Revision of the Investment Services Directive
(ISD/ 93/22/EEC)
Open consultation of interested parties

Documents

• Registration form
  Open hearing on the Investment Services Directive, 18-19 September 2001
• Overview
  Overview of proposed adjustments to the Investments Services Directive
• Insert 1
  Proposed regulatory classification
• Inserts 3-5
  Proposals relating to clearing and settlement
• Annex 1
  Definitions and Scope of investment services Directive
• Annex 2
  Investment firms - Rights and responsibilities under the ISD
• Annex 3
  Provisions applicable to regulated markets
• ISD Feedback Synthesis
  ISD Feedback Synthesis of Responses to COM(2000)729

Presentation of material

The following material has been prepared by the services of DG Internal Market in the context of its preparation of a revision of the Investment Services Directive (93/22: ISD). The Commission’s intention to modernise the ISD was first signalled in the Financial Services Action Plan. Recently, the final report of the Committee of Wise Men on the Regulation of European securities markets has identified improvements to the operation of single passport for investment firms and the framework for "regulated markets" as priorities.

Synthesis of replies to consultation

The Commission identified the broad orientations for possible review of ISD in its Communication on "upgrading the ISD" and invited comments from all interested parties in respect of this analysis. 42 submissions, many of which were substantive contributions, were received from supervisor and regulatory authorities, market practitioners, and securities trading infrastructure providers. A synthesis of the replies to the main themes is attached in document 2 ("Feedback on Investment Services Directive: synthesis of responses to COM(2000)729").

Guide to proposed adjustments to ISD

The consultation documents constitute an initial set of orientations for revision of the ISD taking account of responses to the Communication on "upgrading the ISD". In particular, this material provides first indications of the views of DG Internal Market services as to the possible structure and content of a modified ISD. These preliminary orientations are without prejudice to any future decisions by the European Commission in finalising its proposals.

In taking forward revision of the ISD, the services of the European Commission will seek to give effect to recommendations of the Lamfalussy Group regarding the appropriate format of EU legislation. In particular, the services of the European Commission will seek to render operational a distinction between:

• Score principles enshrined in foundation legislation (level 1)
• detailed, legally binding implementing measures which will be more adaptable to changing business and regulatory practice (level 2). The revised ISD must carefully delimit the matters which may be the subject of such measures;
• matters where informal agreements between supervisors may be sufficient to result in homogeneous approach to regulation and supervision of investment business throughout EU (level 3).

The consultation documents span both high level principles which could feature in the body of revised ISD (level 1) and more detailed elements which could potentially be addressed in detailed implementing measures (level 2) and occasionally through informal supervisory cooperation. The Commission services have considered it preferable to offer interested parties the opportunity to base their assessment of proposed adjustments to ISD on a comprehensive view of elements likely to feature in the text of the Directive itself as well as measures which could be taken pursuant to those provisions. The consultation material does not distinguish systematically between high level principles and possible elements which could feature in detailed implementing measures. While the Commission must ultimately come forward with proposals in this area which reflect the letter and spirit of agreements governing the role of the different EU institutions, the Commission services welcome the views of market participants as to the appropriate allocation of elements of the attached proposals between provisions of the revised Directive and supplementary implementing measures.

An overview paper (document 1) provides an extensive commentary on the possible adjustments to the existing ISD and the analysis that has prompted them. The 3 supporting annexes provide a more comprehensive presentation of those possible adjustments. Each concrete suggestion is accompanied by a commentary to clarify the need for and nature of the possible changes:

• Annex 1 outlines the proposed scope and definitions for a revised ISD.
• Annex 2 sets out the requirements for the initial authorisation of investment firms and ongoing organisational and investor protection requirements. It also proposes the reinforcement of existing obligations of investment firms in terms of market integrity and transaction reporting.
• Annex 3 introduces new definitions and procedures for classification as "regulated market" and establishes a series of principles that must be respected by the market operator and the market.

Document 2 provides a synthetic presentation of positions of respondents in respect of the most recurrent themes advanced in COM(729)2000.

These preliminary orientations do not yet contain proposals regarding the roles and responsibilities of competent authorities and mechanisms for cooperation and collaboration between them. These will be issued following further work on the investment firm and regulated market regimes.

Invitation to comment

The Committee of Wise Men on the regulation of securities markets has advocated the "full and organised transparency of the whole [legislative] process from top to bottom". In view of the increased emphasis on transparency at all stages of the rule-making process and greater awareness of the importance of involving market practitioners and interested parties, the services of DG Internal Market are publishing this material as a basis for consultation.

Comments on this material are invited from all interested parties before 30.10.01. Comments could address the following considerations in particular:

• the likely impact of proposed adjustments in overcoming public law or administrative obstacles which prevent investment firms or regulated markets from serving cross-border markets;
• the extent to which elements of proposed adjustments should feature in high level principles to be incorporated in a revised ISD and elements which should be the object of supplementary implementing measures;
• the cost-effectiveness of proposed EU level regulatory/supervisory arrangements in promoting investor protection and orderly and achieving efficient markets for financial instruments;
• the suitability of the proposed obligations are in respect of particular types of service, service format or organised trading system, and any indication on how provisions could be applied so as better to reflect the real risks to investors and market functioning arising from those activities;
• the clarity of rights and obligations for market participants, market operators and competent authorities.

Any submissions in respect of this material should be communicated before 30.10.01: