McCreevy Rejects EU SEC as EC Reviews Lamfalussy Process

As the European Commission conducts a broad review of the process for implementing financial services legislation, Commissioner for the Internal Market Charlie McCreevy opted for enhanced multi-dimensional authority for national regulators instead of a super SEC-type regulator for the European Union. In remarks at a seminar in Frankfurt, he said that any changes should be accompanied by the introduction of a European dimension into the mandates of national regulatory authorities. The requirement to cooperate with other regulators to enhance European regulatory convergence will both enable and encourage the national regulators to adopt a European view and strive towards EU-wide convergence.

The Lamfalussy process has been used to implement the Financial Services Action plan in the EU, most recently the MiFID Directive. Lamfalussy is a four level process involving Level 1: the framework Directive, Level 2: the implementing Directive, Level 3: the rulemaking and interpretation of the Directive, by committees such as CESR, and Level 4: cooperative enforcement by national regulators.

The Commission is not proposing major institutional changes to the current process since, according to the commissioner, these are neither desirable nor politically feasible at this stage. But the EC has proposed some practical improvements for all levels of the Lamfalussy structure as part of an effort to ensure greater consistency and convergence in national implementation and enforcement and enhance cooperation between national regulators.

With a view to improving the legislative process, the Commission will also strive for better alignment of the timetables for the adoption and transposition of co-decision and implementing measures. Impact assessments will be extended to implementing measures. The objective at Level 4 will be to enhance the transparency of national implementing measures. Disclosure mechanisms embedded in the Directives will continue to be applied in order to improve Member States’ performance.

In the view of Comm. McCreevy, Level 3 deserves particular attention. The most significant innovations will be introduced at Level 3, he said, with the creation of committees of regulators responsible for ensuring greater regulatory convergence across the EU. It is also in relation to the Level 3 committees that the expectations were the highest.

The Level 3 committees are expected to adopt non-binding guidelines on the Directives. Results have not always met expectations. For example, CESR has had difficulty in establishing a common transaction reporting format under MiFID.

At a time when markets are increasingly integrated and dominated by large pan-European groups, he reasoned, greater regulatory cooperation and convergence is badly needed. In particular, a stronger political impetus is needed to foster regulatory convergence and cooperation. To this end the Commission has proposed targeted improvements.

In order to enhance the accountability of level 3 committees like CESR, the Commission proposes a two-step procedure. First, the European Parliament will adopt, after prior consultation with the Level 3 committees, a short statement outlining the main achievements expected from the Level 3 committees going forward. Second, the Level 3 committees would report on their achievements, or alternatively, the reasons which prevented them from meeting the objectives set.

One of the key questions in this review is whether the legal standing of the Level 3 committees needs to be modified. The Commission and the Level 3 committees themselves are willing to explore this issue. Therefore, the Commission will examine whether and what changes need to be brought into the current legal framework. In particular it should be possible to refer to CESR in the framework Directive.

Finally, the Commission believes that the efficiency and effectiveness of the decision-making procedures of the Level 3 committees needs to be strengthened. The EC recommends that the committees introduce in their charters qualified majority voting for all advice to the Commission and any measure aimed at fostering regulatory convergence.