Financial Services Action Plan Research Articles

European Firms’ Delisting Around Major Regulatory Shocks: The Cost-Benefit Tradeoff of the Financial Services Action Plan

ABSTRACT Between 1999 and 2005, the EU adopted the Financial Services Action Plan (FSAP) to reshape its financial markets. In this paper, we examine the firm-level effect of this major regulatory shock. In pre/post-2005 analyses, we compare the probabilities of companies voluntarily or involuntarily delisting in seven European economies that strongly commit to implementing regulations and seven economies that apply regulations more leniently. Our findings indicate an increased probability of delisting after 2005, primarily due to involuntary delistings in economies that implement regulations strictly. Furthermore, we examine a core element of the FSAP, the International Financial Reporting Standards (IFRS) mandate, which aimed to improve public firms’ reporting and disclosure quality. IFRS continued to undergo rapid changes after 2005, and we document an incremental association between delisting and the post-2005 changes. Our results highlight the firm-level consequences of the FSAP across jurisdictions with varying institutional environments. Data Availability: Data are available from the public sources cited in the text. JEL Classifications: G15; G18; G38; K22; M48.

The impact of securities regulation on the information environment around stock-financed acquisitions

We investigate the effects of securities regulation, enacted by the European Union (EU) (namely, the Transparency Directive – TPD) to improve the quality of financial reporting and disclosure, on the information environment around stock-financed acquisition announcements. EU directives comprised in the Financial Services Action Plan aim to improve the information quality that flows to investors, which may help reduce the adverse selection discount when stock is used as the method of payment in Mergers and Acquisitions (M&As). We use a difference-in-differences methodology and document a significant increase in announcement returns of stock-paid acquisitions by European acquirers after the change in regulation. We also find that this result accrues essentially to companies with better firm-specific information quality and companies domiciled in EU countries with better institutional quality and shareholder protection. Our results highlight how the impact of the same regulation may differ depending on country and firm-level attributes associated with the information environment.

Financial Harmonization and Industrial Growth : Evidence from the European Union

This study analyzes the growth effects of the Financial Services Action Plan of the European Commission, a set of directives that aim to harmonize European financial markets. Using a panel of 25 countries and 30 industries, we find that the standard specification predicts lower growth due to harmonization, though the negative effect is mitigated for industries that depend more on external finance. Controlling for the relative timing of the adoption, harmonization is shown to have a positive effect on growth. This finding is robust to including further controls, to splitting the sample into subgroups of countries, and to extending the model to a dynamic setting.

A new European approach to transaction reporting

The Markets in Financial Services Regulation and Directive (MiFID II) is part of the wider European Financial Services Action Plan. The main aim of creating a single market for financial services is to establish a stable, competitive and transparent financial services framework across the European Union. The primary purpose for transaction reports is to detect and investigate suspected market abuse, insider trading and market manipulation. Review of a transaction report is a key part of any investigation into alleged market abuse reported to any financial authority. Transaction Reporting is used by regulators to monitor and survey the market for any instances of market abuse. Failure to submit accurate transaction reports has the potential to hinder the Authority’s ability to detect and investigate suspected market abuse. The new transaction reporting regime will be standardised across Europe under the Markets in Financial Services Regulation. The article: •• Examines the purpose of transaction reporting •• Identifies scenarios of market abuse that transaction reporting helps highlight •• Examines Regulatory Change under the Markets in Financial Services Regulation (MiFIR). •• Reviews areas of failure to submit accurate transaction reports which firms need to consider in their regulatory assurance programmes.

Financial Harmonization and Financial Development: An Application of Europe’s Financial Services Action Plan

The Financial Services Action Plan (FSAP) of the European Commission intends to create an open, secure, integrated financial market across EU countries. Using principal component analysis to construct financial development indices, we investigate the impact of financial harmonization policies of the FSAP on financial development in a panel of 25 EU countries for 1996–2007. Taking into account the timing perspective in implementing the FSAP directives across countries we find a positive link between financial harmonization and financial development. The results are robust to different approaches in constructing the harmonization index and the addition of further controls. JEL Classification: F36, F63, G2; K4, O11, O19

Professional Civil Liability of the Financial Intermediaries as an Instrument of Investor Protection.

