The Commission is required by Article 65(6) of Directive 2004/39/EC on markets in financial instruments ('MiFID') to report to the European Parliament and Council on the continued appropriateness of the requirements for professional indemnity insurance ('PII') that are currently imposed on intermediaries under Community law. This is the purpose of this report.

Professional indemnity insurance is a liability insurance designed to cover, either entirely or in part, sums to be paid by professionals, either as damages or resulting from approved negotiated settlements, to third parties as compensation for losses arising from acts, errors or omissions committed by the professional during the conduct of its business activities. Community law requires some investment and all insurance intermediaries to obtain such insurance as a precondition to be able to provide services. The relevant requirements are derived from two Directives:

Directive 2002/92/EC on insurance intermediation ('IMD'); Directive 2006/49/EC on the capital adequacy of investment firms and credit institutions (re-cast) ('the re-cast CAD').

In March 2006, the Commission addressed a questionnaire to the Member States and their respective competent authorities asking for information concerning the application of professional indemnity insurance under the IMD and the re-cast CAD. 19 responses to the questionnaire were received. The responses have been compiled and published as part of the Draft Report on 14 August 2006. As we understand it, the incomplete number of responses is due to the fact that, at the time, the transposition of the IMD had only been completed recently in many Member States and that the transposition deadline for most of the provisions of the re-cast CAD had not yet expired. For the same reasons, it is clear from the available responses that Member States generally have little experience and available data on which to base an adequate assessment of the impact of the regime introduced by these directives on firms and protection it offers to consumers. Furthermore, it is hard to predict what the impact will be on MiFID intermediaries that also carry on insurance intermediation business under the IMD. It seems that adequate data which would allow for a proper evaluation will not be available until early 2008.

The Commission invited interested parties to comment on the Draft Report by 31 October 2006. The recommended format was for respondents to submit general remarks followed by answers to specific questions. Comments were received from 7 organisations. One was pan- European and represented the joint response from insurance intermediary associations from 14 EU Member States. Of the others, 4 were based in the UK, one in Germany and one in Austria. The respondent organisations represented various sectors of the insurance industry (brokers, agents, insurers, underwriters), one represented independent financial advisers and one was a regulator.

Some respondents argued for stricter PII requirements while others favoured a more flexible approach adapted to the size and risk profile of individual firms.

Two respondents said that firms should be permitted to supplement or wholly replace PII protection with capital requirements to ensure that the lack of affordable PII would not lead to the failure of intermediaries.

One respondent representing insurance agents described the PII requirements as a significant and unnecessary burden which had prompted insurers to shift the cost of PII onto their agents.

Two respondents urged the Commission to undertake a further review of the situation once the Directives are in full operation in all Member States to enable a more complete assessment.

To conclude, the analysis of the information provided by Member States as well as stakeholders in response to the two rounds of consultation suggests that, on the limited evidence that is currently available, the policy reasons that motivated the PII requirements imposed under community law remain valid, and there is insufficient evidence to indicate that those requirements are no longer appropriate.

However, it is also clear that it is too early to make a comprehensive assessment of how those requirements impact on the service providers and consumers. The regime under the IMD has only been in place in Member States for a short time, and States have no experience at all of the application of the new PII requirements for investment firms under the re-cast CAD. A proper evaluation of the continued appropriateness of those requirements cannot be made without more practical experience and data, and that will not be available until the requirements under the re-cast CAD have been implemented and applied in Member States for at least one year. Then, it may be appropriate to further investigate whether PII and capital requirements are adequate substitutes. Accordingly, the Commission will continue to monitor the situation if evidence of market failure emerges.

COM(2007)0178
EUR-Lex

ACT: Commission Directive 2006/73/EC implementing Directive 2004/39/EC of the European Parliament and of the Council as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive.

CONTENT: Directive 2004/39/EC establishes the framework for a regulatory regime applying to the Community’s financial markets. Amongst others this Regulation governs:

- operating conditions relating to an investment firms service performance;

- ancillary services and investment activities;

- organisational requirements for investment firms performing such services and activities;

- regulated markets;

- reporting requirements in respect of transactions in financial instruments;

- transparency requirements in respect of transactions in shares admitted to trading on a regulated market.

This Commission Directive sets out the implementing rules needed to guarantee a uniform application of the provisions set out in Directive 2004/39/EC. They have been designed to ensure a high level of integrity, competence and soundness among investment firms and entities that operate regulated markets of MTFs.

The implementing rules provide for rigorous procedures particularly concerning matters such as compliance, risk management, handling complaints, personal transactions, outsourcing and the identification, management and conflicts of interest.

Uniform procedures allow investment firms to have equal access to Community markets. They also help eliminate obstacles linked to authorisation procedures and to any obstacles preventing cross-border activities. Further, unambiguous implementing rules ensure a high level of investor protection and help clarify the relationship between an investment firm and its clients.

The Directive specifies that in order to keep the rules uniform Member States may not add supplementary binding rules when transposing and applying the rules set out in this Directive – other than in exceptional circumstances. The Directive also requires the competent authorities to issue interpretative guidance on the Directive’s provisions in order to help clarify some of the Directive’s practical applications.

