Financial Services Bulletin - Regulatory Developments

Major matters reported in this edition include:

• The FSA has issued its second United Kingdom Listing Authority (UKLA) Publications Update. From 15 April 2002 changes have been made both to allow listed companies a choice of regulatory information services, and with regard to the rules requiring the business of an applicant to be supported by historical revenue-earning records.
• The Registry of Friendly Societies has issued its last report. The responsibilities of the Registry were transferred to the FSA with effect from N2.
• Howard Davies has warned against the over-regulation of the European securities market. Mr Davies has highlighted particularly the need for regulators to take into account Europe’s role in the larger global financial system and the need to protect foreign owned wholesale business.
• The FSA has issued a consultative paper on the implementation of the European E-Commerce Directive. There will be a number of consequential changes to the Handbook.
• The FSA has confirmed to Railtrack that no action is to be taken arising from potential breaches of the Listing Rules relating to the disclosure of price sensitive information.
• A further Issues Paper has been released as part of the FSA’s review of the with-profits sector.
• The FSA has issued a Policy Statement which approves five services to act as Regulatory Information Services from 2 April 2002.
• The FSA has expanded the on-line ISA table to include the whole of the UK All Companies sector and five new fund sectors.
• The Markets and Exchanges Division has issued its latest newsletter on Market Conduct Issues, Market Watch. Issues addressed include the treatment of block trades, programme trading and guidance requests on research surveys.
• The FSA has called on life insurance companies offering with-profits policies to be more explicit on investment strategies, the setting of bonus rates and the application of early surrender penalties.
• The FSA has published its first "Financial Risk Outlook" which examines the changing economic, financial, social and legal background in which the FSA operates.
• The FSA has issued a number of "frequently asked questions" as annexes to the Market Abuse Code and the Price Stabilising Rules.
• The FSA has issued an FSA Guide to the euro which explains the nature and value of the new single currency for the euro area.
• The FSA has issued a consultation paper on polarisation, setting out the results of the review that had been conducted into the operation of the polarisation regime and more general related developments to the regulation of direct offer financial promotions.

• BIS has published the final results of the 2002 Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity which confirms a substantial decline in turnover in the foreign exchange market and a slowdown in the growth of derivatives activity.
• BIS has issued a working paper on the hedging of price risk using derivative contracts market to market.
• BIS has issued an updated paper on: "The relationship between banking supervisors and banks’ external auditors".

• The Committee of European Securities Regulators (CESR) and the European System of Central Banks (ESCB) have launched a joint group on securities settlement and clearing.
• The European Parliament has approved the proposal for the Regulation on the application of International Accounting Standards to all listed companies within Europe.
• The European Parliament has produced a report on the proposed Directive on insider dealing and market abuse.

UK Listing
The FSA has issued its second UKLA Publications update (No 2, April 2002). The FSA is to issue the second edition of the UKLA Sourcebook which includes both the revised UK Listing Rules and UKLA Guidance Manual. Consultation Paper 92, Mechanism for Disseminating Regulatory Information, was issued in May 2001. This reviewed the mechanisms available for the dissemination of regulatory information within the United Kingdom. A Policy Statement, Proposed changes to the UK mechanism for disseminating regulatory information by listed companies, was issued in November 2001. This summarised the proposals to allow listed companies a choice of regulatory information services with the approved services to be listed in Schedule 12 of the Listing Rules. Policy Statement, Proposed changes to the Listing Rules - Feedback on CP 105 and made text, proposed amendments to the application criteria in paragraph 3.6(a) of the Listing Rules which require that the business of an applicant be supported by its historical revenue earning record, with documents to be submitted also being made available through the Document Viewing Facility. CP 105 had been issued in August 2001. Both of these sets of changes came into effect on 15 April 2002. An Electronic Submission System (ELS System) was also introduced on 18 February 2002. This allows company advisers to send Draft Listing Particulars and other draft documentation to the UKLA in electronic form. This operates through a secure web-based platform accessible by sponsors and authorised advisers provided with appropriate log-in details and passwords.

