Four Predictions About the Future of EU Securities Regulation

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.

The resulting failure will make increased harmonization and some centralization of supervision 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 harmonization 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.

JEL Classification: F15, G18, K22