risks if they were to run into difficulty, thus demanding
a swift response (unlike insurance groups, where the only danger is a solvency
risk). On this point, the mission must develop a consistent pan-European
approach for preventing and managing crises. This involves defining the key
priorities and the arrangements for coordinated management (i.e. ensuring

              EuropE’s rEtail Financial sErvicEs conFErEncE – 6&7 JunE 2006

that supervisors provide national central banks and the ECb with relevant
information as quickly as possible, given their various links with member
States), identifying the consequences in terms of responsibility-sharing between
stakeholders, establishing principles and procedures for sharing financial
support and restructuring costs, and establishing legal procedures for
formalising countries’ commitments to national central banks.

Retail financial services play an important role in the everyday lives of
European citizens. building an integrated market in retail products would
provide them with numerous benefits and help reconcile them with

Eurofi’s proposals can be achieved in a realistic timeframe. We believe that
illustrating and communicating the concrete benefits of European financial
integration for citizens and fostering a constructive dialogue among stake-
holders with appropriate institutional processes are key conditions to enable
these proposals to be implemented.

The executive Summary was prepared by: Jean-marie Andrès, Jean-Jacques
bonnaud, Didier Cahen, Jacques de Larosière, Daniel Lebègue, marc Truchet
and distributed to all delegates at the beginning of the conference.

The views expressed in this report are the personal opinions of speakers and are not
necessarily the views of the organisations they represent or of Eurofi or Sponsors.
Reproduction in whole or in part is permitted, providing that full attribution is made to
Eurofi and to the source(s) in question, and provided that any such reproductions, whether in
whole or in part, are not sold unless they are incorporated in other works.

                            Author: John Chapman
                           publisher: Didier Cahen
                      Design & production:
                       pictures: Frédéric remouchamps

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