Registry of Friendly Societies, Report
The Registry of Friendly Societies has issued its Report of the Chief Registrar 2000-2001 (March 2002). This sets out the work of the Registry during the period from 1 October 2000 to 30 November 2001 under a number of statutes including the Industrial and Provident Societies Act 1965, the Credit Unions Act 1979, the Building Societies Act 1986 and the Friendly Societies Acts 1974 and 1992. Following transfer of the responsibilities and powers of the Central Office of the Registry and those of the Assistant Registrar in Scotland to the FSA under the Financial Services and Markets Act (with policy issues being transferred to the Treasury) this is the last of these reports. A Service Level Agreement had already been negotiated with the FSA for the transfer or secondment of staff from 1 February 2001 to 30 November 2001 (N2). The Report contains further information with regard to the role of the registry, overview of operations and more detailed information with regard to industrial and provident societies, credit unions and building societies and friendly societies.

EU Securities Regulation
Howard Davies, Chairman of the FSA, has warned against the over-regulation of the European securities markets. The advantages of an open competitive capital market were accepted with lower costs for firms and better investment opportunities and risk diversification for savers. The potential benefits were recently quantified in the Gyllenhamar Report. This objective did not, however, necessarily imply that further regulation had also to be imposed. Howard Davies stressed that a number of factors had to be taken into account in constructing a pan-European regulatory environment. These included Europe’s role in the larger global financial system and the need to protect foreign-owned wholesale business, continuing significant differences in retail market practice and preferences and the need to create fully pan-European financial institutions capable of servicing more than one market. A number of the principles of financial regulation set out in the Final Report of the Committee of Wise Men under Alexandre Lamfalussy also included the need to ensure that consumer protection is proportionate to risk, the need to promote competition, the need to respect subsidiarity and proportionality within the Treaty and the need to take into account the wider international dimensions of the European financial market. Howard Davies was addressing the British Chamber of Commerce in Brussels.

Consumer Publications
The FSA has issued a new consumer pamphlet - The Financial Services Authority - who we are, what we do and how we do it (March 2002). This explains the nature, function and operations of the FSA in outline terms (two pages). This includes information with regard to authorisation, setting and monitoring standards, enforcement, market abuse and consumer services. The availability of the Consumer Helpline and rights under the Financial Ombudsman Service and Financial Services Compensation Scheme are also noted.

E-Commerce Directive Implementation
The FSA has issued a consultative paper on the implementation of the European E-Commerce Directive (see FSA, Implementing the Electronic Commerce Directive (March 2002)). The purpose of the E-Commerce Directive is to ensure that the full benefits of e-commerce are obtained through the removal of all potential restrictions on its expansion as well as by building consumer confidence in e-commerce activities. The Directive, in particular, adopts the country of origin approach with regard to e-commerce regulation which requires Member States to impose local (host) requirements on the outward provision of such services but to remove them (ie grant passports) on inward provision subject to certain permitted delegations. An e-commerce service or information society services (ISS) is defined as any service, normally provided for remuneration, at a distance, by electronic means and at the individual request of the recipient of this service. This would include services provided over the internet, solicited e-mail and interactive digital television. The FSA has adopted the term ‘electronic commerce activity’ (ECA) to refer to an ISS financial service. The Consultation Paper follows the draft regulations issued by the Department of Trade and Industry and HM Treasury on 7 March 2002. The DTI is responsible for the overall implementation of the Directive with the Treasury overseeing its financial services application. The FSA is proposing a number of changes to the Handbook of Rules and Guidance to give effect to the Directive as well as create a new E-Commerce Directive Sourcebook (ECO).

Financial Literacy
FSA Chairman Howard Davies has stressed the importance of raising the basic level of adult financial literacy as a means of improving consumer protection. Howard Davies was speaking at the third education conference held on 12 March 2002. The focus was on the development of financial capability within the 16-19 year old group with a number of ‘witness sessions’ being conducted with young participants.

Railtrack
The FSA has written to Railtrack Group plc confirming that no further action would be taken in connection with inquiries conducted concerning breaches of the Listing Rules relating to the disclosure of price-sensitive information. The inquiry related to trading in the shares of Railtrack plc, the main subsidiary of Railtrack Group plc. The inquiry period was between 24 May 2001 when Railtrack’s preliminary results for 2000/1 were announced and 5 October 2001, immediately before the administrator was appointed under the Railways Act 1993 on the petition of the Secretary of State for Transport. Following the gathering of evidence from the parent company and the Department of Transport, Local Government and the Regions (DTLR), the UKLA had concluded that there was not a prima facie breach of Rules 9.1 and 9.2. The decision was therefore taken that a formal investigation was not required.