The Great Depression, which started in the United States in 1929 and rampaged across whole capitalist world, revealed that in the face of specific investor protection problems, general law is not sufficient. Therefore, to protect investors the US promptly created regulation of the financial markets, which proved to be sufficiently effective not only to withstand time challenges, but also to spread in the other parts of the globe. Reception of the US law also took place in its main trade partner – the European Union and therefore its member state Lithuania. Ambitious Financial services action plan (1999) culminated in 2004 then Markets in Financial Instruments Directive (MiFID), which established qualitatively different regulation of the investment services and consequently – new design for protection of investors in the secondary markets, was adopted. However, in contrast with the financial regulation of the United States, one fundamental investor protection issue was not directly addressed in MiFID – this directive still does not regulate professional civil liability of the financial intermediaries against investors. European Commission, in its MiFID review consultation, raised questions about possibility to establish rules of civil liability in the MiFID, but in the light of very different positions of the Member States and especially due to very straight objections from several Member States, the new MiFID recast does not include this initiative. Question of civil liability of the financial intermediary, except several minor aspects, also is untouched in the Prospectus directive. Therefore, it is correct to state, that today, with several insignificant exceptions, the European Union law does not directly addresses the issue of civil liability of the financial intermediary neither in the primary, nor in the secondary markets at all and this issue, at least for now, is left to the domain of national law. Current state when the EU law on financial markets essentially does not regulate questions of civil liability of the financial intermediary is taken as starting point for purposes of this research. Whereas European legislator does not undertook any related actions (although discussed and had chance to do it), for the purposes of this thesis, first of all, hypothetically will be presumed that in the present circumstances it is best and optimal legislative decision, which is in harmony with purposes of financial regulation, and second, the author will try to assess the correctness of the hypothesis, which means – to convincingly confirm or deny it.

Do Bank Profits Converge?

This paper examines the determinants and convergence of bank profitability in eight European Union member countries, between 1992 and 2007, using a dynamic panel model. Average profitability is higher for banks that are efficient and diversified, but lower for those that are more highly capitalised. There is evidence of persistence of excess profit from one year to the next. The persistence of profit was lower in 1999–2007 than it was in 1992–98 in all eight countries. This finding is consistent with the hypothesis of an increase in the intensity of bank competition as a result of an increase in the integration of EU financial markets following the introduction of the euro in 1999, and the implementation of the Financial Services Action Plan.

European company law 1999–2010: Renaissance and crisis

European corporate law has enjoyed a renaissance in the past decade. Fifteen years ago, this would have seemed most implausible. In the mid–1990s, the early integration strategy of seeking to harmonize substantive company law seemed to have been stalled by the need to reconcile fundamental differences in approaches to corporate governance. Little was happening, and the grand vision of the early pioneers appeared more dream than ambition. Yet since then, a combination of adventurous decisions by the Court of Justice, innovative approaches to legislation by the Commission, and disastrous crises in capital markets has produced a headlong rush of reform activity. The volume and pace of change has been such that few have had time to digest it: not least policymakers, with the consequence that the developments have not always been well coordinated. The recent financial crisis has yet again thrown many – quite fundamental – issues into question. In this article, we offer an overview that puts the most significant developments of this decade into context, alongside each other and the changing patterns of corporate structure in European countries. Such developments cover, for instance, corporate mobility, corporate freedom of establishment, golden shares case law, as well as the Commission’s Company Law Action Plan CLAP and Financial Services Action Plan FSAP. Harmonization of Member States’ company laws on the rules governing listed companies and the facilitation of cross-border restructuring are also examined.

Coping with Emerging Federalism – Working with Securities Trading in the European Union

AbstractOnly fairly recently has the law on securities regulation been subject to legislation, first and only on a framework basis on the national level and lately, but very profoundly on a European level as a consequence of the Financial Services Action Plan, that was carried out from 2000–2005. The ensuring legislation has produced a body of harmonised law that is highly detailed and mostly implemented verbatim in national law. The introduction of European Union (EU) law has complicated the traditional use of national law, partly by changing the reliance on preparatory works in traditional Nordic jurisprudence, partly by introducing new layers of legislation and new parties to the legislative process. The emerging federalisation of EU law is just entering a new and even more pronounced phase following the entry into force of the Lisbon Treaty. This article assess the development up to now by first presenting the distinct legal discipline of securities trading law and then exploring the problems arising from the rapid introduction of EU law within this narrow area of law.

