Summer over, EU votes on ISD - Basel II draws more comment

The EU will attempt yet another vote on the Investment Services Directive at 5.30PM today, which will have a crucial determining effect on the future of financial services in the UK because of amendments on suitability requirements and other issues.

This will be the third time since the spring that the European Parliament's Economic and Monetary Affairs Committee has met to try to forge a consensus on the amendments.

Such consensus is necessary before the amended Directive can be put to a full vote before a Plenary Session of the European Parliament, in order for the Directive to move into its final stages before becoming law.

Many amendments came about because of MEPs' concerns over consumer protection and attitudes to risk.

Previously, the Committee decided to postpone the vote to account for more discussions between parties to the Directive, and to close the split between EU heavyweight members Germany, France and the UK on how to evaluate risk.

One basic difficulty has been handling the large number of amendments that MEPs have pushed for.

Another issue raising its head over providers of financial services is capital requirements being pushed through adoption of the Basel II accords as the basis for the Capital Adequacy Directive.

The Association of Professional Client Investment Managers and Stockbrokers has already pointed out that reliance on Basel II and the subsequent Directive could create problems, particularly for its execution only-members, which would be required to meet the same financial qualifications as big international banks.

Because the businesses are so different, the capital requirements and other associated rules should also be different APCIMS and other associations and organisations are telling lawmakers in Brussels.

Adopting the Capital Adequacy Directive with risk levels designed for bancassurers could push business costs significantly higher without necessarily providing additional consumer protection in other types of businesses.

However, the EU has decided to accept Basel II as one of the core regulatory standards within the Union.

In further developments related to Basel II, Forrester, the consultant, says recent calculations show that every large European bank will spend on average 115m euros over five years to comply with the new rules.

It says that this additional compliance cost should be seen as "an opportunity" for banks to restructure their core business strategies to become more efficient, such as re-evaluating systems used to measure lending risk related to smaller and medium-sized companies.

But even the biggest banks will fare differently under the new rules, Forrester admits: it says Lloyds TSB will see its minimum capital requirements fall as a result, while Credit Suisse "will gain least" from the process.

Just what the effect on investment managers and stockbrokers will be is yet to be determined, but, as APCIMS fears, it is unlikely to be negligent.

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