Regime to apply regarding financial services, such as banking, credit and insurance Audrius LINARTAS Deputy Chairman Insurance Supervisory Commission of the Republic of Lithuania

2 Financial services – the extent Banking services –Mortgage credits/Financing –Retail financial services –Payment services Insurance services –Reinsurance –Insurance mediation –Life assurance –Non-life insurance Investment services –Securities market –Investment funds (UCITS) –Pension funds –Stock Exchanges

3 Authorisation requirements Principles of authorisation –Authorisation from competent authority of Home Member State –Any business establishing its Head Office or Extending its business Scope of authorisation –Entire EU –Authorisation for a particular type of services. Some examples: » for insurance services provider – class/group of insurance » for investment services provider – type of services (the management of investment fund, occupational pension scheme, individual portfolios etc.)

4 Conditions of authorisation Legal forms – each MS provides the list Limit its business only to insurance, banking or investment services Persons of good repute Should present the scheme of operations (Business plan) Should have adequate financial capital and obey other rules for investment, risk management etc.

5 EU internal market for financial services The right for any financial services provider having a head office in one EU Member State, to carry out business through the EU: –by branch or subsidiary (Freedom of establishment – FoE) –on a cross-border basis (Freedom of services – FoS) The possibility for customer to look for financial services from any EU financial services provider in order to find the most appropriate services for their needs

6 Freedom of establishment Pursuant to EU Directives financial services provider may establish branches in other EU countries The establishment of the branch shall be preceded by a notice to the Competent Authority of host member state (MS) from the Competent Authority of the home member State The branch shall commence its activities 2 months after the notice has been given Within said 2 month term the Competent Authority of host country may indicate to the Authority of home MS the conditions to which, due to public interests, the activity of the branch is subject (General good)

7 Freedom of establishment in facts: insurance internal market in the EU* (1/2) *data from CEIOPS Report on Financial Conditions and Stability (12/2006)

8 Freedom of establishment in facts: insurance internal market in the EU* (2/2) *data from CEIOPS Report on Financial Conditions and Stability (12/2006)

9 Further branches in the host MS The establishment of further branches by an EU financial services provider is subject only to the: –concerned provisions set forth in the home MS –requirements set forth in host MS in relation to the entry: »in the Corporate Registry »in the Financial Services Providers’ Registry held by the Competent Authority of host MS The last Registry is usually separated for the providers of banking, insurance or investment services

10 Freedom to provide services EU directives establishes that EU financial services providers may carry on the activities subject to mutual recognition in host MS without establishing a branch after the financial services provider has been informed by the competent authority of the home MS Provider should follow General good requirements

11 General good EU concept – conditions to provide services in Host MS: –Only in non-harmonised area –Meet objective goals –Necessary to protect objective –Non-discriminatory (de juri / de facto) –Public interest is not protected already in the Home MS (equivalence rule)

12 Lithuania (branch in host MS) Hungary (bank in home MS) Austria (services without establishment) Germany (branch in host MS) Slovakia (services without establishment) FoE and FoS illustrated

13 FoE and FoS – Lithuania experience

14 Supervision of cross-border activity: responsibilities Financial supervision – responsibility of the home MS (“European passport” concept) Competent Authority of the host MS has limited rights: –receive information of provided services –participate in inspections, when their are carried out –give recommendations –impose sanctions in case of legal acts violation

15 Lamfalussy process – the beginning EU Securities market legislation: -too slow, too detailed -not flexible, difficult to update -transposition not always consistent Originally developed in March of 2001, it is named after the chair of the EU advisory committee that created it, Alexandre Lamfalussy

16 Level 1: Framework Principles in Directive Level 2: Implementing measures delegated to the Commission, assisted by level 2 and level 3 committees Level 3: Supervisory guidance to harmonize implementation Level 4: Strengthened enforcement of Community Law Lamfalussy process – structure

17 Level 1 – Co-decision: Council and Parliament Level 2 – Commission and EIOPC/ESC/EBC (ministries of Finance) Level 3 – CEIOPS / CEBS / CESR (supervisory authorities) Level 4 – Commission Involved parties

18 Level 2 and 3 Committees

19 Entry barriers for the development of cross-border activities Potential market entry barriers: –Language and cultural differences –Customer preferences –Consumer protection rules –Lack of local risk knowledge –Different local distribution practices

20 The importance of cross-border financial services (1/2) Increases financial market integration and economic growth Fosters more efficient practices in banking/insurance/investment services Ensures greater breadth and liquidity of the financial markets Fosters the overall resilience of the EU financial sector But also opens up additional channels for the transmission of systemic risk across border

21 The importance of cross-border financial services (2/2) Provides a major tool for financial services providers to : –realize their optimal size –reap economies of scale –diversify activities –spread risk –stabilize revenues –increase profitability

22 Cross-border activities’ benefits for consumers Benefits for consumers: –More competitive prices –Better products’ quality –Wider consumers’ choice –Higher market’s transparency Open, efficient and competitive insurance financial services market is seen as an important element, which should ensure the development of the whole EU financial sector

23 For contacts: Audrius LINARTAS Tel Fax Thank you for attention!