Summary

The revised Investment Services Directive (ISD) or Directive on markets in financial instruments (FIMD) as it is officially known, is without doubt one of the most hotly debated parts of the Financial Services Action Plan (FSAP). This is not surprising since it provides the architecture for the securities industry both wholesale and retail across Europe, and since it aims to provide harmonised regulation, at a relatively detailed level, for diverse European market structures which currently operate, and are regulated, in very different ways.

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1. Background – A simple overview

It is worth starting with the European Commission’s descriptive statement about what it perceives the objectives of the revised ISD to be, and what it will achieve. In October 2003, after the Council meeting, the Commission welcomed the Council’s political agreement and noted that “the proposed new Directive will increase harmonisation of national rules and give investment firms an effective ‘single passport’, which would allow them to operate throughout the EU on the basis of authorisation in their home Member State. It would also make sure investors enjoyed a high level of protection when employing investment firms, wherever in Europe they were located. It seeks to establish, for the first time, a comprehensive regulatory framework governing the organised execution of investor transactions by exchanges, other trading systems and investment firms.”

The revised ISD is one of the first Directives to follow the so-called ‘fast-track Lamfalussy process’ designed to cater for Directives being framed at a high level of principles allowing more detailed implementing measures and rules to be legislated in a faster procedure by the European Commission, based on advice by the Committee of European Securities Regulators (“CESR”), and subject to the assent of the European Securities Committee. For the time being, there is only a scrutiny right and a sunset provision for the European Parliament. Further implementation work should be undertaken by regulators among themselves (Lamfalussy level III). Despite the aims of the Lamfalussy process, it is interesting to note that the first ISD comprised 32 Articles, compared to 73 Articles in the revised ISD.