The Creation of a European Capital Market

Abstract

The origins of European capital market regulation can be traced back to the seminal Segré report in 1966. Over the intervening years there have been times of both significant regulatory change, specifically during the Financial Services Action Plan (‘FSAP’) period and again following the recent financial crisis, but also times of relative inactivity such as in the immediate post-FSAP period. This paper analyses the creation of the European capital market, and the regulatory and institutional reforms that have occurred in this context, particularly in the light of the recent crisis. Specifically, the financial crisis has prompted a major regulatory overhaul within the EU. In particular the legislative reforms have focused on greater centralisation of powers at the European level, increased and more intensive regulation, and an extension of the regulatory perimeter to capture a broad array of firms, instruments, and trading practices within the EU regime. The scale of change has been enormous, with the development of the ‘single European rulebook’ illustrating just how far the European capital market project has come. Nonetheless, it is also remains clear that regulatory reforms that represent a ‘knee-jerk’ reaction to a crisis tend to be poorly designed, and are rarely the changes that are required and it remains to be seen how well the rules will stand up in a future crisis.

Keywords: European financial regulation, financial crisis, capital markets

JEL Classification: K22