With-profits Funds
A further Issues Paper has been released as part of the FSA’s review of the with-profits sector. The paper considers governance issues dealing with the level of discretion retained by insurers, lack of transparency and potential conflicts of interest that may arise (see FSA, Governance of With-profits Funds and the Future Role of the Appointed Actuary (March 2002). The paper asks for comments on the options discussed to secure better control over the exercise of relevant discretion and protect the interests of policyholders. The paper sets out specific options for consideration: directors, definition of principles and practices of financial managements, policyholder representation on boards, the establishment of a With-profits Fund Committee, creation of a statutory duty under company law for directors to have due regard to the interests of policyholders and the possible introduction of the beneficial ownership of assets. The with-profits review was announced by the FSA in February 2001. A number of activities were undertaken as part of the first phase of the review with various papers being published. A final report is expected in spring 2002.

Regulatory Information Dissemination
The FSA has issued a Policy Statement which approves five services to act as Regulatory Information Services from 2 April 2002. These consist of Business Wire Regulatory Disclosure (Business Wire), Newslink Financial (Newslink), Pims Wire (Pims), PR Newswire Disclose (PR Newswire) and RNS (London Stock Exchange). These will be added to Schedule 12 of the Listing Rules. An earlier Policy Statement had been published on 30 November 2001 in connection with the opening of information dissemination to competition through primary information provider services (PIP services). All PIP services are to be externally audited to ensure that they comply with a number of standards set. A high level of security must, in particular, be ensured including controls to prevent the misuse of regulatory information. The services must be able to receive regulatory information at any time and to release it between 07.00 and 18.30 UK time on any business day. 95% of all regulatory information received electronically must be released within five minutes.

Building the New Regulator
The FSA has issued Progress Report 2 - Building the New Regulator (February 2002). The FSA had issued its original paper - A New Regulator for the New Millennium - in January 2000. This was followed by a progress report in December 2000. The stated goal was to maintain efficient, orderly and clean financial markets and assist retail consumers to achieve a fair deal. The FSA had since taken forward its work on the development of the new operating framework and supporting risk management principles. It has, in particular, developed a new planning framework to set out the strategic aims and outcomes over a three-year period and will provide a yearly view of regulatory priorities. The full firm risk assessment framework has been tested on an internal desktop basis with sample institutions. Work has been completed on the jurisdictional implications of the new regime in terms of the risk assessment process and how the FSA will work with other regulators internationally.

On-line ISA Tables
The FSA has expanded the on-line ISA Table to include the whole of the UK All Companies sector and five new fund sectors. An ‘ethical’ filter has also been added within the All Companies sector. The ISA Table contains managed and tracker funds for unit trust and OEIC ISAs. The fund sectors covered include Europe (excluding the UK), Balanced Managed, UK Other Bond, UK Corporate Bond and Global Growth. These are the most commonly bought funds and have at least £1.5 billion under management. A range of 5, 10 and 25 year investment terms is also now available.

Market Conduct
The Markets and Exchanges Division has issued its latest newsletter on Market Conduct Issues, Market Watch (Issue No 3 - February 2002). The FSA had received a number of enquiries in connection with the scope of the new regime, the misuse of information aspect of market abuse and the responsibilities of those disseminating information. Questions raised included the treatment of block trades, programme trading and guidance requests on research surveys. The FSA also commented on the potential difficulties that arose with regard to corporate announcements. CP 59 requires that the person responsible for submitting information takes reasonable care to ensure that the information is not false or misleading (para 6.67). The FSA considered that, where a firm acts purely as a conduit for the publication of an announcement, it will still have to satisfy itself that the information is accurate and not misleading, in particular, by obtaining appropriate verification from the issuer. The FSA did not think that this imposed any new obligations on corporate brokers. Firms were invited to approach the FSA for individual guidance if necessary. The FSA also noted that a series of pilot visits had been conducted. The frequently asked questions (FAQs) guidance that had been released at the end of November was also referred to. Other matters noted included technical changes to the Code of Market Conduct (COMC), OFEX, electricity markets, stabilisation and bonds, convertible bonds and syndicate issues.

Consumer Communication
The FSA has called on life insurance companies offering with-profits policies to be more explicit on investment strategies (and powers to change strategies), the setting of bonus rates and the application of early surrender penalties. Firms must be more open concerning the underlying principles and practices that govern the decisions they take. This should lead to better consumer understanding as to how their financial products operate and expected returns. Recommended guidelines should include investment strategy, business risk exposure, bonus policy, application of any market value reduction (MVR), scope for necessary changes to existing terms and conditions and management of inherited estate (orphan assets). The FSA began its review of with-profits policies in February 2001. A number of activities were undertaken to obtain information and consult on the scope of the review. A Discussion Paper was issued on 18 June 2001.

