Letter from Brussels

The latest round-up from Jeremy Woolfe

The idea of setting up an ombudsman to help bring down barriers to trade in financial services across the EU has been suggested by the Federation of European Securities Exchanges. The ombudsman would oversee cross-border disputes between businesses and national regulators over unfair enforcement of the rules.

Complainants are finding that using courts is too cumbersome, says Gregor Pozniak, of FESE, based in Brussels. In addition, once an aggrieved firm has used the judicial process (or any other complaint procedure within a country), that firm would be unlikely to gain much sympathy from the national regulators into the distant future.

The mechanism proposed by FESE is based on anonymity. The adjudicator would assess the harassment factor in a cross-border provision of financial services. It would judge a firm's grievances, while bearing in mind the effect on Europe's capital markets.

It would then transmit an appraisal to the Committee of European Securities Regulators, the body set up to improve co-ordination among securities regulators and to advise the European Commission. The CESR would have to respond within three months. Pozniak notes that existing barriers to cross-border securities transactions lead to higher costs for funding business.

Following negotiations behind closed doors, the European Commission is likely to endorse IAS before a late October deadline. However, according to an insider, for Europe it was to have been a fudged version, with 17 paragraphs removed from IAS 39, the IAS section dealing with financial securities.

Now, two other new options are to be discussed by the ARC (Accounts Regulatory Committee) on 8 September and, again, on 28 September. One choice would be that the 17-paragraph carve-out would apply only to banks. The other would be a deferral of endorsement of IAS 39 altogether, awaiting a revised version of IAS 39 now being considered by the IASB.

The background to the second two proposals is that the majority of European banks do in fact support the fair value options for financial instruments, as proposed by the IASB. The banks are in the main split only on the reporting of hedge funds.

Some may be content that any kind of mutilation of IAS 39 will be limited to a transitional period. However, there will be concerns that, under the proposals, the length of the period will remain unspecified, in that it is renewable.

No doubt, Frits Bolkestein, internal market commissioner, takes the view that his deal is the only realistic option. It would be less catastrophic for European business than to risk having no international financial accounting standards in Europe at all.

For European companies, the result would mean that, under Europe's likely 'IAS-lite', companies will have the choice between filing their financial results to conform with the so-called endorsed international accounting standards, or filing to meet full, international accountancy standards. Those also listed in the US will take the latter option.

Nevertheless, many subsidiaries of groups, in Continental Europe will also have to continue to produce yet another set of figures to meet their own national GAAP. In addition, they will also sometimes need to meet the special demands of their national taxation authorities. Requirements for multiple reporting also contribute to rich pickings for the relevant IT industry.

European enlargement is putting focus on competitively low corporate taxation policies being pursued by the 10 new member states, which are dropping rates to encourage inward capital investments. Typically, Poland recently reduced its rate this year, from 27% to 19 %. Estonia has gone to the extreme, with a zero rate.

Pressure from the finance ministers of large countries (notably France, with a 33% corporation tax, and Germany at 38%), is to correct the trend. The finance ministers, meeting in Brussels, have been seeking a more unified EU company tax policy. They ask why should they contribute their taxpayers' money in the form of EU structural funds finance to help with the economic development of countries behaving unfairly?

Jeremy Woolfe is a journalist based in Brussels.