Late last year the European Commission set up European occupational pensions regulatory and supervisory committees as part of a broad package which also saw the formation of committees to cover banking and investment funds.
The European Council had asked the Commission in December 2002 to extend the committee structure applied in the securities sector to banking, pensions and insurance and UCITS investment funds.
At the time Internal Markets Commissioner Frits Bolkestein said the measures would enable the European Union to “respond quickly and effectively to developments, and help to ensure consistent implementation and enforcement of rules across the EU”.
The new committee structure was expressly based on the framework for European securities market regulation called the Lamfalussy process. But even Lamfalussy himself is now saying the whole edifice could “potentially backfire”.
The ‘Lamfalussy Process’ has become a piece of Brussels jargon – but what does it actually mean, and what does the man – Baron Alexandre Lamfalussy – himself think about the expansion of the ideas that bear his name?
Lamfalussy, the former president of the European Monetary Institute – the forerunner of the European Central Bank – chaired a committee of ‘wise men’ that proposed a four-level decision-making structure for securities market regulation in 2001.
Under Lamfalussy, the groups that oversee the securities market are known as the European Securities Committee and the Committee of European Securities Regulators. Their counterparts in the pensions and insurance field are the European Insurance and Occupational Pensions Committee, EIOPC, and the Committee of European Insurance and Occupational Pensions Supervisors, CEIOPS.
Not to be outdone the European Parliament has put its weight behind a new pensions committee as well, the European Parliamentary Pension Forum. Add to the mix the European Federation for Retirement Research’s new European Institution for Occupational Retirement Provision proposals – published in December – and there suddenly seems a lot of action taking place.
At a meeting in Dresden last May the Conference of the Insurance Supervisory Authorities of the Member States of the European Union approved the interim statutes transforming it into the CEIOPS. “This transformation aims at increasing the operational and decision-making efficiency of the former conference,” the group says.
There is to be a similar committee structure in the banking industry. At first glance it appears to be a nice, neat, ordered structure – or is it? It could be argued that the Commission is imposing a superficial regulatory order on disparate market segments.
“The four-level approach is being extended to the whole financial industry,” Lamfalussy says. “My first reaction was that of pride. But on second reading, he says he had “some concerns”.
The expansion of the procedure was not, he says, based on any preliminary consultation. Any consultation was only relatively brief, he says. “Consultation has been the heart of our proposal,” he notes.
CEIOPS will be a so-called Level Three committee, meaning that it would advise the commission on technical measures to implement framework directives. And it would “actively seek greater convergence amongst supervisory authorities in the implementation of EU rules”.
“This transformation aims at increasing the operational and decision-making efficiency of the former Conference,” the group says. “The CEIOPS will set up a consultation mechanism, and will ensure the transparency of its work.”
And the regulatory picture is different as well, with long-standing cross-border banking regulation epitomised by, for example, the Basle accord. There is little such history of cooperation between the other regulatory regimes, Lamfalussy maintains.
“Now for all those reasons I found that the extension of the four-level approach could throw up problems,” Lamfalussy says. He warns the whole expansion could even “potentially backfire”. “Now there are some signs that this is happening.”
One thing is sure – the Commission admits that the expansion of the Lamfalussy takes place against some hard deadlines. First there’s the April 2004 deadline for the dissolution of the European Parliament. Then there’s the 2005 deadline for the completion of the Financial Services Action Plan. “The package is needed urgently,” the Commission said at the time.
The decision to extend Lamfalussy was not welcomed by Christa Randzio-Plath, the German MEP who chairs the European Parliament’s Economic and Monetary Affairs Committee.
“I am deeply concerned that the Council is pressing ahead with setting up the different regulatory and supervisory committees already now,” she said when the idea was first mooted. “I just cannot see why the Council is in such a hurry to set up these new structures. We have absolutely no practical experience of how the system actually works in practice.”
The European Parliamentary Financial Services Forum, a group of MEPs and finance industry figures, is also wary about the speed of the expansion.
“The package for establishing the new committees has come very late in the day,” the forum says. “It is questionable whether or not there is time for it to go through the co-decision process during the current parliamentary term.”
Lamfalussy is an economist by training who went on to head Banque Bruxelles Lambert and the Bank for International Settlements before becoming one of the main architects of Europe’s economic framework. If any voice carries weight in this field, it’s his.
He says that the procedure that bears his name has worked well so far in the securities market. “On the whole I am satisfied.” But he is cautious, saying it is too early to come to a judgement on whether the four-level approach is working. He points out that there has not yet been any implementation at level three or four. “I think judgement has to be suspended.”
So it is somewhat surprising perhaps that the Commission has pressed ahead with expanding the Lamfalussy procedure into pensions and other areas before the man himself is convinced that his brainchild has found its legs.
Lamfalussy himself is most proud of the institution building, namely the CESR, prompted by the wise men.
Perhaps the best summing up of the process comes from the European Parliamentary Financial Services Forum: “Due respect for the principles of transparency, effectiveness, proportionality and coherence of the legislation adopted will ensure that the new regulatory structure has the chance to cure the main disease for which it was designed: incoherent, ambiguous and out-of-date legislation that fails to work on the ground.
“Speed is important but the ultimate verdict will hinge on quality.”

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