Strategic Aims and Priorities
The FSA has issued its new strategic aims and priorities as well as performance measurement methodology and budget for 2002/2003. This is set out in its first Plan and Budget under the new regulatory regime. The strategic aims are directed at consumers (being better able to make informed choices and achieve fair deals), firms (regulated entities and senior management must understand and meet their regulatory obligations), markets (consumers and other participants must have confidence that markets are efficient, orderly and clean) and the regulatory regime (with the establishment of an appropriate proportionate and effective set of arrangements in which consumers, firms and other FSA stakeholders have confidence). In announcing the Plan and Budget, Howard Davies referred to the need to balance four types of activity – the regular supervision of firms and markets, responding to developments in the financial industry and external environment, the FSA’s ‘consumer-facing’ work and the maintenance and renewal of the regulatory regime itself. The coming year would require some cutback in routine activity offset by increases in responsive work, direct-to-consumer efforts and work to reform and improve the regime. The ‘control total’ budget for mainstream regulatory activity for 2002/2003 is £180.5 million. This includes approximately £9 million to cover additional responsibilities assumed since last December. The total is 2.9% higher than in 2001/2002 and 8.5% higher than in 1998/1999. The FSA released its Consultation Paper 125 on fees for 2002/2003 on the same day.

Financial Risk Outlook
The FSA has published its first Financial Risk Outlook which examines the changing economic, financial, social and legal background in which the FSA operates. This has formed a major part of the priority setting process which is developed in the FSA’s Plan and Budget for 2002/2003. Outlook 2002 includes an analysis of the impact of weaker equity markets on firms and consumers. While firms attempt to increase nominal returns which may lead to greater risk-taking, consumers attempt to offset lower performance funds, endowments or equity backed products with higher risk vehicles. It is essential in such circumstances that confidence in the financial system is not damaged. The paper also considers important social demographic and political changes (including the changing expectations of financial sector firms, the government and consumers), legal issues and regulatory matters (including impending EU legislative developments). The Financial Risk Outlook will be published at the beginning of each year to set out the background against which the FSA will set its regulatory priorities having regard, in particular, to its statutory objectives and principles of good regulation.

Market Conduct Questions
The FSA has issued a number of ‘frequently asked questions’ as annexes to the Market Abuse Code (MAR 1) and the Price Stabilising Rules (MAR 2). These are issued in the form of a consultation paper (see FSA, Annexes to the Market Conduct Sourcebook, Frequently asked questions on the Code of Market Conduct and Price Stabilisation rules (January 2002, CP 124). This follows the earlier policy statement on CP 59 (Market Abuse: A Draft Code of Market Conduct) and CP 76 (Supplement to the Draft Code of Market Conduct) in April 2001. Part VIII of the Financial Services and Markets Act creates a new financial penalty system for market abuse with price stabilisation being permitted as one defence against market misconduct under section 397 (misleading statements and practices) and market abuse.

The Euro
The FSA has issued its second consumer publication as an FSA Guide to the Euro (January 2002). This explains the nature and value of the new single currency for the euro area. The deadline dates for the use of the old national currencies are summarised. The effect of the introduction of the euro on the UK and implications of travelling within the euro area are also discussed. Further information is provided with regard to payments, opening Eurobank accounts, savings and investments, new financial products and services and useful contacts. The pamphlet is also available on the FSA consumer website (www.fsa.gov.uk/consumer). This is issued as part of the FSA’s consumer education and consumer protection functions. This follows an earlier pamphlet on You and Your Money (January 2002). The FSA had issued an earlier ‘detox’ plan which offered a six-step programme to review and rebalance finance. This included taking stock, setting goals, choosing the right products, shopping around, confirming authorisation and regular review. The programme is available in the form of a financial planning CD-rom.

IPRU (BANK)
A policy statement has been issued on proposed changes to the bank and investment services interim prudential sourcebooks (FSA, Proposed changes to IPRU (INV) Appendix 57 and IPRU (BANK) Chapter BC, amendment to the list of exchanges and clearing houses, Feedback on CP 113 and made text (January 2002). This contains feedback on CP 113 which proposed certain amendments to rationalise the lists of exchanges and clearing houses that were maintained by the FSA. The policy statement summarises the responses received and explains how the proposals will be given effect.

