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Issue 7 | December 2011

Commission proposals on reforming the Audit Market

The current audit market faces a number of risks, not least by the lack of choice for audit clients resulting from high concentration levels of auditors. The market share of the Big Four for audits of listed companies exceeds 85% in the vast majority of Member States. The Commission has been working on several fronts to address the problems revealed by the financial crisis. Audit is an important element of the financial environment and cannot be overlooked if the benefits of all other regulatory changes are to be achieved and maximised. On 30 November, therefore, the Commission issued its proposals for reforming the audit market based on the results of the Green Paper on Audit Policy (see IP/10/1325). Proposals address issues revealed by the crisis and aim to restore confidence in the audits carried out in the EU. They involve clarifying the role of the auditor as well as reinforcing auditor independence and auditor oversight in the EU.

"Investor confidence in audit has been shaken by the crisis and I believe changes in this sector are necessary: we need to restore confidence in the financial statements of companies. Today's proposals address the current weaknesses in the EU audit market, by eliminating conflicts of interest, ensuring independence and robust supervision and by facilitating more diversity in what is an overly concentrated market, especially at the top-end."

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Promoting Social Entrepreneurship in Europe

As a follow-up to the Commission's Social Business Initiative (SBI), the Commission organised a Conference entitled "Promoting Social Entrepreneurship in Europe" on 18 November. Main EU policy makers and stakeholders of social business in the EU took stock of the growth potential for social business and discussed existing barriers in the single market such as a lack of access to financing, absence of clear business models and a lack of visibility linked to the fact that social businesses are generally small companies without a common definition. An appropriate legal environment is also missing. As a result, many social entrepreneurs do not fully benefit from the opportunities offered by the single market. With their roots in the local environment, social businesses help to strengthen the real economy, while contributing to social cohesion, employability and the reduction of geographical imbalances.

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Credit Rating Agencies

On 15 November the Commission put forward proposals for a regulation and a directive tightening up the existing legislation on credit rating agencies. Credit rating agencies (CRAs) are major players in today's financial markets, with rating actions having a direct impact on the actions of investors, borrowers, issuers and governments. For example, a corporate downgrade can have consequences on the capital a bank must hold and a downgrade of sovereign debt makes a country's borrowing more expensive. Despite the adoption of European legislation on credit rating agencies in 2009 and 2010, recent developments in the context of the euro debt crisis have shown that the existing regulatory framework is not good enough. This is why the Commission has put forward proposals to toughen that framework further and deal with outstanding weaknesses. The Commission wants to reduce the over-reliance on ratings, and improve the quality of the rating process. It wants credit rating agencies to follow stricter rules, be more transparent about their ratings and be held accountable for their mistakes. The Commission also wants to see increased competition in this sector.

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Commissioner Barnier visits London

3-4 November. Michel Barnier attended a meeting organised by the European Policy Forum moderated by David Wright, former deputy director-general of DG MARKT. He focused on two key issues: strengthening the single market and the implementation of regulatory measures for financial stability without hindering growth. Michel Barnier reiterated that the reasons for his commitment to a "single rule book" for financial services are that it would not only guarantee economic efficiency, but also ensure appropriate supervision to institutions operating across the EU. Later, during an exchange with the Association of British Insurers, Michel Barnier expressed his willingness to consider the specificities of the insurance sector when it comes to the implementation of the new regulatory framework for the Solvency II Directive as this sector is so vital to the British economy and society.

 
Michel Barnier speaks at "From Meeting Needs to Wealth Creation" conference, Tunis

12-13 November, Michel Barnier visited the forum Mo Ibrahim "African Agriculture: from Needs to wealth creation meeting" where he outlined the proposals adopted by the European Commission on 20 October on financial market abuse (MAD) and commodity trading (MIFID). He said: "The goal is to restore order in financial markets, to urge players to register, to limit the levels of positions they can take and to severely punish any misconduct."

The Commissioner met Prime Minister Essebsi and Finance Minister Ayed to reinforce the political and technical cooperation between the EU and Africa in terms of the single market. His interlocutors meanwhile stressed the importance of EU action and its intention to build a single market together with neighbouring countries.


Jonathan Faull at EC-Brazil Regulatory Dialogue on Financial Services

On 9 and 11 November, DG MARKT Director General Jonathan Faull spoke at the EC-Brazil Regulatory Dialogue on Financial Services and took part in bi-lateral meetings with Comissão de Valores Mobiliários (CVM) and the Banco Central do Brasil (BCB). Jonathan Faull gave a comprehensive presentation on the last stress testing exercise and an update on the crisis in the Euro zone. He also presented in detail the Capital Requirements Directive / Capital Requirements Regulation IV package covering both its main features and political importance. Jonathan Faull demonstrated that the EU is clearly showing the way in transposing Basel III while adapting it to European realities. The Brazilian representative explained that Brazil is already implementing Basel II and is preparing for the implementation of Basel III.

   
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Plenary week: 24-27 October

The plenary week in Strasbourg from 24 till 27 October marked a big step in financial markets reform with the adoption in plenary of the Canfin Report on short selling and the presentation of the Commission proposal on Credit Rating Agencies the same day.

On the services front, Parliament adopted the McClarkin Report on professional qualifications, which will feed into the future revision of the professional qualifications Directive and the Creutzmann Report on gambling.

Political groups are working on a future Resolution on the follow-up to the Single Market Forum in which the EP should formalise its commitment to adopt the Single Market Act measures before the end of 2012.

The next plenary sessions will take place on: 30 November and 1 December 2011 in Brussels, 12-15 December 2011 in Strasbourg.

See also:
Website: IMCO (Internal Market Committee)
Website ECON (Economic and Monetary Affairs Committee)

For your diary » Latest publications » Question of the Month »
Brussels, 2 December 2011
Conference Improving the regulatory environment for microcredit

Brussels, 5-6 December 2011
Innovation Convention 2011

The Single Market through the lens of the people, a snapshot of citizens' and businesses' 20 main concerns


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