Conclusions and recommendations
1. The
FSAP was a wide-ranging and ambitious programme of new legislation.
As the FSAP comes to an end, the Commission has placed greater
importance on ensuring consistent and workable implementation
of the existing financial services legislation. We welcome this
change of emphasis under President Barroso. (Paragraph 6)
2. Based
on the evidence that we received, there is some evidence of financial
institutions expanding through the acquisition of banks and insurers
in other European countries. However, a single market in European
financial services, with comparable products and services available
to consumers direct across borders, does not appear to be a realistic
proposition in the near future. The industry should look for ways
to manage the non-regulatory barriers to cross-border sales of
retail financial services products, particularly in areas in which
the UK market has a product offering that is unavailable elsewhere
in Europe. However, we recognise that, in some markets, such as
the mortgage market, the non-regulatory barriers are significant
and so, even in a consistent regulatory environment, there is
unlikely to be significant cross-border growth. In these circumstances,
the Commission should ensure that, in evaluating the likely costs
and benefits of future proposals, it takes account of the fact
that growth in cross-border sales is likely to be limited as a
result of the non-regulatory barriers. (Paragraph 9)
3. It
is essential that the United Kingdom, through the European Council,
supports moves by the Commission to prevent countries from erecting
artificial barriers against consolidation in the financial services
sector and exerts pressure on European countries that attempt
to thwart cross-border merger and acquisition activity for unacceptable
reasons. (Paragraph 10)
4. A
change in the working culture at the Commission towards more proportionate,
risk-based, policy making will not happen immediately. We welcome
Commissioner McCreevy's assurances that the Commission will prove
that new regulation will have a clear benefit to the European
economy. It is essential that European policymakers ask and receive
answers to the simple questions that McCreevy is posing: Is there
a case for action? Is it the EU that is best placed to act? Is
a regulatory proposal the only possible solution? To ensure growth
and competitiveness in the European financial services industry,
the Commission must now deliver on its promise to ensure better
regulation principles are followed in its policymaking. (Paragraph
13)
5. National
parliaments, national governments, the Lamfalussy committees,
the Commission, the Council, the European Parliament and businesses
themselves must all recognise that we have a joint responsibility
towards ensuring that European financial services legislation
is justifiable and proportionate. (Paragraph 15)
6. We
are encouraged by Commissioner McCreevy's work to place greater
emphasis on enforcement and implementation across the European
Union, which entails a cultural change within the Commission.
It is essential that the implementation and enforcement of MiFID
and the other existing legislation become the priorities of the
Commission in relation to financial services, rather than focusing
on drafting and negotiating new legislation. We believe that there
is the need for a period of 'bedding down' of European financial
services legislation. (Paragraph 17)
7. As
European retail financial services markets become more open, it
is important to ensure that consumers have the chance to have
more input into the European legislative process. Presently, companies
are organised into their trade associations, generally articulate
and strong lobbyists, whereas consumers, particularly in Brussels,
tend to be less well represented. We welcome the move in the Commission's
recent White Paper on Financial Services Policy towards establishing
a permanent group of consumer representatives from across Europe
and would commend the Financial Services Authority's Consumer
Panel as a possible framework to enable the consumer voice to
be heard at all levels. (Paragraph 19)
8. Based
on the evidence received by the Committee, the Lamfalussy structure
appears to be functioning reasonably effectively. The main difficulties
appear to stem from the tight timeframes that the Commission has
typically imposed on the Lamfalussy committees to deliver advice.
The Commission should consider slowing the legislative process
where necessary, in order to ensure that the committees are able
to fully investigate and resolve the issues involved. In addition,
it is essential that the Treasury attempts to ensure that any
clearly political matters are resolved in the Level 2 committees—with
genuinely technical input provided by the Level 3 committees at
this stage—rather than leaving them for the FSA and other
European regulators to debate later in the Level 3 discussions.
(Paragraph 26)
9. It
appears to us that the Lamfalussy structure is developing well.
We consider it important that the present ambiguity regarding
the role of the European Parliament in the process is removed.
The evidence we have received indicates that the European Parliament
is playing a constructive role in the legislative process for
financial services, particularly in its contribution to scrutiny
of delegated implementing measures in the Lamfalussy structure.
We consider that the European Parliament should have a formal
role in examining Lamfalussy level 2 implementing measures within
a reasonable timeframe, with the ultimate sanction of blocking
or "calling back" any measures which it considers unacceptable.
(Paragraph 31)
10. We
recommend that the Government should, in its response to this
report, provide full details of the draft inter-institutional
agreement on comitology procedures, together with the Government's
assessment of the agreement and its application to the Lamfalussy
process. (Paragraph 32)
11. Whilst
we recognise the difficulty in estimating the costs and benefits
of one part of an overall policy framework, the work involved
in undertaking a cost-benefit analysis undoubtedly furthers and
enriches the debate around what a measure is supposed to achieve
and what changes firms will need to make to implement the measure.
Accordingly, we are concerned that, to date, there has been no
formal evaluation of the costs and benefits of MiFID by the Commission
and will be extremely interested in the cost-benefit analysis
on MiFID to be prepared by the FSA. We also welcome the new approach
to cost-benefit analysis being taken at the Commission, which
will require full assessments to be carried out on future proposals
of this sort. (Paragraph 39)
12. Whilst
we applaud the leading position that has been taken by UK-based
financial services companies with regard to MiFID, there is a
clear risk that the Directive will not be promptly and fully implemented
in all other European countries. It is also important that 'passporting'
rights are recognised across Europe, in order to more readily
allow UK-based firms to set up branches in other European countries
and to ensure that the responsibilities of home and host regulators
are clearly delineated. It is therefore essential that the Commission
demonstrates its new focus on implementation and enforcement through
ensuring that MiFID is implemented consistently across Europe.
(Paragraph 42)
13. Furthermore,
the implementation of MiFID by national regulators will be a strong
test of the Lamfalussy framework. Following the implementation
of MiFID, we would encourage the FSA to consider reviewing the
way in which the Lamfalussy process has worked in order to identify
lessons for the future. (Paragraph 43)
14. It
would be undesirable for the UK mortgage sector to implement new
regulation as a consequence of European legislation if it has
little or no incremental benefit to consumers. The case for a
new mortgage directive remains unproven. (Paragraph 47)
15. It
is therefore important that the additional cost associated with
clearing and settlement across borders is reduced over time. We
are pleased with the approach taken by the Commission in this
area, which appears consistent with their 'better regulation'
agenda. The Commission has indicated that it is willing to step
aside if a market-led solution starts to appear in this area,
and the Commission must deliver on this promise if a sensible
solution emerges. We note that clearing and settlement has a systemic
importance to a financial services market, although this is not
a reason for inaction within a single European market for financial
services. If the market cannot or will not address the high costs
of clearing and settlement in Europe, it can have no complaints
when policymakers start to become involved. (Paragraph 53)
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