Supplementary memorandum submitted by
the British Bankers' Association
The BBA has been asked to provide the Committee
with examples of political decisions left to Level 3 of Lamfalussy
and this supplementary submission responds to this request.
1. First it is important to set out what
we understand by Level 3 of Lamfalussy for these purposes—as
we believe there is widespread confusion about what is, and what
is not, Level 3 of Lamfalussy. There are two main situations where
the European Commission asks Level 3 Committees to advise it.
The first is where the Commission asks for advice prior to developing
Level 2 Implementing Measures. The second is where the Commission
asks for advice prior to considering what measures if any it should
propose in relation to an area of financial services policy eg
how it should approach developments relating to hedge funds. We
consider the first of these situations to be an example of Level
2 work—even though the advice is given by a Level 3 Committee.
Similarly we consider the second situation to be an example of
Level 1 work. In both cases the Level 3 Committee is advising
and the advice is given in a context which is political. The ultimate
decisions on what proposals are then put forward are taken by
the Commission and the adoption of any proposals are for the Council
and, so far as the process requires, the European Parliament.
2. We believe that many of the circumstances
where Level 3 Committees are accused of taking "political
decisions" fall within one or other of the situations described
above. The reality is that any advice given by a Level 3 Committee
in such circumstances is not a "political decision"
but simply advice. If it was found that the advice was invariably
followed without significant modification then there might be
grounds for concern that a Level 3 Committee was usurping the
political prerogative—but the evidence to date does not
support such a conclusion.
3. Another important consideration is the
subjectivity of the characterisation of a decision or a piece
of advice as "political" or as "technical".
In reality the extent to which a particular decision is "political"
depends upon how important it is perceived to be by politicians
or interest groups. Generally if a decision is regarded as uncontentious
or not having a significant effect on the industries or consumers
of one or more member states it is accepted as being technical.
Otherwise a decision is at risk of being described as political
by one or more interest groups or by politicians. In reality some
very "technical" issues are very political but it is
often extremely important for them to be decided with the benefit
of expert technical advice.
4. A good example of this is the definition
of "liquid shares" in the Markets in Financial Instruments
Directive—which is to be defined in a Level 2 Implementing
Measure. Strictly speaking the question of what is a liquid share
should be capable of being given a technical solution—and
on a legal analysis of Article 27 of MIFID it would have been
possible to conclude that "shares . . . for which there is
a liquid market" meant shares for which there is a pan-European
liquid market—rather than a small local market which is
"liquid" in a particular member state but would be regarded
as illiquid in, for example, the London, Frankfurt or Paris markets.
Industry (eg most European financial services trade associations)
argued for a pan-European definition (and consequently for a smaller
number of shares to be deemed to be "liquid") but CESR's
advice did not follow this—and member states have been arguing
for a significant number of shares to be included within the definition
which would not be regarded as liquid in a pan-European context.
This is an example of a case where CESR's advice was undoubtedly
affected by political considerations of what would be acceptable
to the national regulators and the national finance ministries.
However, it is not a case of a "political decision at Level
3"—rather it is an example of advice provided in the
context of Level 2 which was affected by considerations of what
was considered likely to be politically acceptable.
5. Strictly speaking Level 3 is, in our
view, the situation where a Level 3 Committee sets standards or
takes interpretative decisions which strictly speaking are not
legally binding in EU law but, nonetheless, have an important
impact in practice either because national regulators act in accordance
with the interpretation or, in some cases, because the national
regulator—or its legislature—then turns the standards
into national regulatory rules/laws.
6. There are a number of cases where CESR
has developed standards or draft standards which have proved contentious
but as yet no other Level 3 Committee has developed standards.
The standards which CESR has produced that have proved contentious
have been their "Investor Protection" standards and
the draft European System of Central Banks/CESR standards on clearing
and settlement. In the case of the Investor Protection standards
there were a range of aspects of these standards which the BBA
and the European Banking Federation, for example, considered to
be burdensome and impracticable. However, implementation of these
standards by CESR members was, quite sensibly, deferred pending
adoption and implementation of MIFID and will now be superseded
by MIFID and the Implementing Measures made under it. Similarly
the ESCB and CESR have deferred finalising the clearing and settlement
standards pending the European Commission's decision on what it
will propose in relation to clearing and settlement. These would
be the two examples we would cite of Level 3 activity which were
potentially politically sensitive.
January 2006
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