Proposed reforms to the way pan-European financial legislation is drafted have won the backing of the European Parliament, boosting plans to create a single European market for financial services.

Euro-deputies voted in favour of the reforms on Tuesday, ending 11 months of bickering between the parliament and the other European Union institutions.

Under the proposals, which have yet to come into force, responsibility for working out the details of pan-European securities market legislation would pass to two new panels of regulators and finance experts.

The two specialist committees are expected to accelerate the process of drafting laws needed to integrate the EU's 15 national financial regulatory systems, paving the way for the introduction of a single European market for financial services by 2005.

European Parliament President Pat Cox said the Euro-deputies' vote "signals a new capacity on behalf of this parliament to drive on with economic reform and specifically with financial sector and financial services reform".

Legal battle

Harmonising the EU's financial regimes is aimed at increasing the size of the EU capital market, which currently lags the US by half.

The initiative is seen as central to the wider aim of underpinning a return to strong economic growth.

The latest reforms, drawn up by the former head of the Belgian central bank Alexander Lamfalussy, had been deadlocked for almost a year due to a dispute over the parliament's influence over the new legislative process.

But a compromise was achieved last month when Euro-deputies dropped their demand for a veto over new proposals, in return for a guarantee that they would be kept fully informed of all developments under the new regime.

The parliament also negotiated a "sunset clause" under which Euro-deputies can call for a review or suspension of the new system four years after it comes into force.

The parliament's approval comes ahead of a summit meeting between EU heads of government on economic reform in Barcelona next month.

Avoiding Enron-II

The European financial services industry broadly supports the reforms.

"We share the EU's vision for a single market for financial services," said a spokesman for the London Stock Exchange, the biggest in Europe. "We believe the Lamfalussy fast-track approach is necessary to reach that goal."

The EU's reform programme, which emphasises corporate transparency, is also designed to provide some protection against Enron-style scandals.

"I have no specific fears, but you cannot deny that the Enron case is a precise alarm signal that we have to look for transparency and a system that works," European Commission President Romano Prodi said.

He said that the Enron scandal, which has left the former US energy giant's investors and employees heavily out of pocket, is forcing the EU to think harder about safeguarding the interests of savers and pensioners.

Seventeen proposed EU laws affecting pension fund regulation, financial services and market abuse are currently in the pipeline.