In line with its commitment to better regulation and evidence based policy making, the Commission has released its third annual monitoring report for the financial services sector - the Financial Integration Monitor (FIM) 2006. This year's Financial Integration Monitor focuses on the increased importance of both institutional investors and the external dimension for EU financial services. The report covers three areas: the EU financial sector in the global context and it analyses two market segments, the EU insurance and pension funds sector and EU investment funds sector.
Internal Market and Services Commissioner Charlie McCreevy said: "The data clearly shows the increasingly pivotal role institutional investors play, not only on EU financial markets but also in building the savings and retirement provisions of EU citizens. The report also demonstrates the importance of the global dimension for EU financial markets."
The External Dimension
The European Union is an important global financial player: it represents 20 to 40% of worldwide financial activity, depending on the market segment. Its integration in world markets has been intensifying over the period 1999-2005. This may promote a better risk distribution but also potential channels for financial contagion. One example in this context is the EU reinsurance sector, where Europe is a net receiver of US risks.
Insurance and Pension Fund Sector
The EU insurance and pension fund sector has expanded over the past years: in primary insurance business, premiums tripled since 1992 to reach 925 bn euro at the end of 2005; investments by insurance companies reached 6 trillion euro. Assets under management of private pension funds attained 2.5 trillion euro at the end of 2004. The size of the sector varies substantially across member states and its potential for further development very much depends on growth performance, changes in legislation, pension arrangements and cultural changes. In the past decade, the sector has not only integrated across borders but also across sectors. The resulting increased linkages between the financial sector segments allow for a better risk distribution while at the same time constituting channels for risk transfer and financial contagion.
Investment Fund sector
Investment funds in the European Union play an important role in households' savings and capital markets. They have been developing fast for the last ten years – on average faster than the banking sector and the capital market. Overall, funds have more than quadrupled their assets under management to come close to 6.4 trillion euro at the end of 2005.
Harmonized funds dominate the market. Data on cross-border activity are mixed: while figures for cross-border consolidation are low, most of the new funds are of a cross-border nature. Data on fund sales in the EU suggest a high scale of cross-border distribution. However, this area is where the lack of competition, is most felt. New trends in distribution in the EU markets might contribute to introducing more competition to the distribution segment.
Background to the Financial Integration Monitor 2006
The FIM 2006 report is the third annual report in follow-up to the July 2000 request from the EU's Council of Ministers to develop indicators to assess the state of financial integration. It brings economic data and evidence into the policy debate and is part of the evidence-based policy making of the Commission and is included in the White Paper for Financial Services Policy 2005-2010[1].
The report is available at:
http://ec.europa.eu/internal_market/finances/fim/index_en.htm
[1] http://ec.europa.eu/internal_market/finances/policy/index_en.htm#20051205