Financial Services Directive Hits a Snag

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A European Union directive regulating the sale of financial services via mail and the Internet is stalled in a dispute between the European Commission and some member states.

The EU directive would ease the sale of financial services in Europe for U.S. companies.

The issue will not be resolved until fall at the earliest, when Belgium assumes the rotating presidency of the EU. At issue are a number of legal disputes, including country-of-origin jurisdiction and national licensing of financial services firms.

France, Spain, Italy and Portugal not only want their own laws to apply to sales of their financial products to other countries, but they also want additional safeguards placed on such products coming into their home markets from abroad.

National licensing of financial services companies is another problem. Most EU members do not want foreign firms licensed in one EU nation to do business in their home markets without domestic licensing.

The EC, on the other hand, feels that such national licensing contravenes the single-market concept that allows cross-border business to be conducted across the EU.

The United Kingdom, usually one of the more liberal member states, has a complex licensing system. The securities and investment council is responsible for licensing insurance companies, while the Bank of England licenses foreign banks.

"All these bodies have a vested interest in their licensing ability and are not going to give up without a struggle, EC or no EC," said Alastair Tempest, director general of the Federation of European Direct Marketing. "In effect, this means that you can sell financial services across borders but only if you meet requirements of national laws first. That blocked the whole thing, and it is now stuck in the council of ministers."

The current impasse affects only insurance, Web banking and mortgages and does not affect distance-selling of foreign stocks, Tempest said.

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