UNDERSTANDING THE IMPACT OF THE INVESTMENT SERVICES AND CAPITAL ADEQUACY DIRECTIVES
| Published date | 01 March 1995 |
| DOI | https://doi.org/10.1108/eb024848 |
| Pages | 259-274 |
| Date | 01 March 1995 |
| Author | BERYL MUSTILL |
| Subject Matter | Accounting & finance |
UNDERSTANDING THE IMPACT OF THE INVESTMENT
SERVICES AND CAPITAL ADEQUACY DIRECTIVES
Received: 20th April, 1995
BERYL MUSTILL
BERYL MUSTILL
TURNED TO THE LAW AFTER TEN YEARS
IN
PERSONNEL MANAGEMENT. SHE
BECAME A SOLICITOR IN 1970 AND IN
1972 A PARTNER IN ROWE & MAW,
WITH WHOM SHE REMAINED UNTIL
1979. IN 1980 SHE JOINED
GRIEVESON, GRANT & COMPANY,
BECOMING, IN 1985, A MEMBER OF
THE STOCK EXCHANGE, A REGISTERED
INSURANCE BROKER, AN ASSOCIATE
PARTNER OF THE FIRM, AND MANAGING
DIRECTOR OF ITS FINANCIAL PLANNING
AND INSURANCE SUBSIDIARY,
GRIEVESON GRANT FINANCIAL
SERVICES LIMITED. FOLLOWING THE
MERGER
OF
GRIEVESON'S
WITH
KLEINWORT BENSON LIMITED, SHE
BECAME A DIRECTOR OF KLEINWORT
BENSON FINANCIAL SERVICES
LIMITED, ENGAGED PRINCIPALLY IN
PERSONAL FINANCIAL LANNING. SHE
WAS
EMPLOYED
BY
FIMBRA
AS
ITS
LEGAL ADVISER FROM JANUARY 1989
UNTIL THE RECOGNITION OF THE
PERSONAL INVESTMENT AUTHORITY,
WHEN SHE TOOK UP HER PRESENT
POST
AS HEAD OF LEGISLATION AND
POLICY WITH RESPONSIBILITY FOR THE
DRAFTING, MAINTENANCE AND
REVISION OF PIA'S RULE BOOK.
ABSTRACT
The Investment Services and Capital Ade-
quacy Directives must be implemented no
later than 31 December 1995. The
Personal Investment Authority (PIA), a
self-regulating organisation under the
in July 1994 and intended to be the lead
regulator for retail financial services busi-
ness,
will become a competent authority
for the purposes of these Directives and
will be making new rules for the 'invest-
ment
firms'
among its members in order to
give effect to the Directive requirements.
The author, in a recent talk reproduced
here,
describes the new requirements, indi-
cates PIA's approach to implementation
and assesses the likely impact on the mem-
bers of
PIA.
INTRODUCTION
This paper outlines the requirements
of the Investment Services Directive
(ISD) and Capital Adequacy Directive
(CAD) and the Personal Investment
Authority's (PIA) approach to their
implementation. The author also
considers the likely impct of the
Directives.
This aspect cannot be dis-
cussed definitively as yet because no
259
JOURNAL OF FINANCIAL REGULATION AND COMPLIANCE • VOLUME THREE NUMBER THREE
— MUSTILL —
regulations have been forthcoming
from the Treasury. There are areas of
the CAD on which the Treasury has
not yet finally resolved on the right
interpretation, so there is likely to be
a wait before the PIA has a firm
foundation for its own self-regulatory
organisation (SRO) Rules. In conse-
quence, the PIA board has not as yet
been able to make any firm resolve
on the details of its policy for imple-
menting the Directives and does not
expect to consult its members about
policy until some time in the latter
part of May 1995 when the intention
is to consult them in an information
document (to the extent that the
Directives, or the regulations
implementing them, allow SROs dis-
cretion).
Nevertheless, there are some assur-
ances that can be given. In the
consultation document on the imple-
mentation of the Directives issued by
the Treasury in July 1994 there is a
statement that the government 'pla-
ces great importance on giving due
weight to the likely impact on busi-
ness of proposals for new
Regulations', and attention is drawn
to the government's compliance cost
assessment produced for the purpose
of measuring the impact of those
proposals. The Treasury, the Securi-
ties and Investments Board (SIB) and
the SROs, including, of course, the
PIA, are united in their determina-
tion to avoid discouraging the
competitiveness of the UK financial
services industry. They will disturb as
little as possible the current UK
methods of doing business and the
PIA's new rules for implementing the
Directives will aim at simplicity, con-
sistency and economy.
These are the aims, it cannot be
guaranteed that they will be achieved.
Substantial areas of the CAD, for
example, will not lend themselves to
simplicity, and one of the simplest
things to do, which is to apply the
same rules across the whole member-
ship,
might in some instances not be
perceived as fair by members outside
the ISD's scope. The PIA will, how-
ever, want to achieve consistently
high standards of investor protection
and, wherever possible, to make its
requirements consistent with those of
other SROs, in particular those whose
members engage in similar business.
As regards economy, it is cost-effec-
tive regulation that is being
considered. The PIA does not want
its members to spend more on com-
pliance than is necessary to achieve
the desired objective.
There is a note of caution to sound
here — the CAD sets minimum stan-
dards,
and they are not final. The
Treaty which established the EEC is
full of references to the continuous
and progressive nature of the pro-
cess.
Restrictions on freedom of
establishment are to be abolished 'by
progressive steps'. Restrictions on
freedom to provide services 'shall be
progressively abolished'. Both the
ISD and CAD explicitly contemplate
revision; the CAD is to be re-exam-
ined 'and, if necessary, revised' in the
light of experience 'and, in particu-
lar, developments in international
fora of regulatory authorities'. So,
there is no foundation for any argu-
ment that standards should be
lowered to the CAD level. Where UK
financial regulation currently
requires something stricter than the
CAD,
the regulators will expect to
retain the requirement if it seems to
them prudent to do so. That
approach seems essential in order to
preserve Britain's position in Europe
as a sound, well-regulated place for
investors to do business.
260
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