Stakeholder Pensions Decision Trees
A consultation paper has been issued on stakeholder pensions decision trees (see FSA, Stakeholder Pensions: Maintaining Decision Trees (January 2002), CP 122). Decision trees are considered important informational tools for consumers and a significant regulatory device for stakeholder pensions. The present rules are set out in COB 6 Ann 1 R (summarised in Chapter 3 of CP 122). This contains specified information with regard to pensions to allow participants to understand and assess their operation and value. CP 122 contains a number of proposals with regard to the annual review of decision trees (unless it is in firms’ or consumers’ interests to review them more frequently), the process to begin following the pre-Budget Report in November, re-calculation of estimated monthly figures consistent with Department for Work and Pensions money-purchase benefit figures, amendments to reflect changes in Basic State Pension or Minimum Income Guarantee following the pre-Budget statement and allowing mid-year amendments through an insert rather than a reprint requirement. The changes are considered necessary to reflect recent developments in Government policy, to update facts and figures and to maintain the clarity and comprehensibility of the trees over time.

Financial Advice and Polarisation
The FSA has issued a consultation paper on polarisation (see FSA, Reforming Polarisation: Making the market work for consumers (January 2002), CP 121). This sets out the results of the review that had been conducted into the operation of the polarisation regime and more general related developments to the regulation of direct offer financial promotions. The FSA had concluded the earlier first stage of the review in March 2001 with only limited changes being given effect to at that stage. The FSA had since identified a number of market failures as a result of the polarisation regime including, with regard to competition issues, consumers’ behaviour, remuneration, lack of provision, bundling¹ and related impediments within the regulatory system. The FSA accordingly proposed to abolish the earlier polarisation regime in place of a new enhanced disclosure system to be established. The FSA expected that this would lead to the development of "provider firms" offering only their own products through tied, independent and direct channels, "provider firms" offering an increased range of products, new "distributor firms" advising on products from a number of different providers and "fully independent advisers". Independent advice would in future be remunerated on a defined payment basis to avoid dangers with commission bias. Limits on product provider investment in independent firms would be abolished, although the firms would be required to disclose any stake held by a product provider. The advice process would be reviewed and a "buyers’ guide" constructed to allow consumers to make better informed and more confident decisions. The FSA was also considering the establishment of a two-tiered system of advisers (with the bottom tier only advising on a more limited range of lower risk products) and the unbundling of the cost of advice and marketing from the product costs.

Foreign Exchange and Derivatives
The BIS has published the final results of the 2002 Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity (March 2002). This confirms a substantial decline in turnover in the foreign exchange market and a slowdown in the growth of derivatives activity. Average daily turnover in traditional foreign exchange markets was down 19% to $1.2 trillion between April 1998 and April 2001. Earlier surveys had shown a significant rise in foreign exchange market activity. Average daily turnover in the derivatives markets showed a 10% increase over the three year period to $1.4 trillion. This still represented a significant slowdown in market expansion relative to the earlier three-year period during which daily activity had increased four times faster. The notional amounts of derivatives contracts outstanding at June 2001 also confirmed a slowdown in earlier market expansion. Daily business had previously expanded by 44%. In terms of market segments, this represented a decline of 12% in foreign exchange products and 86% in interest rate instruments. Total nominal global OTC position was $100 trillion at the end of June 2001 which represented a 38% increase on the 1998 data. The data related to traditional foreign exchange markets (including spot transactions, outright forwards and foreign exchange swaps) and OTC currency and interest rate derivatives.

Futures Hedging
The BIS has issued a working paper on the hedging of price risk using derivative contracts marked to market subject to margin calls (see Akash Deep, Optimal dynamic hedging using futures under a borrowing constraint (January 2002), BIS Working Papers No 109). The concern that arises is with the effect of traditional hedging instruments that may increase the overall likelihood of financial distress due to the further liquidity risk created. A dynamic hedging strategy is developed using future contracts to hedge a spot market exposure. The margin risk is incorporated into the hedging decision as a restriction on the capacity to borrow. This results in a substantial reduction in the firm’s optimal hedge and supports the low level of hedging observed in practice.

