Four Predictions About the Future for EU Securities Regulation

Gerard Hertig

Professor of Law, Swiss Federal Institute of Technology (ETH) Zurich

Ruben Lee

Managing Director, Oxford Finance Group and Member Advisory Panel of Financial Services Experts, European Parliament

jcls Vol 3 Issue 2 (October 2003)

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Abstract

The most recent EU enquiry into why an EU-wide securities market has not developed has been the report prepared by the “Committee of Wise Men” (2001) chaired by Baron Alexandre Lamfalussy. The so-called Lamfalussy Process implements the institutional changes recommended by the Wise Men to reduce barriers to integration. This process will not work, however, because of its failure to address two fundamental issues: national protectionism and bureaucratic inertia. As a result increased harmonisation and some centralization of supervision are inevitable. Notwithstanding current opposition to the establishment of a pan-European securities regulator, there will be a European Securities and Exchange Commission (ESEC). The ESEC will be set up, and develop, following the path of least political resistance. Initially at least, the ESEC will focus on corporate disclosure issues, the area where opposition to regulatory harmonisation is weakest. It will not have powers to sanction infringements of its rules, as there would be too much resistance to this. The ESEC will, however, be allowed to investigate possible infringements and make its findings and recommendations public. This “soft enforcement” approach will provide incentives for Member States to undertake corrective action and also foster private litigation.

Keywords

Corporate disclosure; EU securities regulation; financial regulation; financial supervision; Lamfalussy process; regulatory competition; soft enforcement; single financial market