European Committee of Wise Men Publishes Final Report, February 2001

Washington, DC, February 23, 2001 - The Committee of Wise Men recently issued its final report on the Regulation of European Securities Markets. The Committee's report describes the reasons for proposing changes to the current regulatory structure and its recommendations for regulatory reform. The Council of Economic and Finance Ministers (ECOFIN) and the European Commission will report on the Committee's final recommendations to the Stockholm European Council in March.

The Committee's report concludes that regulatory reforms are necessary to produce an integrated securities market, which would yield significant economic benefits to Europe. The Committee believes that the shortcomings of European regulation are one of the contributing factors to the current lack of an integrated financial market. The Committee specifically identifies outdated investment rules for UCITS and pension funds as one of the most important gaps in European regulation, as noted previously by the Institute in its comments to the Committee. The report also takes the view that the current regulatory system is unable to react quickly to changing market conditions, produces too much ambiguity, and fails to distinguish between essential principles and practical implementing rules.

As in its initial report, the Committee recommends a four-level approach to securities regulation.

Level 1-Framework Principles. New directives and regulations would contain framework principles and delegate the power to adopt implementing rules to Level 2.
Level 2-Implementation of Principles. A network of national securities regulators, the European Commission, and two new European securities committees would define, propose, and determine the implementing measures of the framework principles as specified by the Level 1 legislation.
Level 3-Strengthening Cooperation Among Regulators. A network of national regulators would ensure consistent and equivalent implementation of Level 1 and Level 2 legislation.
Level 4-Enforcement. The European Commission would be responsible for "vigorous" enforcement action, but the report notes that assistance from member states, regulators, and the private sector is necessary to strengthen enforcement.

The Committee believes that this four-level approach is the only practical alternative to achieving an integrated European securities market at this time. The Committee recommends that a monitoring group be established to produce semi-annual reports, and a full review would be conducted in 2004 unless the progress reports indicate a need for an earlier review. If the full review demonstrates that the approach has not produced sufficient progress, the Committee would consider at that time the need for a Treaty change, including the creation of a single EU regulatory authority for financial services.