Regional Financial Market Regulation

This paper examines the performance of the EU's micro-economic initiatives in the financial markets sector, and produces some important conclusions which should guide future developments both within Europe and further afield, in other regional contexts. The paper highlights and explicates the successes of the "mutual recognition" approach, combined with "home country" control, in the provision of wholesale financial services, particularly securities trading. It further explains the root causes of the failure to achieve even modest integration at the retail end of the spectrum, and focuses attention on deficiencies in the regulatory "harmonization" approach and in the EU's institutional structure. Detailed analyses of the Investment Services and Capital Adequacy Directives are provided as important illustrations. Extrapolating from the European experience, a model for the construction of regional financial integration regimes is presented.