More specifically, the Directive:

- Sets and defines a number of terms. They are: distribution channels; durable medium; relevant person; financial analyst; group; outsourcing; person with who a relevant person has a family relationship; securities financing transaction; senior management.

- Sets out conditions for providing information.

- Sets out additional requirements on investment firms in certain cases.

- Establishes organisational requirements as established by Article 13 (2) – (8) of Directive 2004/34/EC. This includes general requirements, compliance matters, risk management, internal audits; senior management responsibility, handling complaints, the meaning of a personal transaction and personal transactions. In other measures the Directive specifies provisions on outsourcing such as setting out the conditions for outsourcing critical or important operational function/investment services or activities. Amongst others, it also deals with service providers located in third countries and safeguarding/depositing client’s financial instruments and funds.

- Establishes operating conditions for investment firms and refers to inducements, forwarding non-misleading information, information about the investment firm and its services for retail clients and potential clients.

ENTRY INTO FORCE: 22 September 2006.

TRANSPOSITION: 31 January 2007. It shall apply from 1 November 2007.

32006L0073
OJ L 241 02.09.2006, p. 0026-0058

ACT: Commission Regulation 1287/2006/EC implementing Directive 2004/39/EC of the European Parliament and of the Council as regards record-keeping obligations for investment firms, transaction reporting, market transparency, admission of financial instruments to trading and defined terms for the purposes of that Directive.

CONTENT: Directive 2004/39/EC establishes the framework for a regulatory regime applying to the Community’s financial markets. Amongst others this Regulation governs:

- operating conditions relating to an investment firms service performance;

- ancillary services and investment activities;

- organisational requirements for investment firms performing such services and activities;

- regulated markets;

- reporting requirements in respect of transactions in financial instruments;

- transparency requirements in respect of transactions in shares admitted to trading on a regulated market.

The purpose of this Regulation is to guarantee a harmonised regime in all of the EU Member States in order to promote market integration and the cross-border provision of investment and ancillary services. Indeed, provisions concerning certain aspects of record-keeping, transaction reporting, transparency and commodity derivatives do not interface often with national law. In providing fully harmonised transparency requirements and rules regulating transaction reporting, the Community is able to ensure equivalent market conditions and the smooth operation of securities markets across the EU.

To recall, Directive 2004/39/EC includes provisions ensuring that national competent authorities are properly informed about transactions in which they have a supervisory interest. In order to guarantee that businesses operating across borders are subject to the same reporting requirements, this Regulation establishes a single data set applicable to all investment firms. The measures have been designed in such a way that the competent authorities are in a position to carry out their obligations under the Directive as expeditiously and efficiently as possible.

This is a comprehensive implementing Regulation covering a wide range of related issues. In summary, this Regulation:

- Sets out and defines a number of terms. They are: commodity; issuer; Community issuer; third country issuer; normal trading hours; portfolio trade; relevant competent authority; trading venue; turnover and security financing transaction.

- Establishes provisions on transactions relating to an individual share in a portfolio trade and the weighted volume average price transaction.

- Sets out measures on references to “trading day” and references to transactions.

- Establishes provision on record-keeping, client orders and transactions.

- Establishes provisions on transaction reporting. More specifically, setting out conditions on determining the most relevant market in terms of liquidity; seeking alternative determination of the most relevant markets in terms of liquidity and establishing a list of financial instruments. It also sets out provisions on reporting channels; the content of a transaction report and the exchange of information on transactions.

- Establishes provisions on market transparency. For example, on pre-trade transparency obligations; waivers based on market model and the type of order or transaction and reference to negotiated transactions. In other matters the Regulation specifies the criteria for determining whether an investment firm is a systematic internaliser as well as measures on the determination of liquid shares and standard market shares.

- Establishes provisions on the admission of financial instruments to trading. This covers issues relating to transferable securities; units in collective investment undertakings and on derivates.

- Establishes provisions concerning derivative financial instruments including the characteristic of other derivative financial instruments.

- Requires the Commission to re-examine the definition of “transaction” at least once every two years.

- Requires the Commission to re-examine provisions relating to criteria determining which instruments should be treated as having the characteristics of other derivative financial instruments.

ENTRY INTO FORCE: 22 September 2006. It shall apply from 1 November 2007.

32006R1287
OJ L 241 02.09.2006, p. 0001-0025

COM(2004)0365
EUR-Lex

Directive 2004/39
OJ L 145 30.04.2004, p. 0001-0044

T5-0212/2004
OJ C 102 29.04.2004, p. 0033-0163 E

T5-0212/2004

Debate in Parliament

A5-0114/2004

A5-0114/2004

COM(2004)0015
EUR-Lex

13421/3/2003
OJ C 060 09.03.2004, p. 0001-0056 E

13421/3/2003

15277/2003

T5-0410/2003
OJ C 077 26.03.2004, p. 0264-0329 E

T5-0410/2003

Debate in Parliament

A5-0287/2003

A5-0287/2003

CES0741/2003
OJ C 220 16.09.2003, p. 0001-0004

OJ C 144 20.06.2003, p. 0006-0012
BCE(2003)0009

2513

2471

COM(2002)0625
EUR-Lex
OJ C 071 25.03.2003, p. 0062-0125 E

COM(2002)0625
EUR-Lex