WELCOME ADDRESS BY THE HON. JOHN DALLI, MINISTER OF FINANCE, ON THE OCCASION OF THE EURISA (EUROPEAN INVESTMENT SERVICES ASSOCIATION) OPENING DINNER AT THE CORINTHIA SAN GORG

Mr President, distinguished guests

On behalf of the Government of Malta, it is indeed my pleasure to address this gathering of experts and participants on the occasion of the fourth seminar of the European Investment Services Association. The theme which you have chosen for your seminar: Tackling Financial Services during European Union Accession Negotiations is very much relevant not only for the fact that ‘financial services' is fuelling debate all over Europe but also because the challenges which lie ahead for candidate countries need to be discussed and pondered upon. I therefore strongly support the initiatives taken by EURISA in this respect.

You may be aware of the great strides Malta has achieved to adopt the highest legislative and regulatory standards in financial services. Malta's commitment towards adopting the framework of financial services in the European Union dates back to 1994 when a comprehensive package of laws was passed through Parliament. At that time we all knew that the most sensible way for Malta to attract business to its shores was to have a modern legislative and regulatory framework which could withstand the pressures of competition in a sector where Malta was relatively a newcomer.

You will all agree that in this day and age, it would be very difficult for a thriving financial services sector to grow and compete without innovating. In truth, the pace with which technology has revolutionised the delivery and packaging of products and services has been incredibly fast and innovative.

Since the Cologne European Council endorsed the Financial Services Action Plan in June 1999 and since the decision of the Lisbon European Council to set as 2005 the target date for its completion, Europe has witnessed astounding new developments in cross-border activities and cross-border mergers and acquisitions.

As has been rightly observed, such developments have occurred within a regulatory framework which, according to some critics, was creaking from the pressure of market developments. So while Europe has been witnessing market developments of unforeseen dimension, such as the planned stock market exchanges, regulators and legislators have been put on guard, if not scrambling to catch up.

From our perspective – that is from the view of candidate countries of the European Union – the upheaval of the EU's financial services framework poses a number of stiff challenges. The efforts of applicant countries to upgrade and introduce national laws in line with the acquis communautaireare indeed formidable. Yet such efforts are indispensable. One can look at it both ways – whilst it is a Union-wide requirement to introduce such laws, there are new opportunities to be made and explored by new member states. Malta is already reaping a number of benefits for the fact that it has incorporated EU laws within its national framework. And it rightly expects to achieve more upon full membership.

Present member states have benefited enormously with the introduction of the single passport framework when the Investment Services Directive and the UCITS Directive where incorporated in their laws.

One also needs to keep in mind that financial markets in Europe are not only for the EU but are globally accessible. Witness of this is the establishment of pan-European networks by entities which are not domiciled in Europe.

Keeping tab with the present EU financial services legislative framework, whilst not losing sight of implications of new EU laws which are expected to be in force within the next four to five years, is no minor feat considering that candidate's resources are already stretched to their limits.

For instance, we are all aware that the 1992 Investment Services Directive – which was pivotal to the integration of the investment services market – is in for a major possible overhaul. In fact, recent communication from the Commission has stated that a full-blown consultation on the ‘revamped' ISD is expected in the autumn. Although it would be premature to start thinking from now as to how and when the ISD will be changed, it is important for candidate countries to be fully informed and involved in the preparations for a new ISD. Admittedly, while some of the laws are still on the drawing board, at some point, each member country would need to incorporate them within their national frameworks.

Definitely, the ‘revamped' ISD, together with other new laws being proposed as part of the Action Plan, will raise some serious and interesting discussion as to the form and content of future EU legislative structures of financial services. Some regulatory authorities are warming up to the idea of framework directives and a more developed comitology structure of regulation. There are measured expectations on the conclusions which the Committee of Wise Men appointed earlier this year is expected to produce on the practical arrangements for the implementation of Community rules concerning areas identified by the Action.

Plan. Although recent press reports have reported that the Committee is not expected to come forward – at least for the time being – with a suggestion to create a "European securities regulator", it will surely be interesting to learn of their overall suggested way forward as to how the practice of regulation and cooperation between regulators should be adjusted in light of current developments.

So, for the next few months or perhaps a year or so, the European Union will be, yet again, immersed in an open wide debate which would hopefully lead to the enactment of a modern legislative financial framework and enhanced cooperation between national regulatory authorities, able to withstand the dynamism of this ever developing market.

With this in mind, please allow me to put forward some thoughts on the possible ways in which applicant countries could come together to discuss the developments and opportunities which lie ahead. There is so much to learn from each other's experiences and ideas because each individual applicant country enjoys a unique geographical and cultural position within an enlarged Union.

Although the introduction of new EU laws will serve to prop up the legislative framework, experience has taught that there will be no homogenous market or a service or product of exclusivity to one national member. The proliferation of services and products will increase because new markets will be created once the European Union opens its doors for new entrants. And while there is already an influx of products from big traditional financial firms, there should be no barriers for innovation of small financial firms in candidate countries to come forward with their own services and products.

Because such small firms are in a better position to identify niche markets within their national territories and the fact that they would be in a position to offer such products to other member states without the need to face, once and twice over, the whole gamut of laws and regulations, is to my mind an opportunity which many have yet to absorb.

But we must need to prepare well for when such time comes if each applicant wants to be an active member in this ever-growing market.

Turning back to what I have said earlier, applicant countries must join forces to come up with services and products which are new and different from what is already on offer. This can only be achieved if there is closer cooperation between both operators and regulators.

It is therefore with pleasure to note that in its May meeting, the Financial Services Policy Group, chaired by Internal Markets Commissioner Frits 3

Bolkenstein, welcomed the suggestion of developing some form of informal ‘peer review' system to assess the administrative capacity of accession countries to regulate their markets. Malta certainly welcomes the suggestions and hopes it comes to fruition.

There may be the best regulatory and legislative set-ups across the Europe Union. But unless a thriving and pioneering market is created, the scope for further regulation, in whatever form it can take, would be useless.

Allow me to refer to an excellent article of Peter Drucker in The Economist of a year ago in which he argued in favour of a "shake-up" in the financial services industry for it to survive and grow. According to Mr Drucker, there is no lack of opportunities for new and highly profitable financial services. He calls for "innovators" to exploit the "demographics" – that is, serving the new and different financial needs of the rapidly growing affluent and ageing middle-class in developed and emerging countries. Mr Drucker asserts that there is an abundance of opportunities to be made from "outsourcing" and financial management for medium-sized businesses – which are the backbone of the European economy. In essence, the exploitation of new markers – by creating new products in lieu of replicating traditional financial products – can be achieved by hard work and by applying a knowledge-based approach towards innovation.

I am sure that EURISA would rise to the occasion and serve as broker for the dissemination and bringing together of operators and regulators of the candidate countries. There is a constant need for dialogue between the different players because it stands to reason that only through such medium can the different roles of each player be clearly understood. There is clearly ample scope for cooperation between candidate countries in a number of fields. Financial services is one of such fields.

The absence of dialogue can lead to unnecessary or excessive regulation which will stifle growth and innovation, which will in turn suffocate the development of a truly single market in financial services in the European Union.

Ladies and gentleman, the next few years are crucial for candidate countries and will involve making some serious and difficult decisions. This however should not discourage us from exploiting the opportunities which the Europe Union offers in financial markets. I am sure that, with the assistance of EURISA and other European associations, candidate countries would be better prepared for the future to come.

I wish you well in your seminar tomorrow.