The Civil Law Effects of MiFID in a Comparative Law Perspective

The European harmonization efforts produced under the European Commission’s Financial Services Action Plan in the field of capital market regulation have created an impressive body of investor protection oriented rules. Strikingly, the harmonization directives remain largely silent on the penetration of these investor protection rules into the private law sphere of the relation between financial services suppliers and investors. Taking the Markets in Financial Instruments Directive 2004/39/EC as an illustration, we analyse in this paper to what extent the investor protection rules devised at EU level are devised to produce effects in private law relations, and how this is reflected in the laws of selected national jurisdictions. We focus in this regard at on the civil law effects of the MiFID provisions regarding (i) authorization and prudential requirements for regulated firms and (ii) conduct of business rules to be observed by the suppliers of investment services. We observe quite some ‘blind spots’ in MiFID regarding important aspects of the private law relationship. More generally, MiFID is illustrative of the ‘regulatory atrophy’ with regard to opportunities for private enforcement of the investor protection rules. We submit that the legal uncertainty induced by the disparities in national liability regimes may create disincentives for suppliers of investment services to effectively take advantage of the European passport regime.

The New Financial Stability Architecture in the EU

After the introduction of the euro in 1999, the debate on the financial stability architecture in the EU focused on the adequacy of a decentralised setting based on national responsibilities for preventing and managing crises. The Financial Services Action Plan in 1999 and the introduction of the Lamfalussy process for financial regulation and supervision in 2001 enhanced the decentralised arrangements by increasing significantly the level of legal harmonisation and supervisory cooperation. In addition, authorities adopted EU-wide MoUs to safeguard cross-border financial stability. In this context, the financial crisis has proved to be a major challenge to the ongoing process of European financial integration. In particular, momentous events such as the freezing of interbank markets, the loss of confidence in financial institutions, runs on banks and difficulties affecting cross-border financial groups, questioned the ability of the EU financial stability architecture to contain threats to the integrated single financial market. In particular, the crisis has demonstrated the importance of coupling to micro-prudential supervision a macro dimension aimed at a broad and effective monitoring and assessment of the potential risks covering all components of the financial system. In Europe, following the de Larosiere Report, the European Commission has put forward proposals for establishing a European System of Financial Supervision and a European Systemic Risk Board, the latter body to be set up under the auspices of the ECB. While the details for the implementation of these structures still need to be spelt out, they should reinforce significantly – ten years after the introduction of the euro – the financial stability architecture at the EU level.

Do Bank Profits Converge?

This paper examines the determinants and convergence of bank profitability in eight European Union member countries, between 1992 and 2007, using a dynamic panel model. There is evidence of persistence of abnormal bank profit from one year to the next. Average profitability was higher in banks that are strongly capitalised, efficient and diversified. The persistence of EU bank profit was lower in 1999-2007 than it was in 1992-98 in six of the eight countries. This suggests there has been an increase in the intensity of competition and speed of convergence of profits towards their long-run equilibrium values. These developments are attributed to improvements in the integration of financial markets within the EU, following the introduction of the euro in 1999, and the implementation of the Financial Services Action Plan.

Monetary Caps on Damages Due to the Liability of Auditors for Audit Failures in Publicly Listed Companies - Subtitle: A Comparative Legal Analysis between Common Law and Civil Law Regimes in Countries, Which Have Capping Damage Awards of Auditors

Monetary Caps on Damages Due to the Liability of Auditors for Audit Failures in Publicly Listed Companies - Subtitle: A Comparative Legal Analysis between Common Law and Civil Law Regimes in Countries, Which Have Capping Damage Awards of Auditors

Evolution of Accounting and Financial Sector Regulation within The European Union Policy

The aim of the European Union's policy in the financial services sector is to create an integrated Europe-wide single market through a framework of legislation, co-operation and practice. Efforts to promote the integration of financial services in the EU began in 1973 on a piecemeal basis, but the impetus for an overall framework came at the 1998 European Council. The Commission prepared the Financial Services Action Plan (FSAP) to tackle inflexible market structures, legal and supervisory barriers and administrative difficulties. Our paper presents the evolution of accounting and financial sector legislation pertaining to disclosure provisions marked by two legislative cornerstones: the FSAP and the International Accounting Standards initiatives. We attach indices A1 and B1 to accounting legislation and financial-banking legislation respectively, introduced prior to the FSAP and the IAS; A2 and B2 indices are allocated to accounting and financial-banking legislation following the proposal of these two initiatives. Although some legislation is still pending, the emphasis of the EU 2005-2010 policy is on implementation and consolidation of the FSAP measures, a regulatory pause, rather than a raft of new rules.

