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The Law of the
EU Single Financial Market
PROF. UG DR HAB. ANNA JURKOWSKA-ZEIDLER
Financial Law Departament
Faculty of Law and Administration
University of Gdansk
How financial market works?
A financial
market is where
savers and
borrowers
interact.
Savers, such as individual
citizens or companies,
deposit their savings with a
‘financial intermediary’ such
as a bank or pension fund,
investment institution.
These financial
intermediaries, who
consolidate the savings of
many depositors, then lend
money to borrowers.
How financial market works?
A financial
market is
where savers
and borrowers
interact.
Borrowers come in all sizes:
they may be small, such as a
family taking a mortgage for a
new house; or large, such as a
multinational company
borrowing to invest in a new
production plant.
Borrowers pay interest on their
credits, which is returned to the
savers through the financial
intermediaries as interest or
dividends on their deposits.
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Financial Markets in the EU
Financial markets deal with the flow of
capital and are vital to an open market
economy because an efficient financial
market provides for better use of capital.
The introduction of the euro in 1999
provided major impetus to the integration
of financial markets in Europe, thus
making them more efficient and
competitive, and reducing the costs of
cross-border money transfers in euro.
Building the single financial
market
The single currency was a key step
towards the creation of the single
financial market. Its introduction
immediately removed some obstacles to
free capital flows – namely the costs
associated with exchanging different
currencies.
EU Single Market
The EU internal market,
also known as the EU
Single Market, is a single
market that seeks to
guarantee the free
movement of goods,
capital, services, and
people: the "four
freedoms" – between the
EU 28 Member States.
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EU Single Financial Market
Is a part of the internal
market of the EU
Is based on - the free
movement of services
and capital.
These freedoms are
enshrined in the Treaty
on the Functioning of
the European Union
Single Financial Market;
General principles
Freedom of establishment and Freedom
to provide services are two of the
“fundamental freedoms” which are
central to the effective functioning of the
EU Internal Market.
The freedom of establishment is set out
in Article 49 of the Treaty on the
Functioning of the European Union and
the freedom to provide cross border
services is set out in Article 56.
RIGHT OF ESTABLISHMENT
Article 49 TFEU
Within the framework of the provisions set
out below, restrictions on the freedom of
establishment of nationals of a Member
State in the territory of another Member
State shall be prohibited. Such prohibition
shall also apply to restrictions on the
setting-up of agencies, branches or
subsidiaries by nationals of any Member
State established in the territory of any
Member State.
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Single Financial Market; The principle
of freedom of establishment
The principle of freedom of
establishment enables a financial
institution to carry on a financial
(banking) activity in a stable and
continuous way in one or more
Member States.
SERVICES
Article 56 TFEU
Within the framework of the provisions
set out below, restrictions on freedom to
provide services within the Union shall be
prohibited in respect of nationals of
Member States who are established in a
Member State other than that of the
person for whom the services are
intended.
Single Financial Market; The principle
of freedom to provide services
The principle of the freedom to
provide services enables a financial
(banking) institution providing
services in one Member State to
offer services on a temporary basis
in another Member State, without
having to be established.
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Financial services market
The financial services market
includes four major areas for which
similar European policies apply:
Banking,
Insurance
Securities (capital market)
Payment services
Financial services market
Financial market is subject to separate
and relatively specific regime
This is because money at the financial
market acts as a product and not only as
a legal tender
The organisation of the financial market
has to provide security for the market
participants (financial institutions)
The law of the EU Single
Financial Market
The law of completing the single
financial market of the EU is based
predominantly on the secondary
legislation, particulary on directives
specifying how Member States
should arrange the financial market
legal regime in their national law
Regulations
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Financial services
Recognition of the entities
performing financial services could
be a starting point for determination
of activity on the financial market
Financial services. Directive
2013/36/EU. Annex
LIST OF ACTIVITIES SUBJECT TO MUTUAL RECOGNITION
1. Taking deposits and other repayable funds.
2. Lending including, inter alia: consumer credit, credit agreements relating to immovable property,
factoring, with or without recourse, financing of commercial transactions (including forfeiting).
3. Financial leasing.
4. Payment services as defined in Article 4(3) of Directive 2007/64/EC.
5. Issuing and administering other means of payment (e.g. travellers' cheques and bankers' drafts)
insofar as such activity is not covered by point 4.
6. Guarantees and commitments.
7. Trading for own account or for account of customers in any of the following:
(a) money market instruments (cheques, bills, certificates of deposit, etc.);
(b) foreign exchange;
(c) financial futures and options;
(d) exchange and interest-rate instruments;
(e) transferable securities.
8. Participation in securities issues and the provision of services relating to such issues.
9. Advice to undertakings on capital structure, industrial strategy and related questions and advice as
well as services relating to mergers and the purchase of undertakings.
10. Money broking.
11. Portfolio management and advice.
12. Safekeeping and administration of securities.
13. Credit reference services.
14. Safe custody services.
15. Issuing electronic money.
Financial services. Legal
definition
"financial service" means any service
of a banking, credit, insurance,
personal pension, investment or
payment nature
(Directive 2002/65/EC of the
European Parliament and of the
Council of 23 September 2002
concerning the distance marketing of
consumer financial services)
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The legal regime of financial
institutions
The EU law forms two groups of entities
active at the financial market and each of
them received a separate legal regime
So the market is not internal (single)
when two groups of institutions are
considered
However, it is uniform for credit
institutions and to broadly defined group
of financial institutions
Financial institutions
CREDIT
INSTITUTIONS
Banks
other credit
institutions (for
example credit
unions)
OTHER FINANCIAL
INSTITUTIONS
Insurance
institutions
Investments firms
Pension funds
Stock exchanges
and brokers
Payment
Institutions
Financial
conglomerates
Banking services
Achieving an integrated market for
banks and another credit institutions
is a core component of the European
policy in the area of financial
services.
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Regulation of banking activity
in the EU
The EU policy in the field of regulation of banks
are based on
„the principle of mutual recognition” and
„the principle of single license (single passport)",
a system which allows financial services
operators legally established in one Member
State to establish or provide their services in the
other Member States without further
authorisation requirements.
The principle of mutual
recognition
Mutual recognition is the principle that a
financial services (products) lawfully
marketed in one Member State and not
subject to Union harmonisation should be
allowed to be marketed in any other
Member State, even when the service does
not fully comply with the technical rules of
the Member State of destination.
The principle of mutual
recognition
There is one exception to this principle: the
Member State of destination may refuse the
marketing of a financial service (product) in
its current form only where it can show that
this is strictly necessary for the protection of
„general interest”, for example, public
safety, consumer protection or financial
stability. In that case, the Member State of
destination must also demonstrate that its
measure is the non-discriminatory measure.
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The principle of single license
The single licence authorises a bank
established in a Member State to
open branches or provide services
without any other license in the
partner countries within the EU.