Single market: free movement of services review

Comments from ACCA to the Department for Business, Innovation and Skills. Comments from ACCA to the Department for Business, Innovation and Skills, January 2014.

SUMMARY

As a global body, ACCA welcomes the proactive and objective review of the principles and operation of international legislative cooperation and coordination. Whatever the future of the institutions and mechanisms of the EU, debate founded on sound evidence and clear principles will be the most fruitful course to improvement.

The UK’s relationship with the EU has often been difficult, but this is in part a reflection of the distinctive characteristics of the UK which make it so important and valuable a member of the EU. The freedoms of its corporate and business laws, and their alignment with systems in other Anglophone nations around the world can isolate it from the other Member States, but are at the same time the foundation of its role as a global services centre, and conduit for business and investment into the EU for the mutual benefit of all concerned.

Free movement of services will be a growth area with the move to a digital economy, and enhanced ease of cross-border transactions. At the same time, aspects such as the mutual recognition of professional qualifications are inextricably linked to the free movement of persons, and freedom of establishment. While a consistent and light touch approach to the regulation of service provision is key to both internal economic growth of the Union and its attractiveness as a forum for external business to invest, there are significant consumer protection issues which need to be addressed in the field of accountancy and related legal and financial aspects of advice which may be given.

SPECIFIC COMMENTS

What do you see as the advantages and disadvantages of EU action on the mutual recognition of professional qualifications (MRPQ)? To what extent do you believe that the cost of existing or future European rules in this area is proportionate to the benefits?

ACCA is the competent authority for the protected title of ‘Chartered Certified Accountant’ under the Recognised Professional Qualifications (RPQ) Directive, and a delegated authority for the role of ‘Registered Auditor’ under the Statutory Audit Directive. This directive covers the mutual recognition of statutory auditors but refers to the RPQ Directive for certain other requirements that need to be followed.

In principle, the EU action on the mutual recognition of professional qualifications is advantageous for EU members. Without the Recognised Professional Qualifications Directive, it is likely that there would be far less cooperation between the professional bodies to allow direct routes to membership for EU citizens. As a result, artificial barriers would hinder the movement of professionals in the EU.  The same applies to statutory auditors under the Statutory Audit Directive.

Some of the problems of the directives in practice are summarised below. 

1. IMPLEMENTATION

As with implementation of any strategic plans made at a high level, the transposition of the directives into the domestic legislation of each member state, and resultant administration, can lose some of the intended benefits, meanings and outcomes. Ultimately the professional bodies are the end administrators of the RPQ and Statutory Audit Directives, and their distance from the initial EU legislative action results in confusion and a variety of levels of understanding of the requirements they are obliged to meet.  It may be helpful if a more centrally focussed body that had a high level understanding of the EU legislation provided more support in the implementation of the directives in each member state.   

2. REGULATION

Defining and comparing the level of regulation of a profession between member states, particularly when there are ‘regulated titles’ can be complex.  The UK has published a list of “regulated titles” including that of the ACCA and it would be helpful if the other EU member states followed suit.

The RPQ Directive covers accountants who are not auditors.  However, the concept of accountants who are not auditors or at least in public practice is not widely understood in most EU countries.  Therefore, applicants under this Directive are minimal.

Attempts to devise common training platforms for auditors or accountants are not helpful.  They take a long time to produce and are difficult to update.  Reaching consensus across many member states is also difficult. For example, an attempt by a group of professional bodies to create a common training platform has resulted in ‘gold-plating’ with additional requirements to the directive requirements.

Registration by a professional body such as ACCA in the UK is sufficient to provide a database of Chartered Certified Accountants and Registered Auditors for mutual recognition purposes across the EU.  This means there is no need for a “European passport/professional card” for bodies such as ACCA. Similar arrangements, however, are not always in place in other EU countries.

3. ADMINISTRATION AND COST

In the case of the RPQ Directive, the actual work to administer the individual applications for recognition, and carry out evaluation of other professional body qualifications lies with the professional bodies. There are a large number and variety of professional bodies which are heterogeneous by nature, can be large or small, possibly recognised in domestic statute, hold a regulatory role, or not be accredited at all.

There are, however, only a handful of applications are made each year in the audit and accountancy field. This is not primarily because of artificial barriers but because of the need to master tax and law of another country and in a foreign language.

The time taken by ACCA to review applications can be costly due to the general complexity of trying to understand our obligations and how best to support the applicant. The costs, however, of mutual recognition tests in tax and law and keeping detailed records is not excessive. In the case of detailed records these are already held by ACCA.

The EU action to provide the Internal Market Information system for professional bodies to communicate with each other is useful to overcome the language barriers. However, there are some costs of translation that fall to the professional body or the student depending on the circumstances.

4. COMPETITION

Professional bodies operate in many different industries with different dynamics. Professional bodies operating in the same industry are also competitors which can sometimes hinder discussions between professional bodies to engage in recognition agreements.

ACCA has found that some professional bodies can hinder the implementation of the Directives by requiring more information than is strictly necessary, e.g. asking for a full translation of the home country’s syllabus when the only test required is in tax and law and that of the host country anyway.

“How do we achieve a reduction in the number of regulated professions without compromising on quality or consumer protection?”

Some member states, such as Poland, will be able to reduce the number of regulated professions in their country due to the large amount of existing regulation in a number of professions that do not impact public health or safety.  There will always be a level of regulation required in certain professions to protect the public. Where regulation is required, the goal would be to ensure the required regulation is appropriate and effective. The profession of statutory auditor is regulated to protect the public.  Other types of accountants are not regulated in the UK but certain types of accountants (e.g. tax accountants) are regulated in some EU states. De-regulation may be appropriate in some cases.

