Does Lamfalussy Work in Financial Markets?
• The experience with the Lamfalussy process to date is limited, but generally positive. Evaluation of early lessons – especially by the Inter-Institutional Monitoring Group (IIMG) – can and should play an essential role in improving future implementation.
• A key challenge for the Lamfalussy process so far has been the tight FSAP timetable. The ultimate success of the Lamfalussy reform will depend not on the quantity of legislation delivered in the available time, but rather the quality.
• Prior consultation is vital to the quality and acceptance of any Level 1 proposal, and will also help to draw a clear distinction between Level 1 and Level 2 rules. Political discussions held at Level 1 are still not adequately transparent and undermine any transparency achieved through prior consultation.
• Level 2 also involves policy decisions, which need to become more transparent. Useful steps would include a more explicit formulation of policy tradeoffs and options by CESR, an explanation of the Commission’s reasoning behind the draft legal measures, and greater transparency in the role played by the ESC.
• Consultation by CESR will be most effective if sufficient time is allowed, if the participants can review the package in its entirety, and if appropriate details are left to Level 3. The work on the ISD presents important challenges in this regard.
• In Market Abuse and Prospectus Directives, it has proven difficult to avoid excessive detail at Level 2, and very few issues have been left to Level 3. The ISD should be a good opportunity to improve on this point, but the Directive under discussion is not yet sufficiently focused on the core principles.

Extension of the Lamfalussy Process and Next Steps:
• Financial industry bodies have supported extension of the Lamfalussy process to banking and insurance, notably on grounds of a transparent and structured consultation process.
• The Commission’s legislative package for setting up the new committees is welcome but there is concern that it has come too late in the day for it to be adopted before the end of the parliamentary term in April 2004.