Select Committee on Treasury Written Evidence

Memorandum submitted by Barclays


  We believe the EU has come a long way in recent years. It now consults more thoroughly and is, at least, paying lip service to the whole better regulation agenda. We consider that it is still too early to be definitive about the success of the Lamfalussy process. That said, any developments must be evolutionary not revolutionary. Our view is that the increased involvement of the European Parliament has been of benefit to all stakeholders wishing to engage in the legislative process.

  As far as the three specific issues highlighted:

  MiFID: the extension of time is to be welcomed but we have concerns about the level of detail now being introduced by CESR.

  Clearing and Settlement: we remain unconvinced that legislation is required and consider that the Giovannini Barrier approach is to be preferred.

  Mortgage Green Paper: we have urged the Commission to take special care to consider impacts on the UK market (the EU's largest and most developed) before it takes any action. We also recommend that efforts be prioritised to ensure those likely to integrate markets are tackled first (funding access, market entry barriers, legal commonality including collateral, consumer protection issues).

  In conclusion we are more optimistic than for some time about the approaches to financial services legislation being exposed in Brussels.

  1.   The Operation and Development of the Lamfalussy Arrangements: We have closely followed and long supported the Lamfalussy arrangements. Currently our Group General Counsel, Mark Harding, sits, in a personal capacity, on the Inter-Institutional Monitoring Group (IIMG) one aim of which is to improve the process.

  2.  Our current main concerns are that the process should be given sufficient time to bed down before any significant changes are contemplated. It was originally envisaged that the Lamfalussy process would improve the updating of legislation but to date it has mostly had to deal with new framework legislation. We therefore consider it somewhat premature to judge its performance in the role for which it was originally designed.

  3.  In terms of the three Level 3 committees we consider that they should work together to converge practices between themselves and co-ordinate activities in the most efficient fashion. We do not believe that, at this stage, there is any merit in considering new structures or arrangements and that to do so would be to distract from the need to make existing arrangements work well. It is very much a case of evolution not revolution.

  4.  It appears from the drafts we have seen that the Commission will put forward such an approach in its White Paper, specifically:

    —  Settling the European Parliament call back issue.

    —  Improving accountability and transparency.

    —  Improving cross-sectoral co-operation.

    —  Embedding better regulation principles.

    —  Being mindful of the global context.

  5.   The Impact of Better Regulation Principles: We have noticed an increasing willingness of the Commission to consult in an open fashion. This is very much to be welcomed. Some Member States might benefit from adopting a similar approach, although we would commend both the Treasury and the Department of Trade Industry on their willingness to consult. In particular we regard it as important to allow sufficient time for considered and meaningful responses to be prepared. The recent inquiries initiated by DG Competition into financial services have unfortunately not done so. There is always the danger that hurried input from consultees will result in poor conclusions being reached by policy makers.

  6.  A second area where we do not think that the principles have been applied sufficiently rigorously is in respect of the Consumer Credit Directive. No rigorous cost benefit analysis (CBA) has been conducted for this proposal and the Commission lost an opportunity to clearly demonstrate commitment to this aspect of the better regulation agenda when it declined to conduct one.

  7.  There is also a clear case for both the Council and European Parliament to consider conducting CBAs when they make significant amendments to Commission texts which do have CBAs attached to them.

  8.   The Role of the European Parliament in the Legislative Process: We regard the European Parliament as a very useful participant in the legislative process. It is probably the most open in terms of interested parties' ability to influence the outcome of legislation.

  9.  In terms of the specific initiatives highlighted by the Committee we offer the following comments:

  10.   The Implementation of the Markets in Financial Instruments Directive (MiFID): We welcomed the initial Commission proposal to extend the MiFID implementation deadline. The subsequent UK Presidency proposal to extend it further to a total of 18 months (nine for regulators and nine for firms to implement the necessary systems and compliance changes), bringing the deadline to 1 November 2007 is also beneficial. We have been concerned by the tendency by CESR on some aspects of its advice on the implementing measures to stray beyond the remit accorded to it by the Level 1 directive. It is therefore pleasing to see the Commission's readiness to disregard the sections of advice that do so, reverting rather to the principle set out in the underlying directive. We are, however, a little confused by the mixed messages coming out of the Commission on the subject of whether this is a minimum or maximum harmonisation directive. We would favour minimum harmonisation, coupled with mutual recognition.

