“EU-US
REGULATORY COOPERATION ON FINANCIAL MARKETS:
A MATTER OF NECESSITY?”
By
Frits Bolkestein
European Commissioner for Internal
Market & Taxation
European American Business Council
Washington, DC
24 February 2003
I.
Introduction
Mr. Chairman, Ladies and
Gentlemen, “Don’t be late for breakfast,” my mother said. I originally
intended to speak to you on December 9 so I’m only three months late! I hope
the coffee hasn’t gotten too cold or the rolls too stale!
But seriously, it is
always a pleasure to be here because I feel that I am amongst kindred
spirits: people who when they see a barrier immediately start dismantling
it. Actors not reactors.
It is particularly
pertinent to speak about EU-US regulatory cooperation with you: it is your
raison d’être, and I welcome your efforts over the years. I want to
start by reviewing developments in the EU since I was last here, before
looking at the
bilateral issues facing the EU and the US in the area of
financial markets.
II. Reviewing
Developments
II. A Developments in
Europe
Do not underestimate the
scale of what we are doing in Europe at the moment nor our determination to
succeed. The construction of a single financial market is a major
enterprise. It requires pulling together 15 different sets of laws based
around 15 sets of standards and traditions. We have made key progress over
the last year with agreements on
international accounting standards, market
abuse and
financial conglomerates amongst others. We have set in track a
faster track decision-making process called the Lamfalussy approach.
Nor have we been slow to
react to the recent corporate finance scandals. We are neither complacent
nor arrogant enough to believe that they could not have happened in the EU.
We are close to a major policy statement by the Commission on corporate
governance which we expect to release in the coming weeks. It will be an
integrated approach with a clear leitmotif: to strengthen shareholder
democracy and improve corporate responsibility.
Linked to this, we now
have an even more challenging workload, seeking agreement on takeover bids,
prospectuses, transparency requirements and, above all, a major revision to
our
Investment Services Directive. There are hard issues at stake here and
time is running out. We cannot afford to let discussion run into 2004 when
European Parliament elections, enlargement and a new Commission will result
in nine months’ downtime.
Underneath all this, we
are changing the whole way that we go about our work. We have moved to a
system of transparency and full consultation with industry, regulators and
end-users at all stages of legislation—proper due process. Compare this with
the implementation of the Sarbanes-Oxley Act: hundreds of pages of complex
rules and barely two weeks to respond! I urge you to get involved in our
consultation process. We are also moving to toughen up our approach to
ensure that legislation is implemented effectively and consistently across
all Member States.
This is a huge amount of
work and it will deliver massive long-term benefits to our economy. Not bad
for “old Europe!”
II. B Developments in EU-US
Relations: the Financial Markets Dialogue
The more we dismantle
the remaining
barriers to our businesses and service providers within
Europe, the more it has thrown into sharp relief the greater barriers faced
by companies looking to offer services into and beyond the EU.
A year ago, officials
from the European Commission and a range of US authorities started to meet
on a regular and informal basis in what is now known as the Financial
Markets Dialogue.
When I meet with
Treasury Secretary-Designate Snow tomorrow, we are hoping to agree a joint
work program for this year and beyond composed of two types of work.
Firstly, we are looking
to exchange information on legislative and regulatory developments, allowing
us to spot potential trouble for our companies and investors, ex ante,
rather than having to repair their impact, ex post.
Secondly, there are
issues that need immediate action to build confidence in the process; to
show the markets that the dialogue really can solve problems.
We have already begun to
do this. You will all be aware of our concerns over parts of the
Sarbanes-Oxley Act. I welcome the constructive way in which the SEC has
tried to accommodate them. This approach needs to be continued on the many
difficult issues left, such as access to working papers and registration
with the new oversight board.
For our part, we have
tried to resolve US concerns over our Financial Conglomerates Directive by
engaging in a constructive working process to resolve issues.
