LIBA _ European Governance. A response by the London Investment by bestt571


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									                                                LONDON INVESTMENT BANKING ASSOCIATION

LIBA                                                    6 Frederick's Place, London, EC2R 8BT
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European Governance

A response by the London Investment Banking Association to the European
Commission’s White Paper (COM/2001/0428final)


1. The London Investment Banking Association (LIBA) is the trade association
   which represents the major European and international investment banks which
   base their European operations in London. A list of our Members is attached.

2. We welcome the opportunity to comment on the White Paper on European
   Governance, and the fact that the Commission is consulting about this vital issue.

3. The White Paper is particularly timely and particularly relevant for the financial
   services sector because many of the issues which it sets out are already being
   debated between European legislators and regulators and the financial services
   industry, in the context of the Financial Services Action Plan and the procedural
   reforms which were initiated by the Lamfalussy Committee of Wise Men. We
   believe that many of the benefits which the Commission envisages arising from
   the reform of European governance are already emerging in the financial services
   and capital markets area. These benefits can only be reinforced by the
   codification and extension to other areas of similar principles of good governance.

4. The Commission has a vital role as the initiator of legislative proposals and as the
   enforcer of Community law. The Commission has put forward a broad and
   welcome analysis of the principles of good governance in the White Paper. We
   suggest below a number of key themes which the Paper identifies, and which we
   think should be codified in the Commission’s procedures, so that their consistent
   application can improve the quality and stature of the work which the Commission

5. We welcome and agree with the following statements in the White Paper:

       ‘Policies must be effective and timely, delivering what is needed on the basis of clear

       ‘proposals must be prepared on the basis of an effective analysis of whether it is appropriate to
       intervene at EU level and whether regulatory intervention is needed. If so, the analysis must
       also assess the potential economic, social and environmental impact, as well as the costs and
       benefits of that particular approach. A key element in such an assessment is ensuring that the
       objectives of any proposal are clearly identified.’

       ‘policies must deliver what is needed on the basis of clear objectives, an evaluation of future
       impact and, where available, of past experience’
       ‘before launching an initiative, it is essential to check systematically if public action is really
       necessary, if the European level is the most appropriate one, and if the measures chosen are
       proportionate to those objectives'

       the Commission’s commitment to ‘establish and publish minimum standards for consultation
       on EU policy’

       the Commission’s commitment to ‘adopt before the end of 2001 minimum standards for
       consultation and publish them in a code of conduct’, ‘focusing on what to consult on, when,
       whom, and how to consult’.

       ‘A tension between faster decisions and better, but time-consuming consultation is not
       necessarily a problem: investment in good consultation ‘upstream’ may produce better
       legislation which is adopted more rapidly and easier to apply and enforce.’

       ‘More effective enforcement of Community law is necessary not only for the efficiency of the
       internal market but also to strengthen the credibility of the Union and its institutions.’

Key themes of the White Paper, and their application to financial services and capital

6. From the statements quoted in the previous paragraph can be derived six key
   themes, which reinforce the emerging consensus about how policy should be
   developed in the financial services sector:

   A. The importance of basing European policy-making on clearly identified and
      defined public policy objectives.

   B. The importance of basing European policy-making on thorough, and as far as
      possible quantitative, analysis of problems, risks, and existing means of
      controlling them.

   C. The importance of assessing the impact, direct and indirect, of policy

   D. The importance of establishing, publishing, and applying minimum
      standards for consultation.

   E. The importance of legislating proportionately and only where
      demonstrably necessary.

   F. The importance of properly enforcing Member States’ implementation of
      Community law.

7. The six key themes should be consolidated into European legislative
   processes in as lasting a form as possible where this has not already been
   done. This could be done through the proposed code of practice. It would be
   helpful if the Commission could put forward its proposed codification for
   public discussion. Our experience in the financial services area is that the
   Commission has in practice already become more open and accessible, and is
   already reaping the benefits of abiding by the six key themes. This is evident, for
   example, in the Internal Market DG’s consultative approach to the review of the
   Investment Services Directive. Whilst these developments are very welcome, and
   should result in a very high quality of legislation, the application of procedures in
   particular cases cannot be a substitute for the predictability, now and for the
   future, which would result from codifying the general application of those
   procedures. The Statement of Consultation Practices which has been published by
   the Committee of European Securities Regulators provides a model for how the
   Commission could and should codify the six key themes.

8. It might be argued that such a statement by the Commission could undermine its
   right of initiative. We do not think it would do so. On the contrary, we believe
   that systematic access to market expertise and interested parties’ views would
   strengthen the Commission’s right of initiative by enabling it to propose
   legislation which it knows is technically sound and commands the broad
   commitment and support of the European citizens and businesses who will be
   affected by it.

9. A commitment to thorough analysis, defining legislative objectives, impact
   analysis, public consultation, and proportionate but properly enforced legislative
   intervention only when necessary, is entirely consistent with, and reinforces, the
   European legislative principles of proportionality and subsidiarity. Putting it into
   a lasting form will have a range of beneficial consequences:

       A commitment to background analysis and clearly defining legislative
       objectives will promote public confidence that the European legislative
       process is focusing appropriately and efficiently on clearly identified
       problems and risks, and not on ill-defined and generalised worries that
       ‘something must be done’.

