Integration of Financial Markets

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Mr. Timms: Let me endorse my hon. Friend's point about the current strength of the London market. It is interesting to me, having worked in other areas for the past few years, to return to this area and notice the greater strength of London when compared with its standing a few years ago. That is a welcome development, and we are concerned to maintain it. Is there a danger that the exercise could damage not just London's competitiveness but that of European financial services in a worldwide market? My hon. Friend quite fairly makes a specific point about London, and the answer to his question is yes. It is possible that the exercise could progress in a way that had the effect he referred to, which is why we are so determined that the five priorities that I have set out for the Committee should be reflected in where we go from here. If we can secure those priorities, and the report is helpful in that respect, we can be confident that we shall establish a genuinely competitive market in Europe, within which London will thrive, and a strong financial services industry that can serve the needs of the rest of the world. Theoretically, the process could advance in a way that is damaging, which is why we have invested so much effort in ensuring that we take the right approach, on the basis of which we can be optimistic about the future.

Mr. Robert Walter (North Dorset) (Con): The Minister may be aware that in evidence to the Select Committee on Treasury, the FSA said that it adopted a minimum approach when implementing directives, but there is considerable evidence from various bodies in the City that there is a lot of gold-plating of

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directives. Will he indicate whether he feels that the UK should implement directives at the lowest level to ensure the continued competitiveness of the City?

Mr. Timms: That depends on what is meant by ''at the lowest level''. The Government's policy is certainly that we do not want to go beyond the minimum necessary to comply with a directive, unless the benefits of doing so are demonstrably greater than the associated costs. One can conceive of some circumstances in which it might be helpful to go further. However, our approach is that that would be the exception rather than the rule and we would expect it to happen only when the benefits were clearly greater than the additional costs. The FSA has committed not to go beyond the minimum standards necessary when implementing EU law on financial services, except, again, when a demonstrably convincing case can be made.

Our view is that implementation needs to be carried out on the basis of a full, proper cost-benefit analysis and a regulatory impact assessment, and that it needs to be supported by wide consultation with the industry. That means that decisions can be taken on the basis of evidence, and that they will result in a measure being implemented in a way that is proportionate to the regulatory gap or the market failure that it seeks to address—and that does not go beyond that.

Dr. Nick Palmer (Broxtowe) (Lab): The Minister was able to report that there was broad consensus that, because of divergent practices in different countries, we do not want a one-size-fits-all policy. I always get worried when I hear about total consensus, and I would like to rock the boat slightly. Is there not a danger that differing national practices will be used as a cover for a degree of protectionism, which will make life a little harder for our extremely effective financial services exports?

Mr. Timms: Yes, it is possible that that could happen. Indeed, there might be one or two examples where one could say that that has already been attempted. It is certainly in the interests of London, as such a globally competitive financial services centre, that there should be an open market for financial services across Europe. That has been the aim of the whole exercise. It has been a difficult exercise in a number of respects—more difficult than was anticipated at the outset. However, the upshot is that it has led to welcome progress in the direction of achieving a single European market for financial services and that must be a good thing for London and for Europe as a whole. But I take my hon. Friend's point that it would be possible to use some of those cultural things as a way of obstructing the liberal market that we all want to see. We will watch closely to see whether that arises.

Mr. Andrew Tyrie (Chichester) (Con): The Minister replied to my hon. Friend the Member for North Dorset (Mr. Walter) by saying that gold-plating

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should be the exception rather than the rule and that he was going to ensure that that remained the case. I wonder whether, in collaboration with the industry and industry bodies, he would be prepared to compile and publish a list of where gold-plating appears to have taken place, showing why those cases were exceptions and giving an explanation.

Mr. Timms: The hon. Gentleman makes an interesting suggestion. It sounds as though the list that he has in mind could be quite lengthy.

Mr. Tyrie: But it is an ''exception''.

Mr. Timms: That is certainly the approach that I am describing. I am not sure how far back the hon. Gentleman would want me to go. In a spirit of good will, I will certainly take his idea away and reflect on it, because we are very serious about the importance of not gold-plating unless there is a good reason for doing so.

