Submission from the Corporation of London
I. INTRODUCTION:
THE CITY
AND EU LEGISLATION
1. The Corporation welcomes the opportunity
to comment on the Parliamentary scrutiny process. The Corporation
recognises that it is essential for the maintenance and enhancement
of democratic accountability, including public understanding and
engagement, that Parliament has the most effective and transparent
scrutiny of EU legislation possible.
2. To a very considerable and increasing
degree legislation, regulation and supervision of the City stems
from European Community legislation. Consequently City practitioners,
their trade associations and the Corporation take a very close
interest in such legislation. They regularly make their views
known to UK authorities, the European Commission and to the European
Parliament; when appropriate opportunities arise they submit evidence
to the Lords European Communities Committee (and to Commons Departmental
Select Committees, which are not part of the formal scrutiny process).
3. A basic and common principle underpinning
their positions on proposed EU legislation is the belief in the
concept of a single European market for financial services. This
is the best means to ensure wide choice and low prices to all
users of financial services, and a competitive and innovative
industry based on the ability of buyers and sellers of services
to interact, wherever they are located within the EU, within a
framework of proportionate prudential regulation and supervision
to safeguard users, guard against fraud, and to maintain financial
stability. Proposed legislation should abide by this principle
and from time to time there are risks that it will not.
4. Additionally, we wish to commend the
proposals to improve implementation of EU legislation in the UK
made in the Bellis Report: "Implementation of EU Legislation.
An independent study for the Foreign and Commonwealth Office by
Mr Robin Bellis" (24/11/2003). It suggests improvements
to the quality of EU proposals and of UK implementing legislation
which have implications for scrutiny of both Commission proposals
and of proposed UK implementing measures.
II. SCRUTINY
5. As the Memorandum from the Leader of
the House notes, Members involved in the scrutiny process work
hard on a very considerable number of EU legislative proposals;
but, as the Memorandum says, this work attracts insufficient interest
(although it is unclear as to whether or not this comment refers
to both Houses). A number of options, especially concerning the
structure of the process, with the potential to improve participation
and to raise public awareness are suggested. The Corporation therefore
offers some observations on the current situation and some suggestions
for the principles underlying scrutiny.
6. As to current practice, the following
observations seem apposite:
— those likely to be affected by EU
proposals often find the scrutiny process and structure complex
and opaque; in the Commons it appears to involve the Scrutiny
Committee, which looks at everything (amounting to several hundred
legislative proposal each session) and three Commons European
Standing Committees which examine measures identified by the Scrutiny
Committee, on the basis of submissions from the relevant government
department;
— sometimes Departmental Select Committees
examine EU issues in depth and they take evidence from interested
parties as well as departments but this does not appear to be
part of the formal scrutiny process;
— it is not apparent whether or where
matters arising from EU legislative proposals of consequence to
those affected are systematically examined in depth by Members
with a continuous involvement in an EU proposal across the various
committees potentially involved, so there is a risk of discontinuity
of expertise;
— in the Lords the process seems to
be less complex and more transparent, involving the European Communities
Committee and its several sub-committees, which produce in-depth
reports, following examination of evidence from both government
and other interested parties, albeit on a selection of matters;
— it is not clear to what extent the
Commons scrutiny process seeks directly to consider the views
of those likely to be affected by EU proposals;
— in terms of identifying issues or
altering HMG's stance, it is often difficult for those affected
to judge the value added of scrutiny when affected parties as
opposed to departments are not consulted;
— the timing of the scrutiny of proposals,
especially in the Commons, is difficult for those affected to
establish in advance because there appears to be no advance public
notification of matters to be considered or when;
— Commons reports on matters of concern
to the City receive little publicity, and, once published, can
be very difficult to identify (the Commons Scrutiny Committee
website lists report by Session and by number but not by subject—see
Annex);
— the Commons Standing Committee
does not appear to have discussed any financial services legislation
since at least 2001, although several major proposals have since
been proposed upon which City practitioners, their associations
and the Corporation have made submissions setting out their concerns,
about the risk of damage to efficient, competitive European markets,
to the UK and EU authorities.
8. To a considerable degree at least, the
above comments are the result both of the sheer volume of EU proposals
subject to scrutiny relative to the resources available to Parliament
and of the complex structure of the current Commons process. But
it is unclear whether or how the options for change in the Memorandum
would address the resource issue. It might be, however, that the
underlying thinking is that the perceived problems are primarily
matters of structure and process rather than resources.
