The role and functioning of mutual recognition in the European market of financial services

In Europe part of the rule-making and the whole enforcement of financial services regulation still take place at national level. For this reason, mutual recognition of national financial laws remains an element of central importance in the creation and regulation of a European market in this field. This article seeks to contribute to the analysis of such legal instrument, as several aspects of its functioning often appear unclear. The article starts by analysing the principle of mutual recognition as developed by the European Court of Justice. An important distinction is drawn between such judicially created principle and the principle of mutual recognition applied by the EC legislator. The article then looks at the question of why mutual recognition has not succeeded as a regulatory mechanism of financial services market integration, and at the role of mutual recognition after the introduction of the so-called 'Lamfalussy' law-making process to the financial services sector.