A new European Parliament report has called for a series of new studies into the economic effects of Financial Services Action Plan (FSAP), which also makes a case for the creating a European supervisory authority for the supervision of large cross-border firms.The success of the FSAP is praised in the report as being a major contributor to delivering an integrated and well functioning European capital market but there are some concerns that this success may cause other potential pitfalls that need to be addressed. The report requests the Commission to commission a series of studies to examine the economic effects of the FSAP at the same time as it conducts its annual progress reports and implementation monitors.One of the main questions the report raises is whether there is sufficient competition at the top end of the market. Whilst the high level of market consolidation in the European financial services sector is not a problem in itself, it could lead to problems if the implementation of EU competition law is not as vigorous as it should be. The report therefore urges the Commission to conduct a more in-depth economic impact studies and to ensure EC competition rules are enforced. The rise of private equity and hedge funds are another prominent concern in the draft report. The EU is concerned that the extent to which these types of firms have increased leverage and debt ratios in major EU companies may lead to a systemic risk and warrant further discussion about regulation of these firms – a motion Commissioner McCreevy’s has resisted. But it is the section on regulation and supervisory architecture that makes the most controversial suggestion of a European regulator. In this new and dynamic financial market, the report warns that a new regulatory supervisory framework may be required to keep pace with the rapidly changing financial world. Although the report praises the work of the Level 3 Committees, the present system is described as ‘too weak’ to secure efficient conduct of business supervision and a case is made for a ‘well equipped executive European prudential supervisory authority …endowed with the appropriate competences for supervision of large cross-border and cross-sector financial conglomerates’. The report notes that this suggestion will not be greeted favourably by most member states but it emphasises that participating in a central system would give smaller regulators greater influence than they currently have. Should the suggestion for a new study of the FSAP be taken up, the debate over the creation of a central EU regulator will raise its ugly head again and no doubt there will be some very interesting statements from the larger EU members.