In the space of one hour, Katie explained the development of the FSAP and the factors behind its creation. Focusing on the key pieces of legislation, we were then shown how the European Commission is radically altering its legislative procedures to enable its regulatory regime to keep pace with this fast-changing industry. The talk also provided an up-to-date report on the progress of the Plan and discussion of whether it will meet its ambitious deadlines. The talk was interspersed with many useful research tips.

Background to the FSAP

The FSAP represents part of a wider scheme to create a European single market in financial services aimed at unlocking potentially huge economic advantages. At present a company wishing to offer financial services products in different member states faces considerable barriers, through having to comply with the different regulatory requirements of each state. The banking sector has already demonstrated that it is possible to lessen such costly bureaucracy through mutual recognition by the different national regulatory regimes. This means that once a company has fulfilled the regulatory requirements of one state it can offer its products across the EU. The initial regulatory clearance effectively acts as a "passport" and it is this concept which lies behind the European single market in financial services. The FSAP is the means by which the Commission is seeking to harmonize the regulatory regimes of the member states, to make this mutual recognition viable. The introduction of the single currency in many of the member states has acted as an additional stimulus in driving forward this agenda.

What is covered by the FSAP?

The Commission has adopted a very broad definition of financial services, including banking, pensions and insurance, as well as the services included in narrower, more traditional definitions - e.g. investment trusts. This accounts for the broad range of legislation proposed under the Plan. There are forty-two directives, regulations, communications and recommendations which comprise the FSAP. Each of these enactments contains references in the preamble to the FSAP. This legislation falls into three categories, based on the three strategic objectives of the FSAP.

• Measures making it possible to offer securities and investment products across the EU
• Measures relating to products offered to individual investors by removing barriers to cross-border offering of consumer financial services, whilst protecting consumers
• State of the art prudential and supervisory rules governing all aspects of financial services.

Key measures in the first category include new rules governing the issuing of a prospectus (Directive 2003/71/EC), market abuse (Directive 2003/6/EC), increased transparency in reporting standards, (still a proposal - COD/2003/0045) and a revision of the Investment Services Directive (COD/2002/0269). Retail investment issues include measures to make cross-border payments cheaper and simpler, and legislation dealing with the distance selling of financial services (Directive 2002/65/EC). Many of the enactments in the final category are linked to the Basel II rules. This category also includes one of the only pieces of legislation which is already fully in force - the E-money directive (Directive 2000/46/EC), implemented in the UK via the FSA Handbook.

Implementation: delays and new procedures

The fact that the E-money directive is one of the only elements of the FSAP to have been fully implemented raises questions about the ambitious deadline set by the Commission for the creation of the single market in financial services. The FSAP is due to be at the implementation stage in the Member States by the end of 2004 - a deadline all but impossible to achieve. To place this in context, it is worth remembering that it is 11 years since the new Takeover Directive was first proposed and it has still not been enacted.

The difficulties of driving through fundamental changes of this nature have long been recognised by the Commission and has led to a reassessment of how such changes need to be managed. This recognition led to the commissioning of the Lamfalussy report into the FSAP, to look at ways of avoiding proposed legislation becoming mired in bureaucratic wrangles. It is here that we encounter an array of daunting terminology. The Lamfalussy report takes its name from the chairman of the Committee which drew up the report - a convenient shorthand for the Final Report of the Committee of Wise Men on the Regulation of European Securities Markets, 15 Feb 2001.

This investigation recognised that the reasons for these delays are mainly attributable to arguments over detail, rather than the fundamentals of reform. Accordingly, a new approach has been developed whereby the fine details of new reforms are drawn up by specialist committees rather than the EU's main legislative bodies - the Comitology procedure. It should be pointed out that Comitology is being used in many policy areas, but its application in the financial services sector is assuming a distinct identity.

The Four-Level Approach

The key element of the Lamfalussy process which is driving forward these changes is the "four level approach". These levels relate to the way in which a piece of legislation is transformed from statements of fundamental principles to detailed implementation at national level. The framework of the legislation - the main directive or regulation - is level 1, outlining the broad regulatory principles. Level 2 is then made up of the detailed measures drawn up by the expert committees and endorsed by the Commission. In the case of the Market Abuse Directive, many of the level 2 implementing measures have already been produced by the Committee of European Securities Regulators ('CESR'). Once the details of the level 2 measures have been agreed, these will then be enacted as directives or regulations. The Lamfalussy report recommended the use of regulations as much as possible for this, since they take direct effect and do not have to be implemented in turn by the member states.

The websites of the expert Committees are thus important as a source for draft and final implementing measures. The Market Abuse measures, for instance, can be found on the CESR website - <http://www.cesr-eu.org/>. The other main committees are the European Securities Committee ('ESC') and the Committee of European Banking Supervisors ('CEBS').

The Internal Market Directorate-General is also a key source, since it has a page devoted to the FSAP which is very useful for progress reports and links to documents - <http://www.europa.eu.int/comm/internal_market/en/finances/actionplan/index.htm>.
Katie also pointed out that the records for the parent directives of the FSAP on the European Parliament's Legislative Observatory now include links to final versions of the implementing measures. (To search the Legislative Observatory go to <http://wwwdb.europarl.eu.int/dors/oeil/en/search.shtm>).

To supplement the level 2 guidance sanctioned by the Commission, it is likely that the committees will produce additional guidance for the member states on implementation. This guidance will constitute the level 3 measures. (Incidentally, it is envisaged that much of the FSAP will be implemented in the UK by the FSA Handbook - although the Treasury will be responsible for other measures, such as the Capital Adequacy Directive and the Basel II rules.)

Currently there are no level 4 measures for any of the FSAP legislation, but these will be comprised of efforts by the Commission and other bodies to enforce the correct application of these measures, via the means currently used - action taken by the Commission and the Court.

As this four level process matures, we can be sure that, whatever else happens, the volume of legislation, guidance and implementing measures will only increase. Tracking these and being able to appreciate their context is clearly a key challenge for all information specialists working in this area. I am sure that members who attended this seminar will now be approaching research in this area with renewed confidence - and possibly even with some of Katie's boundless enthusiasm for financial services legislation!