Mr. Michael Connarty (Falkirk, East) (Lab): Does the Minister think it sufficient to say that he will keep his eye on the matter when a Commissioner recently said that there had already been indications from some European countries that they would not implement all the directive in the precise way that the UK has said it will? They are talking about introducing some of it only when they need to. As we have found with many directives, other European countries implement only the minimum amount on the last possible day. Should the British Government not make more of a push to ensure that everyone adopts the strictest rules at the same time?

Mr. Timms: That is why we have set out better implementation and enforcement as the first of our five priorities. It is absolutely essential that, having gone through this exercise over the past four years, every EU member state implements and enforces the measures. I welcome the support for that position in the FSC report in front of the Committee. All member states should be treated equally and fairly, and we will continue to encourage progress towards completion of the FSAP and to ensure that other countries do so. I agree with my hon. Friend, and that is why better implementation and enforcement is our number one priority after the conclusion of the FSAP exercise.

Mr. Howard Flight (Arundel and South Downs) (Con): May I put it to the Minister that he might consider a sixth priority, which would be to resist and oppose any initiatives that damage the competitiveness of London and the UK? The problem is that some issues may be seen as helpful in an EU context but end up damaging London in an international context. To that end, I wrote recently to the Minister. Although the various UK interests pull together on a non-party political basis—

The Chairman: Order. Will the hon. Gentleman ask a question rather than make a statement?

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Mr. Flight: I assure the Committee that I have a question. Is the Minister satisfied that the Treasury is as well organised to understand all the issues that need to be addressed as it could be? I find that many trade bodies feel it is not.

Mr. Timms: I would, of course, be happy to consider any particular instance about which the hon. Gentleman is concerned. I can certainly assure him that we would be concerned about any measure that undermined competitiveness, because that would damage not only London but Europe as a whole. The evidence is that the Treasury has been effective in influencing the shape of legislation and ensuring that some of the worries that have arisen during the process have not materialised. I am sure that we could do more, but the Treasury's record has been pretty good.

Market opening, which means increased competition for financial service providers, also represents a big commercial opportunity for successful players in the industry, of which we have many in the UK. We must bear in mind the bigger prize available while also—I accept the hon. Gentleman's point—remaining vigilant about proposals that would damage competitiveness and thereby UK providers.

Mr. Hopkins: I draw the Minister's attention to page 3 of the EU Financial Services Committee report. Is the language not unconvincing? Paragraph 2.1 says that further financial integration ''could'' deliver significant benefits. The document reproduces ''could'' elsewhere, but there is no statement that integration will demonstrably improve things and make things better. If I were going to be convinced, this would not be the document for me. Will my hon. Friend try to convince me?

Mr. Timms: My hon. Friend may well have even more experience than I do of reading documents from this sort of source, and his point about the wording could also be made about the wording of many of them. However, the points picked out in the executive summary are very much in tune with the five priorities that I put to the Committee and were set out in one of the other documents on the list for this sitting: ''After the EU Financial Services Action Plan: a new strategic approach''. The five priorities are clearly picked up in the executive summary and the rest of the report. I accept my hon. Friend's point that the wording in some documents that emerge from Brussels is not always as clear as we would like it to be. However, this document has been encouraging for those who want the approach in our document to be adopted throughout Europe.

Mr. Heathcoat-Amory: The Minister asked for examples of gold-plating. The Association of Private Client Investment Managers gave some to the Treasury Select Committee. First, we failed to use an exemption in the distance marketing directive for cases in which the price of goods is volatile. Secondly, under the savings tax directive, our audit requirements are more onerous than those applied in other countries. Will the Minister follow up his good and reassuring words by bringing out a systematic list of directives

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and regulations sent in by trade bodies to follow through the Prime Minister's assurance this week that for every additional regulation, one should be taken off the list? Will the Minister turn those intentions into practice by taking up the suggestion made by my hon. Friend the Member for Chichester (Mr. Tyrie) of a list for Treasury action?

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