IT Innovations and Financing
The Committee on the Global Financial System (CGFS) has published a report on IT innovations and financing patterns: implications for the financial system (February 2002). This follows a joint central bank initiative to consider the linkage between the use of new technologies and firms’ financing needs as well as the role of financial markets and intermediaries in financing innovative activities. The potential for information technology to act as a catalyst in the restructuring of economic activity towards flexible, knowledge-based processes within and outside the IT sector is noted. The need for capital bearing business risks has increased the role of equity and equity-type instruments with the valuation of firms by equity markets becoming more important. The proper functioning of those markets becomes more important as lenders face a volatile credit environment which calls for adjustments in monitoring techniques and credit risk management. The changing allocation of risk across the financial system and linkages between different institutions and markets confirms the need for systemic monitoring by central banks.

Auditors and Bank Supervisors
The Basel Committee has issued an updated paper on The relationship between banking supervisors and banks’ external auditors. This had originally been prepared jointly with the International Auditing Practices Committee (IAPC) of the International Federation of Accountants (IFA). The IAPC had decided to issue the paper as an International Auditing Practice Statement (IAPS). Both Committees were of the opinion that the effectiveness of bank audits and supervision would improve as supervisors and external auditors had a greater understanding of their respective roles and responsibility with improved communication between them also being secured. The revised paper provides guidance on how the relationship may be strengthened, taking into account the requirements of the Basel Committee’s Core Principles for Effective Banking Supervision. The paper describes the primary responsibilities of the board of directors and management of banks. It examines the essential features of the role of the external auditor and bank supervisor, reviews the relationship between the two and describes ways in which auditors and the auditing profession may contribute to the supervisory process.

European Clearing and Settlement
The Committee of European Securities Regulators (CESR) and the European System of Central Banks (ESCB) launched a joint ‘group’ on securities clearing and settlement on 25 October 2001. A significant amount of work has since been conducted following meetings in November 2001 and January 2002. This has focused on the revision of the Committee on Payment and Settlement Systems (CPSS) and IOSCO, Recommendations for Securities Settlement Systems within Europe, the preparation of a new regulatory approach for central counterparties’ (CCPs) clearing activities in Europe and the review of the earlier Giovannini Group Report on Cross-border clearing and settlement arrangements in the European Union.

International Accounting Standards
The European Parliament has approved the proposal for the Regulation on the application of International Accounting Standards (IAS) to all listed companies within Europe from 2005. Member States will be able to extend this requirement to unlisted companies and to the production of individual accounts. The objective is to increase market efficiency and reduce capital costs through the elimination of barriers to cross-border trading in securities through increased transparency and comparability of company data. The amendments put forward by the Parliament have been accepted by the Commission. It is hoped that the Council will be able to adopt the Regulation in May.

Financial Conglomerates
A report has been produced by the European Parliament supporting the general content of the proposed Directive on Financial Conglomerates. The objective is to create a system of group-wide supervision for all financial conglomerates. This will be supported by closer relations between national supervisory authorities and increased exchange of information with specific work being undertaken in the development of common capital requirements, a common solvency position measurement calculation and further requirements with regard to intra-group transactions, risk exposures and management suitability. This follows the earlier proposals produced by the Joint Forum of Financial Conglomerates. The Joint Forum is made up of representatives of the Basel Committee, IOSCO and the International Association of Insurance Supervisors (IAIS). A number of papers have been produced by the Joint Forum on such matters as conglomerate capital measurement, information exchange, fit and proper (suitability) standards, intra-group exposures and concentrations. This work began with separate recommendations being produced by the Basel Committee and IOSCO in 1992. It is now hoped that a Common Position can be agreed within Europe by June 2002. The proposed Directive will then return to the European Parliament for a second reading and then adoption.

Market Abuse
The European Parliament has produced a report on the proposed Directive on insider dealing and market manipulation (market abuse). This attempts to establish standards for market integrity in the securities area and to contribute to the harmonisation of rules for market abuse across Europe. This is generally based on revised abuse of information requirements (insider dealing) and two new market manipulation offences. The proposed Directive will require greater co-operation and exchange of information between relevant national authorities supported by a clearer framework of allocation of responsibility and enforcement activity. It is hoped that market integrity and public confidence will be improved as a consequence of these new measures. The Council of Finance Ministers had supported the proposal in December 2001 (see MEMO/01/439). It is hoped that a Common Position will be adopted by the Council during June 2002. The proposal will then return to the European Parliament for a second reading.