European Union
- The EU has 27 member states
- It was originally conceived as a free trade area: a number of states allow goods to pass through barriers without tariffs or quantitative/qualitative restrictions imposed
- Customs union does away with restrictive sets of standards, tariffs and restrictions
- In the original treaty establishing the EU, there are four fundamental freedoms:
2) Restrictions on payments are prohibited (Art 63 TFEU)
3) Restrictions on freedom to provide services are prohibited (Art 56 TFEU)
4) Restrictions on freedom to set up a business in any member state are prohibited (Art 49 TFEU)
- These freedoms got little attention from commission and focused on the free movement of goods rather than services or capital
- As time progressed they began to think about financial services - banking, investment etc.
- Total harmonisation throughout the EU seen to be impossible
- Very different legal systems across the member states
- Very different attitudes to risk, styles of regulation and the degree of protection given to consumers
- Very different market conditions
- From the mid 80s there was mutual recognition of member states' regulatory controls
- Theory is that if that regulatory control is good enough for one member state is must be good enough for all member states
- In certain areas there is a minimum level that regulatory control must meet (e.g. every member state now has to have a deposit protection scheme)
- A company only needs one regulatory licence (Part 4 permission)
- The regulator in the home country is responsible for all the company's operations throughout Europe unless there is a separate subsidiary
- The aim was approximate equalisation
- Have to be authorised in one member state (home state)
- Having been so authorised it can operate in all member states
- The theory is that all EU regulators apply the same minimum set of initial authorisation standards
- No individual member state can prevent a firm doing business if it has been authorised in its home state
- The law suits UK companies because a firm can set up business overseas by giving notice to the FSA
- Icelandic banks came to the UK via passporting in 2003 and were initially successful
- Icelandic regulator was small and inexperienced
- In 2007, 2008 and 2009 the banks went bust and lots of money was lost
- Regulation authority refused to recapitalise the Icelandic banks because they would be using Icelandic tax payers' money to reimburse UK citizens and companies
- The adoption of the Euro and technological advances have encouraged the idea that banks and financial service providers should be supervised in a common way
- Commission are keener on a stricter supervision
- We have three European regulators on top of the Financial Services Authority:
2) European Insurance and Occupational Pensions Authority, based in Frankfurt
3) European Banking Authority, based in London
- The aim is to create common rule books throughout Europe
- The rules were loosely applied before, vague
- Huge aim - difficult
- Oversee, to a degree, the work of each national regulator