  11.   The Commission's consideration of a possible Clearing and Settlement Directive: The Barclays position over the several years that the debate on clearing and settlement has been rumbling along has always been that legislative action is unnecessary here as market forces will bring about the necessary cross-border integration over time. We support the identified non-legislative measures identified to overcome the so-called "Giovannini Barriers" to cross-border integration of clearing and settlement systems and believe they should be given time to take effect before any legislative action should be considered. We were at first encouraged by the Commission's commitment to undertake a thorough regulatory impact analysis (RIA) before making any decisions on how to proceed in this area. However, we have since been disappointed by developments that at one point indicated that the RIA would not be published for scrutiny and consultation but rather be published at the same time alongside a proposal for a directive in the first half of 2006, thus undermining the whole purpose of such an exercise. We understand that as a result of pressure from industry, the RIA will now be published ahead of the draft directive but it still seems inevitable that a directive will follow regardless.

  12.   The Commission's consideration of Mortgage Credit in the context of the development of a Single Market in Retail Financial Services: Barclays submitted its response to the European Commission's Green Paper, Mortgage Credit in the EU, at the end of November. Like many others, we were relieved that the Green Paper was relatively high-level—it contained very few concrete proposals. However, it did provide an indication of the direction of Commission thinking with regard to mortgages.

  13.  The Commission is keen to see the development of an integrated European market for mortgages, with more cross-border lending; although it was not entirely clear from the Green Paper exactly what was meant by this, or whether there was consumer demand for such a development. The Commission however feels that consumers will be better served in a larger and more integrated market.

  14.  Broadly, Barclays does not disagree with this sentiment. However, in our consultation response, we urged the Commission to be cautious in how it goes about achieving its objective. The Green Paper proposes four main areas of activity—consumer protection, legal issues, mortgage collateral and funding. We believe that only changes to the last of these—funding—will actually lead to the more integrated market the Commission desires.

  15.  We encouraged the Commission to prioritise any activity as follows:

    (a)  Measures to increase access to funding across Europe.

    (b)  Measures to reduce barriers to market entry and product development, such as the removal of usury rules and interest rate caps, and greater access to databases.

    (c)  Measures to support common standards in legal issues and mortgage collateral.

    (d)  Measures to further protect consumers.

  16.  We made the point throughout our response that the UK represents the largest and most developed mortgage market in the EU, and that the Commission should take care not to damage inadvertently markets such as the UK which are already working well. There is no evidence that increased consumer protection would help drive integration across Europe, and would be detrimental to the UK market. In this sphere, we suggested that the Commission might like to focus its attention on encouraging implementation and embedding of the voluntary code of conduct among lenders.

  17.  We welcomed the production of a Cost-Benefit Analysis to accompany the Green Paper, but feel that such examinations should in future be more robust. The analysis was somewhat one-sided and focused more on the expected benefits that the costs, which we thought were underestimated. However, it was based on a somewhat hypothetical set of proposals and the actual costs will be based on whatever measures the Commission decides to adopt. Nonetheless, we are pleased that the Commission has accepted the need for such assessments and would urge that one is undertaken on the proposal for a Consumer Credit Directive.

  18.  Commissioner McCreevy has repeatedly stated that for him to agree to any new proposals for directives, such proposals must be able to demonstrate (a) clear evidence of the need for action; (b) that the EU is best placed to act; and (c) that a regulatory proposal is the only possible solution. We are encouraged by this sentiment and think that mortgages represent a real test of the Commission's commitment to such principles and to the wider better regulation agenda.

December 2005

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