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Investment Services Directive

Volume 406: debated on Tuesday 10 June 2003

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To ask the Chancellor of the Exchequer what discussions he has had with (a) the Financial Services Authority and (b) the London Stock Exchange with regard to the proposed Investment Services Directive. [117464]

The Investment Services Directive is one of the topics discussed when Treasury Ministers meet members of the Financial Services Authority and those involved in the financial services industry.At official level, the Treasury and FSA (together with the Bank of England and the UK's Permanent Representation to the European Community) have a joint project team working on the proposed Directive. The project team has frequent contact with representatives of the London Stock Exchange, as well as representatives of many other financial services businesses, trade associations and consumer groups.

To ask the Chancellor of the Exchequer (1) if he will make a statement on the proposed investment services directive being considered by the European Parliament; [117465](2) what assessment he has made of the effect the proposed investment services directive will have on the level of competition in the share dealing market in the UK. [117680]

The European Commission adopted a proposal for a revised investment services directive on 19 November 2002. Discussions on the proposal started in Council working groups in January and are on-going. The European Parliament is due to begin its first reading of the proposed directive in July.The Government believe that the proposed directive should be assessed against the following objectives:

(a) to reduce the cost of capital in the EU by removing barriers to the supply of investment and market infrastructure services and addressing informational asymmetries in the retail market: and
(b) to maintain the integrity of the financial system.

Accordingly, the Government welcome in broad terms many of the Commission's proposals—and the progress made in Council working group discussions to improve these proposals. However, the Government remain concerned about several important issues, which need to be addressed before agreement can be reached.

In particular, the Government believe that the proposal for introducing a mandatory quote disclosure rule for investment firms would undermine competition between trading venues and discourage liquidity provision, leading to less efficient markets and worse outcomes for retail investors.

The Government also believe that investors should continue to be allowed to make use of low cost, efficient, execution-only services. As such, investment firms should have to assess the suitability of particular products for their clients only when providing them with advice.

The Government believe that there are ways in which the proposed directive should be amended in order to remove measures that could unnecessarily inhibit competition in the share dealing market—and thereby increase the potential benefits for consumers, including retail investors. Efforts are currently being made to secure these beneficial amendments to the draft directive.

To ask the Chancellor of the Exchequer what research he and the agencies for which he is responsible have commissioned into the cost of the proposed investment services directive for stockbrokers; and if he will publish the results. [117681]

The Treasury has had extensive discussions with representatives of financial services businesses and trade associations to ascertain the impact of the proposed investment services directive on the financial markets. These contacts have included a consideration of the potential costs —and benefits—of the proposed directive for stockbrokers.