By Bruno Waterfield - 12th September 2005
Europe’s financial services must do more to cut costs for cross-border EU trading or face Brussels regulation, Charlie McCreevy has warned.
The European internal market commissioner has departed from an approach focused on implementing existing EU regulation to caution industry over the pace of change.
In a Luxembourg speech on Tuesday, McCreevy highlighted the need to simplify the 'clearing and settlement' process, potentially reducing the number of intermediaries required for trading.
“The industry has been good in highlighting the problems, particularly those resulting from fragmentation. But it has been less good in making progress in solving them.”
“Cross-border trading remains expensive, sometimes prohibitively so. Cross-border clearing and settlement costs can still be up to six times more than those of domestic settlements,” he said.
“The time has now come for all interested actors to take their responsibilities and collectively put their foot on the gas.”
McCreevy is giving the financial services industry until March 2006 to put its house in order, or Brussels will step in.
“The commission is taking a close look at the economic case for action. We will decide whether any European legislation, or other intervention, is necessary on that basis and in the light of developments in the market.”
“The next six months are crucial. As far as I am concerned, the clock is ticking.”
Clearing and settlement is the final step after a trader has bought or sold shares and costs for a cross-border transaction can be up to six times the national rate.
The process can involve anything from confirming the price, to calculating the amounts owed, safekeeping the shares before handing them over to the buyer, and actually transferring the money to the seller.
The European Commission will consider the creation of “consolidated structures in the EU, such as a single pan-European Central Counter Party”.
“At face value, this is an interesting prospect. I can see that there could indeed be cost savings and improved efficiencies. If so, everyone should, of course, get a share of the benefits,” he said.
McCreevy also “identified for particular attention” asset management investment funds.
“We all agree that great potential exists for further growth of this industry,” he said.
“In recent years, structural changes affecting products and distribution are changing the risk features of the industry. Some of these changes do not respect regulatory boundaries.”
“Cross-jurisdictional/pan-European responses may be needed.”
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