Search

The transformation of the European financial system with the adoption of the Financial Services Action Plan to reform the regulatory structure is discussed.

A critical evaluation of the Markets in Financial Instruments Directive, 2004 of the European Union (EU) is presented. Its implications on the functioning of stock exchanges of EU are evaluated.

European Union is now responsible for implementing the Basel II process as per the new accord and it also has to ensure a supervisory control on the process. For the purpose it needs to develop policies for convergence in instruments and procedures within the member states. Other problems arising from the implementation of the Basel II process in the banking industry are also discussed. Basel II requirements are to be fully operational by 2007.

The Investor Services Directive's second consultive paper is under review by the European Commission. This law balances the interests of the markets and its intermediaries and the commission proposes to permit systematic internalization by securities brokers subject to investor safeguards.

The new draft Investment Services Directive (ISD) is aimed at addressing the inconsistencies and loopholes of the current ISD. The new ISD proposes higher regulation for investment firm than for exchanges.

The corporate scandals in the U.S. occurred as the rules for corporate governance and accounting standards in Europe were undergoing changes. Now, with the weaknesses exposed by the Enron Corp. collapse, the standards in Europe will have the advantage of strengthening its rules.

In February 2002, the European Parliament approved financial services legislation for the European Union designed to allow more rapid changes in securities market legislation. During that time, the European Commission laid groundwork for new legislation by reviewing the Financial Services Action Plan.

The Lamfalussy Committee of Wise Men urges Europe move quickly toward a single capital market. Establishing a single regulatory authority is not even in the planning stages, but the Committee discussed powers for the the Financial Services Action Plan and EU Securities Committee.

The European Commission plans to review its investment service directive. There is a plan to expand the scope of the directive.