       A commitment to impact analysis will promote confidence that European
       legislation is developed circumspectly and with full awareness of the
       possible consequences, both direct and indirect. In the context of financial
       services and capital markets, particular attention will need to be given where
       policy proposals might impose unnecessary costs on citizens or businesses,
       have a negative economic or public policy impact, reduce the efficiency with
       which markets can innovate and respond to their users’ needs, reduce choice
       or competition for market users, or reduce the competitiveness of European
       businesses or markets in the wider world.

       A commitment to appropriate minimum standards of public consultation
       will ensure that legislators have extensive access to additional resources with
       the best possible quality of technical expertise, thereby improving the
       quality and streamlining the adoption of legislation. This is particularly
       important in the highly complex and fast-moving field of capital markets and
       financial services. Constructive and responsive consultation will also build
       the commitment of citizens and businesses to the legislative process and
       the legislation which results from it, thereby enhancing the competitiveness
       and reputation of the European regulatory framework, encouraging
       compliance and assisting enforcement.

       A commitment to thorough analysis, defining legislative objectives, impact
       analysis, public consultation, and proportionate legislative intervention
       only when necessary, will mean that European legislators can make the best
       possible use of, and build on, the very substantial extent to which the
       market mechanism already achieves public policy objectives. In turn, this
       will build on that fact that the efficiency of the market mechanism has been
       significantly enhanced by recent developments in technology which have
       enormously improved users’ access to, and ability to make use of, markets and
       market information.

       A commitment to proper enforcement of Community law will prevent the
       retention or imposition of barriers to the internal market. It will provide
       sanctions against Member States which do not respect Community law. It
       will also ensure that repeated rewriting of legislation does not become a
       substitute for taking legitimate action against Member States which do not
       comply with existing legislation.

The Lamfalussy Report

10. The six key themes are also consistent with the 2001 final Report of the
    Committee of Wise Men on the Regulation of European Securities Markets (the
    ‘Lamfalussy Report’), which contains a number of statements which parallel the
    points made by the White Paper quoted above (see the Annex to this paper).

Next steps

11. Because of the importance of the six key themes to financial services legislation,
   we hope very much that the Commission will be able to carry them forward in
   specific actions. The recent agreement by the Commission, Council, and
   Parliament to implement the Lamfalussy recommendations provides an important
   opportunity for the European institutions to make a ‘quick win’ in the financial
   services area by moving forward quickly to codify the six key principles and put
   them into practice at all levels of the legislative process.

London Investment Banking Association
28th March 2002

ANNEX: The Lamfalussy Report

The Lamfalussy Report’s analysis of shortcomings in progress towards the cross-
border integration of financial markets identified as ‘among the most important gaps’:

        ‘lack of commonly agreed guiding principles covering all financial services legislation’.1

The Lamfalussy Committee stated its belief that
        ‘all European financial services and securities legislation should be based around a conceptual
        framework of overarching principles’

and suggested that the following could be ‘among the most important’ overarching
        ‘-   to maintain confidence in European securities markets…
         -   to ensure appropriate levels of consumer protection proportionate to the different degrees
             of risk involved…
         -   to respect the subsidiarity and proportionality principles of the Treaty;
         -   to promote competition and ensure that the Community’s competition rules are fully
         -   to ensure that regulation is efficient as well as encouraging, not discouraging, innovation;
         -   to take account of the European, as well as the wider international dimension of,
             securities markets.’2

The Lamfalussy Report stressed the importance of consultation, particularly since
capital markets are complex and fast-moving, and the contribution which experts can
make to the quality of legislation is therefore substantial.

The Report stressed the importance of analysing the impact of legislative proposals.

The Report also identified the Commission’s enforcement role as an essential element
of the legislative process.

  Final Report of the Committee of Wise Men on the Regulation of European Securities Markets, 15th
February 2001, Chapter I.4
  Op cit, Chapter II.2

Ansbacher & Co Limited
Arbuthnot Latham & Co., Limited
BNP Paribas
Bank Insinger de Beaufort plc
Barclays Capital
Bear, Stearns International Limited
Beeson Gregory Limited
CIBC World Markets Plc
Cazenove & Co. Ltd
Close Brothers Corporate Finance Ltd
Collins Stewart Limited
Commerzbank AG
Credit Suisse First Boston International
Daiwa Securities SMBC Europe Limited
Dawnay, Day & Co., Limited
Deutsche Bank AG London
Dresdner Kleinwort Wasserstein
Goldman Sachs International
Greenhill & Co. International LLP
Hawkpoint Partners Limited
HSBC Investment Bank plc
ING Barings
Instinet Europe Ltd
Investec Bank (UK) Limited
JPMorgan Chase Bank
KBC Peel Hunt
Knight Securities International Ltd
Lehman Brothers
Merrill Lynch Europe PLC
Mizuho International plc
Morgan Stanley International Ltd
Nomura International plc
N M Rothschild & Sons Limited
Robert W. Baird Group Limited
Schroder Salomon Smith Barney
Singer & Friedlander Holdings Limited
Société Générale
3i Group plc
The Toronto Dominion Bank
UBS Warburg
Westdeutsche Landesbank Girozentrale

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