ABSTRACT
Phase 2 can be characterised by a focus away from the issuer and towards the secondary markets and, in particular, on the construction of the harmonised investment services regime via the adoption of the cornerstone Investment Services Directive (Council Directive 93/22/ EEC) (the ISD) and its sister measure, the Capital Adequacy Directive (Council Directive 93/ 6/EEC) (the CAD). These key measures are designed to facilitate the construction of a single EC market in investment services via the twin pillars of single market construction: (a) mutual recognition by each Member State of the supervisory standards used by other Member States; and (b) home Member State control of the investment firm’s activities. This device minimises the potentially obstructive regulatory role of the home Member State in which the passporting firm carries out activities. In particular, the ISD/CAD regime grants a regulatory passport to firms which have been authorised by the home Member State (essentially the Member State of registration or of headquarters) in accordance with that Member State’s standards. These will conform to the Directives’ common minimum standards; they include initial authorisation standards, ongoing capital adequacy requirements, ownership control requirements, and ongoing prudential requirements, such as record keeping and conflict of interest management rules. The ISD/CAD regulatory passport thus permits the firm to operate across the EC, subject to the supervision of its home Member State.
