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.