What do you see as the advantages and disadvantages of EU action on company law? To what extent do you believe that the cost of existing or future European rules in this area is proportionate to the benefits?

While there is a general feeling among those consulted that EU action on company law is a good thing and to be promoted, historically action has often preceded political agreement, with the result that initiatives have tended to bog down and flounder. From a commercial perspective group structures tend to be aligned to tax authority definitions, and unless and until tax is fully aligned across Europe, difficulties around group structures will persist. However, while tax remains a matter of national sovereignty within the Union that unresolved tension preventing full freedom of movement for services is inevitable.

There has been a shift in recent years from the principal function of the harmonisation being creditor/stakeholder protection, to a focus on the creation of a legal framework which allows for efficient business practice. The effect is that harmonisation measures are no longer designed so much as a countermeasure against potentially harmful side-effects for stakeholders of free movement of services, and are instead being actively pursued as a means to promote that free movement. Such an approach allows for more freedom on the part of Member States, and reduces the need for the EU to attempt to reach agreement on difficult issues such as board structure, and whether a one or two tier board structure is preferable. 

However there is a lack of appetite to use the existing European corporate forms (due in part to the difficulties around tax mentioned above) and it seems very much the case that business prefers the structures it knows and understands. The perceived benefits of the EU structures are not yet outweighed by the direct costs and potential risks of adoption.  

To what extent has EU action on the free movement of services brought additional costs and/or benefits when trading with countries inside and outside the EU? To what extent has EU action on the free movement of services brought additional costs and/or benefits as a consumer of services?

The impact of EU action on movement of services was felt to be very much dependent upon the purchaser; in the field of legal services, structures drive the demand for services. The success of insurance as a market was highlighted by those we consulted, and the possibility that pensions would be the next growth area in pan-European trade.

The status of the EU under the TFEU to negotiate on behalf of all Member States is conferred by Art 3. The benefit to all Member States of third nations being able to rely on a consistent treatment throughout the EU is clear, and to that extent EU action brings benefits in respect of trading outside the Union. However, from a UK perspective there are a number of areas in which agreement at an EU level, and in particular within the Eurozone, results in clear difficulties for the UK’s domestic interests.

The UK is a significant provider of services both within the EU and as a part of the global economy. It has long been the case that the UK’s unique relationship with both its geographic neighbours and Anglophone nations around the world has given it a significant advantage in world trade. As such, while there is significant value to the UK in being a part of the EU negotiating bloc, it is also essential to the UK’s interests that it retains the ability to negotiate independently, and this must influence the approach to the competence of the EU in matters relating to provision of services.

However, it is clearly the case that the UK’s unique position has also led to the development of a unique economy, and many of the features which contributed to the strength of the economy, and the mindset of business, differ from other parts of Europe.

As a result, there have been instances of EU legislation being implemented which deals with clear issues relevant to other parts of the EU which do not arise in the UK. Indeed, the ‘medicine’ needed to cure the ills of some Member States is a ‘poison’ to the UK economy. The negative impact on the UK economy of for example the Agency Regulations highlights the shortcoming of current impact assessment processes in the EU. In the field of services in particular, which are so important to the UK economy, and in which the UK is so fundamental a part of the attractiveness of the EU to other global investors, it is crucial that to the extent regulation is undertaken by the EU rather than at domestic level it nevertheless takes the interests of the UK properly into account. While it is important to have a level playing field across Europe, it is equally important that that field is not set in such a way as to materially disadvantage the UK’s current pre-eminence in the global economy; to do that would weaken Europe as a whole to the ultimate net benefit of no one within the Union.

A particular element of concern in the impact assessment process for the EU is the tendency of impact assessments to be undertaken once at the very beginning of the legislative proposal process, but then not updated despite significant revisions to the proposals. In many cases the changes to the proposals are so far reaching that they merit comparative revision of the impact assessment itself. 

In your experience do Member States take a consistent approach to implementing and enforcing EU rules, or not?

The reported experience of our members on consistency is, regrettably, consistent in finding the implementation of EU law to be patchy and inconsistent, both between and within individual Member States. There was felt to be a lack of evidence that the EU follows up on effective transposition of Directives. There is a perception of an uneven playing field between Member States, with the gold-plating of Directives a particular concern. The bulk of Level 1 legislation is too bland to be effective when transposed, but the level of detail inherent in Level 2 measures is such that countries are finding it hard to keep up with the amount of material generated by the EU.

It is certainly the case that implementation of the mutual recognition provisions is inconsistent, and the extent to which professional bodies have embraced the principles behind the underlying directive has varied, with the result that UK professional bodies can find themselves in a position of extending recognition to practitioners from States where reciprocal recognition for a UK recognised professional is not (and could not be) available. Whether the driving policy goal behind mutual recognition is stakeholder protection or business facilitation, an inconsistent approach to application is incompatible with effective implementation.

The application and enforcement of Regulations is equally an area of concern, as domestic courts will inevitably apply local jurisprudence to aspects such as the extent of tortuous liability or definitions of negligence. The potential tensions arising are not necessarily dealt with by reference to the European courts, as the justices and Advocate General considering the matters raised may be familiar with neither the traditional approach of the enforcing jurisdiction nor (in cross border cases) that of the complainant and the resulting reasonable expectations of the parties which deserve protection. Such issues are of course by no means unique to the provision of services, but are nevertheless a concern and should be addressed.