Commission Report 2002 (Romania)

• Progress since the last Regular Report
• Overall assessment
• Conclusion

Chapter 3: Freedom to provide services

Progress since the last Regular Report

Since last year`s Regular Report, Romania has made significant progress in this area, notably as concerns the right of establishment for lawyers and in the field of insurance and financial securities.

In the area of the right of establishment and the freedom to provide services (other than financial services), Romania has taken steps to put an end to a number of discriminatory restrictions which were placed on the professional activities of Member States' lawyers in Romania. An amendment to the 1995 Law on the Legal Profession was approved by Parliament in August 2002 removing these restrictions.

Legislation aimed at transposing the acquis on self-employed commercial agents was adopted in August 2002. However the law adopted still requires residence in Romania. No developments can be reported concerning the freedom of establishment and the freedom to provide services for craftsmen, traders and farmers. However, the Romanian authorities set up a working group to identify barriers against the right of establishment and freedom to provide services in January 2002.

In the field of financial services, overall supervision of this sector was strengthened by the inclusion of the Insurance Supervisory Commission in the co-operation agreement previously in place between the National Bank of Romania and the National Securities Commission, thus providing a comprehensive forum for regulatory co-operation.

With regard to the banking sector, further progress has been made in the implementation of legislation approved in 2000 to extend normal prudential surveillance requirements to credit co-operatives. Considerable rationalisation of this sub-sector should be finalised by the end of 2002. Legislation in this area has already attained a high degree of alignment with the acquis and this has been reinforced by additional regulations concerning banking accounting systems, liquidity, supervision of foreign exchange positions, and licensing.

In the insurance sector, following the start-up of operations by the Insurance Supervisory Commission, a considerable number of norms have been published in line with the Supervisory Commission`s regulatory timetable as well as with accounting regulations for the insurance sector, which came into force in January 2002. With the adoption of a new organisational structure and increase in personnel the Supervisory Commission has started the process of re-authorisation of insurance companies, the number of which has dropped from 73 in 2001 to 48 currently operating. In addition, the Supervisory Commission has conducted 23 control actions resulting in 6 formal sanctions involving fines or the temporary or definitive interdiction of insurance activities in one or more classes of insurance.

With regard to investment services and securities markets, a number of major legislative developments have occurred, notably concerning the statute of the Securities Market Commission, undertakings for collective investment in transferable securities, regulated commodities markets, derivatives services and financial instruments, and securities financial services and regulated markets.

Concerning the protection of personal data and the free movement of such data and the information society Directives, Romania approved a law for the protection of individuals with regard to the processing of personal data and the free movement of this data in December 2001. In February 2002 Romania ratified Convention 108 of the Council of Europe. Most of the provisions of this law entered into force in March 2002. The Office of the Ombudsman is designated as the supervisory body under the law. A considerable amount of legislation for the implementation of this law has also been adopted. As concerns e-commerce, Romania approved a law transposing the e-commerce Directive in July 2002.

Overall assessment

In the banking sector Romanian legislation is now at a high degree of alignment with the acquis. The rules, policies, and practices broadly follow the Recommendations of the Basle Committee on Banking Supervision and the relevant EC directives. The degree of fragility mentioned in last year`s Regular Report has diminished but the process of rationalisation continues, particularly as concerns smaller banks whose prudential ratings are unsatisfactory. Only the consistent application of the regulatory and supervisory framework over a period of time will fully re-establish confidence.

As regards the insurance sector, 2001 was the first year of operations for the Insurance Supervisory Commission. This first year has produced satisfactory results, both in terms of the creation of administrative structures and initial steps to improve sector supervision and rationalisation. Coming years will require a consolidation of this performance in order to further restructure this sector and complete the legislative framework, in particular as regards motor vehicle insurance.

The Romanian authorities have identified the essential steps necessary for the application of the securities markets acquis. In addition to ensuring sound financial markets progress in this area should be a principal objective in this domain. Steps are being taken to improve the level of training, as well as the physical infrastructure and equipment available to the National Securities Commission. It is essential that these activities be undertaken as rapidly as possible in order to allow adequate human resources to be made available to implement the new legislation.

In the field of the protection of personal data and the free movement of such data, the major pieces of legislation transposing the acquis are now in place, although some provisions of the Data Protection Act are still not in line with the acquis. The primary challenge now lies in implementation. However, there remains some concern about the ability of the Ombudsman`s Office to adequately ensure a satisfactory supervisory structure.

Conclusion

In its 1997 Opinion, the Commission concluded that the key decisions for the effective restructuring of the banking sector had been taken. However, with the sector then overwhelmingly still in state hands, the Opinion pointed out that respect for prudential rules and, above all, the National Bank`s supervisory capacities would have to be reinforced to guarantee the sector`s soundness. The central bank was still not totally independent and the banking sector remained fragile. As consolidation was bound to be a lengthy process, the Opinion predicted that there was no prospect of integrating the Romanian banking system into the internal market in the medium term. As regards financial securities, the Commission remarked that the market was still embryonic, supervision was inadequate and there were grounds for doubting its efficiency. In the field of insurance, the Opinion stated that Romania seemed to have a long way to go in terms both of the adoption and implementation of legislation and of the elimination of barriers to access to its market.

Since the Opinion, considerable efforts have been made to reform the sector, and alignment with the acquis has increased significantly over the past year. The supervisory and regulatory functions of the National Bank have improved and the Bank now enjoys effective independence from central government. The last two years have seen a considerable reinforcement of the supervision of the insurance and financial securities sectors, although both markets are still at an early stage in their development. Progress in the banking sector has led to an improvement in the solidity of the sector, despite some remaining problems.

Negotiations on this chapter have not yet been opened with Romania.

Romania should focus further efforts on completing legislative alignment, strengthening administrative capacity, and establishing a track record of efficient supervision. Further improvements in the institutional framework of financial supervision are still needed, particularly in the area of securities and insurance. The process of screening Romanian law in the area of non-financial services has only just begun and needs to be accelerated.

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