Investor Protection in EU Capital Markets: The Bumpy Road Towards a European IUS Commune (De bescherming van de belegger in het kapitaalmarktrecht: de hobbelige weg naar een Europees Ius Commune)

The regulatory boom in EU securities law, induced by the Financial Services Action Plan (FSAP) and the Lamfalussy-process of multi-level regulation has seen the emergence of a comprehensive body of law in the field of investor protection rules, notably under the form of information disclosure (Prospectus and Transparency Directives, Market Abuse Directive) for issuers and conduct of business rules for investment firms and credit institutions. It is often claimed that the European directives are based on the paradigm of maximum harmonisation, thus creating a common law (ius commune) in the field of investor protection in Europe. In this paper, we raise some questions as to this proposition, stressing the need to distinguish between the level (maximum or not) and the substantive scope (what has been harmonised?) of harmonisation. Furthermore, we submit that both the continued fragmentation regarding supervision of the harmonised standards, notably in the field of conduct of business rules, and the absence of common rules on private enforcement through civil liability may generate disincentives for different actors to adequately take advantage of the potential benefits of market integration.

Level 3 of the Lamfalussy process: an effective tool for achieving pan-European regulatory consistency?

The overwhelmingly prominent role of the securities markets within the European financial structure provides futile grounds for regulatory intervention, which has most notably taken the form of the ambitious Financial Services Action Plan and the resulting securities legislation. In seeking to achieve the twin goals of further coalescing the single market as well as creating a more resilient financial system, the Lamfalussy process represents a potent tool. This article evaluates the efficiency of level 3 of the Lamfalussy process and its executing body, the Committee of European Securities Regulators (CESR), by scrutinising the conceptual structure of level 3 together with its practical suitability as well as CESR's efforts in achieving regulatory and supervisory consistency. Lastly, the article analyses the extent to which CESR's ability to impact is compromised by various impediments ranging from its members' non-equivalence of regulatory powers to the potentially adverse effects of bureaucratic and political forces.

The Governance Structure for Integration of the Financial and Capital Markets in the EU

Financial integration of the EU is entering a new stage, with new proposals to bring forward the common financial market to strengthen its contribution to economic growth. The agreement of the Financial Services Action Plan in 1999 has been a large step in this direction, which in turn has led to the commencement of a new legislative approach. The new legislative approach was necessary to speed legislation in tandem with innovation in financial services. This Lamfalussy process introduced a holistic approach to the comitology method into financial services by ensuring transparency and accountability. This has enabled the completion of the legislative programme for securities regulations in time, and made possible the extension of the Lamfalussy process to banking and insurance.This article examines the path to the adoption of the Lamfalussy process and its subsequent evaluation. The discussions provide an important insight into the governance structure of the EU. Further, there are strong implications to the future of financial services regulation in the EU. The regulatory structure of financial services will also be considered in the context of global discourse on the matter.

MiFID Best Execution Benchmark

The Markets in Financial Instruments Directive (mifid), a cornerstone of the Financial Services Action Plan, was proposed in November 2002 to replace the existing Investment Services Directive of 1993. It was designed to cope with, and to further enable, the increased level of cross-border investment transactions. MiFID was adopted in April 2004 and will take effect in November 2007. Article 21 of MiFID covers Best Execution-a firm must take all reasonable steps to obtain the best possible result, taking into account price, costs, speed, likelihood of execution and settlement, size, nature or any other consideration relevant to the execution of the order. In this article, we propose a model to benchmark best execution quality, based upon parameters suggested by the EC. It is hoped that the model will go a long way in establishing a best execution benchmark that can be applied by firms to comply with MiFID guidelines concerning best execution. <b>TOPICS:</b>Developed, exchanges/markets/clearinghouses

MiFID Best Execution Benchmark

The Markets in Financial Instruments Directive, a cornerstone of the Financial Services Action Plan, was proposed in November 2002 to replace the existing Investment Services Directive of 1993. It was designed to cope with, and to further enable, the increased level of cross-border investment transactions. MiFID was adopted in April 2004 and will take effect in November 2007. Article 21 of MiFID covers Best Execution - a firm must take all reasonable steps to obtain the best possible result, taking into account price, costs, speed, likelihood of execution and settlement, size, nature or any other consideration relevant to the execution of the order. In this paper we propose a model to benchmark best execution quality; based upon parameters suggested by the EC. It is hoped that the model will go a long way in establishing a best execution benchmark that can be applied by firms to comply with MiFID guidelines concerning best execution.

Objectifs et résultats du Plan d’action pour les services financiers

The Financial Services Action Plan : objectives and results The European Commission adopted the Financial Services Action Plan (FSAP) in 1999. Thanks to the support of Member States and the European Parliament, and more generally of all stakeholders, FSAP has irrefutably allowed to improve functioning of European financial markets. But the results of FSAP can’t be summed up in a short list of adopted measures : FSAP has contributed to institute a more transparent, more worldwide and stricter approach for regulation. So perspectives for years can be based on this solid foundation. JEL classification : F36, G18