We want an urgent start
on resolving the limitations on the right of exchanges to offer their
services to investors on the other side of the Atlantic—“trading screens.”
The SEC has promised us a paper on a conditional exemption or rule change
that would be a welcome first step. Nevertheless, we have been waiting for
nine months for it and the baby has yet to be born. We are getting impatient
for its delivery!
We are prepared to
resolve any issues that US authorities raise but where are they? There were
no specific issues raised in GATS, and you can bet your bottom euro that we
would know if there were!
III. The
long-term challenge for EU and US regulators
III. A The fundamental
long-term issues
These short-term steps
are important building blocks. But they cannot address all the concerns of
businesses on both sides.
I believe that we need
to set our sights to the longer term—to remove barriers on both sides and I
mean both sides. This cannot be done overnight: it means a step-by-step
confidence-building approach in which irresistible political and economic
momentum for progress is established.
This will imply three
fundamental issues.
Firstly, it will mean
cooperating with each other to a far greater degree than we do at present,
on a daily or weekly basis. Large parts of government and public authorities
already cooperate systematically across the Atlantic. We need to do this for
financial services and markets regulatory issues.
Secondly, we need to
converge on common principles and understandings. Not an identical approach
but understanding where different approaches can be consistent with
achieving the same goal. The work on converging International Accounting
Standards and US GAAP is an excellent example of this.
But at the core of our
relations in this area and the fundamental issue for our long-term work, be
it on auditing, disclosure standards, market stability, financial
conglomerates or whatever is one single concept: regulatory equivalence. Our
mutual relations hang on whether each other’s standards are equivalent to
those that we have.
Far too often though,
“you are not equivalent” is shorthand for “your rules are not 100% identical
to mine!” This is unacceptable. We have to take the time and effort to see
whether, despite taking a different approach, we end up with the same broad
levels of investor protection. Do we have the same principles? Are we
allowing for our different cultures? If we do not, we have to be able to
agree a program of action, not slam the door.
This is not a question
of asking one side to accept lower standards that risk their investors. But
nor is it a question of setting unreasonable requirements that do not
protect investors but actually prevent them from accessing real
opportunities—in plain English, protectionism. In the Single Market,
companies and exchanges have competed on reputational effect, attracting
investors through high standards not low prices. Why would this not be the
same for transatlantic markets?
III. B Do we really
need to do this?
I am not naïve: reaching
agreement on regulatory equivalence across all these areas is a huge task.
Some of you may be asking whether it is worth all the bother. In short: yes.
Why?
Firstly, because the
potential benefits are huge. A recent study looked at the impact of giving
access for QIB’s alone to the markets of each other and argued that it would
lower trading costs on both sides of the Atlantic by sixty percent, leading
to a fifty percent increase in US and European trading volumes and a nine
percent decline in the cost of equity capital, and that is without
considering the effects if this could be extended to all retail investors
and to an EU of 25 [member states] of 451.2 million people. The TABD
[Transatlantic Business Dialogue] is commissioning a study into the benefits
of a transatlantic capital market. I look forward to its results.
But above all, we have
to engage with each other on equivalence because these issues will not go
away. Sooner or later we will have to tackle them. We are living in a global
financial environment where what even domestic legislation can and will have
effects on companies and investors in other jurisdictions. Sarbanes-Oxley or
the Conglomerates Directive are the clearest example of this but not the
last.
IV. Conclusion: We have
no choice
We—Have—No—Choice! We
have to seize this chance.
We are at a pivotal
moment when legislation and rules on both sides of the Atlantic are being
reconsidered: an ideal opportunity to converge, cooperate and compare.
There will never be a better chance this generation.
Neither America nor
Europe can stand back. We have to engage with each other to reap the huge
benefits. We have to engage to shape events before they shape us. We have to
engage on behalf of all our investors, all our employees, all our companies.
We have no choice.
Thank you, ladies and
gentlemen.
