25. REGULATION OF FINANCIAL SERVICES
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| Report of the Economic and Financial Committee to the Council on financial regulation, supervision and stability.
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| Legal base: | —
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| Document originated: | 9 October 2002
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| Deposited in Parliament: | 31 October 2002
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| Department: | HM Treasury
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| Basis of consideration: | EM of 4 November 2002
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| Previous Committee Report: | None
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| To be discussed in Council: | 3 December 2002
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| Committee's assessment: | Politically important
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| Committee's decision: | Cleared
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The document
25.1
At the request of the Council (in its ECOFIN formation), the Economic
and Financial Committee (EFC) reports in this document on the
regulatory structure in the EU necessary to deal with the rapidly
changing financial services sector. It considers a structure based
on:
— the Lamfalussy approach;
— reshaping the Financial Services Policy Group to better
advise the Council; and
— a new forum to discuss financial stability issues.
The Lamfalussy approach
25.2
In the context of the EU Financial Services Action Plan (FSAP),
which was established in May 1999 and is intended to develop a
single market in financial services, the Lamfalussy Report recommended
improvements to the structure, including the legislative process,
for regulation of securities markets. This framework, which was
largely adopted at the Stockholm European Council in March 2001[69],
proposed a four-level approach:
— Level 1 — The Council and the European Parliament
set out regulatory principles in Community legislation;
— Level 2 — A Commission-chaired committee of
national finance ministry representatives is consulted on policy
issues (including Level 1 legislation) and, through a comitology
process, the Commission legislates in detail within the Level
1 legislation;
— Level 3 — A supervisors' committee (of national
supervisory authorities) acts as a forum for supervisory co-operation,
and assists the Commission in drafting Level 2 measures; and
— Level 4 — Better enforcement of legislation
by the Commission.
25.3
The document recommends the extension of the Lamfalussy framework
to other financial sectors. The EFC suggests that there should
be three separate sectoral committees — for banking, insurance/pensions
and securities — at Levels 2 and 3. A fourth Level 2 committee
would be established to cover financial conglomerates. It proposes
that each Level 2 committee should have one national representative
from each Member State, supported by one technical expert nominated
by the relevant Ministry. The Level 3 committees, except that
for banking, would have one national representative from each
Member State. The banking committee would have representatives
from both national banking supervisory authorities and non-supervisory
central banks, with the former holding the vote.
The Financial Services Policy Group
25.4
The Financial Services Policy Group (FSPG) is a committee of personal
representatives of finance ministers, chaired by the Commission,
which advises on FSAP matters. The EFC proposes a reconfigured
FSPG with a high-level representative (and alternate) from the
appropriate ministry of each Member State and a Member State chair.
The aim of the change would be to improve accountability to the
Council for EU financial services work. The committee would provide
political advice, reflect upon cross-sectoral issues and act as
the link between the political and technical levels.
Financial stability
25.5
The report suggests that the reconfigured FSPG should assist the
EFC with financial stability issues in its preparations for Council
meetings. When acting in this manner the committee would be reinforced
with a number of additional members, including the chairs of the
proposed Level 3 committees.
25.6
The report notes that the Council has endorsed the EFC's proposals
and that consultation with the European Parliament and interested
parties will be undertaken by the Commission and the Danish Presidency,
with a view to an early decision on implementing them. The Commission
would propose legislation on the Levels 2 and 3 committees as
soon as possible.
The Government's view
25.7
The Financial Secretary to the Treasury (Ruth Kelly) tells us:
"Earlier reports to Ecofin by Lamfalussy (2001) and Brouwer
(2000, 2001) had previously confirmed that the EU did not need
new institutions to manage its financial services business, but
required new ways of working. The key Lamfalussy features were
a greater consultation on individual legislative measures and
the greater use of 'comitology', the EU's equivalent of Westminster's
secondary legislation. The Lamfalussy approach offers a framework
for more flexible and responsive European financial services legislation.
"The UK and German governments initiated the re-examination
of the EU's regulatory structures for financial services, consistent
with this underlying philosophy. Principles underpinning the reform
were set out by the May 2002 Ecofin Council. These included: consistency
with the Treaty; appropriate accountability to Ecofin and other
EU institutions; subsidiarity; neutrality regarding national models
of supervision; clarity of objectives and responsibilities; appropriate
representation at EU level of the competent national authorities.
"The UK government believes the EFC report balances these
principles in a package that offers the prospect of more flexible
and responsive legislation. It will be important that the promise
of greater consultation is fully delivered, and that this assists
in ensuring that legislation is proportionate. The EFC package
should increase accountability to Ecofin for the implementation
of the Financial Services Action Plan, in particular through the
report's provision for FSPG to act as the link between the political
and technical levels.
"The proposals in the report should therefore enhance progress
towards the UK government's aim of a dynamic and effective single
market in financial services."
Conclusion
25.8
We note and welcome the Economic and Financial Committee's
proposals for improving the EU's regulatory structure for the
financial services sector and the Government's support for them.
We are content to clear this document, but shall scrutinise any
Commission proposals to implement the recommendations with interest.
Meanwhile we ask the Minister to inform us if it is proposed
that the recommendations be adopted in a substantially revised
form.
69
See (22154) 6554/01; HC 152-i (2001-02), paragraph 24 (18 July
2001). Back
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