III. COMITOLOGY
9. A separate issue concerns the matter
of comitology with regard to financial services. As the Clearance
Report on the proposal COM(03)659 concerning the Regulation of
Financial Services noted, a new regulatory structure was to be
created following recommendations from the Group of "Wise
Men" chaired by Alexandre Lamfalussy. Level 1 legislation,
such as directives, would be subject to normal Council and scrutiny
procedures, such Level 1 legislation being intended to establish
frameworks of broad and enduring principles; Level 2 legislation
was to be delegated to supervisory committees chaired by the European
Commission, Level 2 measures being more technical and subject
to revision as soon as needed via a more flexible and speedier
process than at Level 1.
10. It needs to be recognised that Level
2 measures are just as much legislative acts as Level 1 instruments.
Level 2 measures have the potential to have serious consequences
for the ambit of Level 1 legislation and to have significant impacts
on the financial services affected. Partly for these reasons and
partly because of concern to retain an appropriate degree of Parliamentary
power, the European Parliament insisted upon a scrutiny role in
Level 2 legislation. But it is unclear what is envisaged by
the UK Parliament for the scrutiny process, upon which the Commons
Clearance Report was silent when the Lamfalussy proposals were
considered.
11. To give some indication of their scope,
the new Investment Service Directive contains some two dozen "pegs"
on which to hang Level 2 proposals. Two comments may be in order:
— the first is that it is essential
that scrutiny considers very carefully indeed the precise wording
of any Level 1 measure enabling Level 2 regulations;
— it is our understanding that, at
Ministerial discretion, comitology measures with great significance
can be referred to scrutiny for clearance.
12. The Lords Report on Scrutiny (published
3 December 2002) proposed:
". . . in examining new proposals for
EU legislation we can examine whether they appropriately delegate
legislative power, and we undertake to do so most keenly. Following
our 1998 report, the Government agreed to submit to Parliament
comitology legislation that was politically or practically important.
We are surprised that they have not done so on any occasion. We
accordingly propose that the Government review the importance
of EU subsidiary legislation, and what its significance is in
practice, and inform the Committee on a regular basis of any significant
proposals. We need to be satisfied that the Government will in
fact submit significant texts for scrutiny before discussion in
comitology committee."
This proposal is commendable. To realise
such aims, HM Treasury should inform the scrutiny committees of
both Houses when Level 2 proposals are to be considered by the
new regulatory committees, explaining whether they are simply
technical or not.
IV. PRINCIPLES
TO UNDERPIN
SCRUTINY AT
LEVELS 1 AND
2
13. Bearing in mind the earlier comments
in this submission, a number of principles are recommended below:
— to underpin the process and structure
of scrutiny;
— and to establish criteria for judging
the merits of EU proposals:
Process and Structure
— the entire process should be timely,
transparent, and intelligible to the public and affected parties;
— there should be a clear focal point—or
one clear single focal point in each of the two Houses—where
continuity of scrutiny and expertise is systematically maintained;
— a clear, publicly available timetable
for scrutiny should be established;
— consultation with affected parties
should be normal and timely in both Houses.
Substance of EU Proposals
— Policy instruments other than legislation
should always be considered in preference to the legislative route.
— If legislation is necessary, does
it give authorised service providers in one Member State the right
to offer services licensed by their national authority throughout
the EU and rights of access to all necessary infrastructures?
Is it:
— proportionate to the problem it claims
to address?
— Is there a thorough Regulatory Impact
Assessment to hand in which confidence can be placed because those
to be affected by the proposals have been fully consulted?
— Do the proposals have built in "indicators"
of intended outcomes against which success or otherwise can be
measured when the effects of the proposals are subsequently reviewed?
— Does it address clear market failure?
— Are the terms sufficiently clear
so as not to create ambiguities of interpretation which could
hinder the single market or effective enforcement?
May 2004
Annex
Complexity of finding Commons Scrutiny
Reports on subjects of interest
Go to UK Parliament homepage.
Go to Committees page.
Go to European Scrutiny Committee homepage.
Go to Reports and Publications page.
Reports are listed by parliamentary session
(eg 2002-03) and appear periodically throughout the session. For
example, the Committee produced 38 reports in session 2002-03.
Within each report, topics are only divided
up between those that have been "cleared" or "not
cleared" by the Committee. There is no distinction between
individual issues apart from abbreviations for the individual
responsible government departments so you have to trawl through
each individual report (which admittedly do have contents pages)
to find relevant topics.
The advanced search facility is unhelpful as
it appears to search the entire website rather than simply the
relevant committee page. A search for "transparency trading
securities" came up with 480 results—and this was after
already knowing that this subject and these exact words were contained
in a number of reports.
In conclusion, it is a very lengthy and time-consuming
process which requires significant perseverance to get any results.
A transparent index or improved site is required.
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