Examination of Witnesses (Questions 60-79)
MRF STUART
POPHAM, MR
SIMON GLEESON,
MS BARBARA
RIDPATH AND
MR ANDRÉ
VILLENEUVE
3 NOVEMBER 2009
Q60 Chairman: Actually, we did. In
this Committee we were told by witnesses that they did blow the
whistle. Maybe it was not a loud enough whistle, so maybe the
volume was down in Europe just as it was here.
Ms Ridpath: Yes. Without the tools
to action it it does not make a dramatic difference.
Q61 Mr Fallon: Could you clarify
an issue on appeals? Perhaps I could ask Clifford Chance for some
cost-free advice on this. Article 46, as drafted, of the Banking
Regulation, specifies that the appeals only apply to Articles
9, 10, 11 and under Article 1, so they do not actually cover Article
23. Is that right?
Mr Gleeson: That is correct.
Q62 Mr Fallon: Is that a serious
gap?
Mr Gleeson: That depends on how
useful you think the appeal power is likely to be.
Q63 Mr Fallon: What do you think?
Mr Gleeson: This system was in
existence, at least its bare bones were in existence, during the
previous crisis and the actions that were taken at the Brussels
level were completed well after the crisis had concluded. The
appeal process is a long-drawn out process.
Mr Popham: The simple answer must
be that there does not seem to be any particular reason why it
is excluded from the appeals process so it should be included.
Whether it would make a great deal of difference in practice is
a debatable point.
Q64 Mr Fallon: But the European Banking
Authority could take a decision that directly impinged on the
fiscal responsibilities of a British Chancellor without appeal
under Article 23. That is the position, is it not?
Mr Popham: It does look that way,
yes.
Q65 Mr Fallon: Is it also the case
that the European Banking Authority's decisions can apply directly
to individual financial institutions in this country?
Mr Popham: Again, potentially
so. Through a direction to the applicable national regulator,
which then does not implement it, it is possible in certain circumstances,
and Simon will give you the specifics, to address an individual
institution in a national country.
Mr Gleeson: What is strange about
this is that there is a power to address requests directly to
individual financial institutions but what the request is to do
is to comply with the directives that already exist, so in theory,
although the power exists, it is a power to do nothing more than
to say, "Comply with the law as it already stands".
It is mysterious as to what use that power could be.
Q66 Mr Fallon: But the power could
be addressed to a British bank?
Mr Gleeson: It could, yes.
Q67 Mr Fallon: And the British bank
would then have to comply?
Mr Popham: Yes.
Q68 Chairman: Are you determined
not to give us free advice, Mr Gleeson?
Mr Popham: It is just the normal
advice you are getting.
Q69 Peter Viggers: Do you have any
concerns about the Commission's powers to delegate authority to
the Supervisory Authorities?
Mr Gleeson: Yes. The technical
issue here is that the Commission has no such power. It is clear
as a matter of European law that the European Court of Justice
will not permit the Commission, or, for that matter, the Council,
to grant to any subsidiary body the power to exercise its discretion.
Consequently, what this draft does is attempt to draft around
that to create a regulator without the power to make rules or
the power to exercise discretion. This is why we find it so hard
to work out what a regulator thus constituted can actually do.
Q70 Peter Viggers: So what are the
risks in agreeing to these proposals if there are doubts about
their legal validity?
Mr Gleeson: What the proposals
do is create a framework which will enable the secretariat thus
created to decide what it is going to do, subject to a European
law constraint that it will not be allowed to do very much. It
is arguable that these proposals create no risk because actually
the institutions thus created cannot legally do anything, but
that takes us to the point mentioned earlier, which is that they
will have strong persuasive power just by reason of their existence.
Q71 Peter Viggers: Moving to more
general issues, do you think that members of the European Economic
Area will be content to be subject to bodies on which they have
no representation, Mr Villeneuve?
Mr Villeneuve: I think it is important
that it embraces the whole of the European Union members. You
are talking about EU members or EEA members?
Q72 Peter Viggers: Members of the
European Economic Area.
Mr Villeneuve: The proposals address
the EU at the moment and I think it is important that certainly
all EU members, whether in or out of the Eurozone, should be represented.
On the EEA, I do not have a strong view on that. Could I add one
thing to that? It is very important that the views taken by the
ESRB, among other things, take also a global perspective so it
is not just an EU-centric perspective. It must take a global perspective.
There are lots of non-EU banks in the EU, and anyway we are talking
about a global economy here, so it is important that they take
into account what the US might be thinking, what Switzerland might
be thinking and other areas such as those. I would just clarify
that.
Q73 Peter Viggers: Referring back
to earlier evidence we received, the role of the Steering Committee
may evolve, but as it is currently constituted there is nothing
in the draft regulations to ensure representation of the non-Eurozone
countries on that committee. Should that be rectified?
Mr Villeneuve: Given the importance
of the City of London, it would be crazy not to have the Bank
of England playing a very strong role in that committee in my
view. I cannot imagine that they would want the Bank of England
not to play a strong role.
Ms Ridpath: There is a three-year
review period which gives you some time to consider how it has
worked in the original set-up and whether it needs to be legislated
to improve the workings after the first three-year period.
Mr Popham: The balance is between
trying to include everybody making it an unmanageable or unworkable
group or so trimming it down that you exclude the very people
you should be including, and that is the risk.
Q74 Peter Viggers: How concerned
should we be? Should we try to legislate at this point to try
to cover the point or do you think the situation will evolve satisfactorily?
Mr Popham: I think it would certainly
be worth trying to ensure that there is recognition of the necessity
of appointing appropriate people and to keep that more perpetually
under review than three years. The real test of this organisation
is going to come when there is a crisis and unfortunately it is
going to be rather late in the day then to discover that it is
not the right body. If I can pick up André's point, it
does seem to me that the critical point here is that it is part
of a process of joining up the global array of financial regulators
so that in a future crisis there is some capability of communicating.
If, alternatively, this is seen as some kind of hurdle over which
you have to climb in order to co-ordinate then it is not going
to serve good purpose at all.
Q75 Mr Todd: You have referred to
the fact that this is a global market place. I have some difficulty
in defining what specific value an EU level engagement adds to
this framework of regulation and risk management. Can you help
me to fill that space in my mind?
Mr Villeneuve: The EU is 27 different
countries and it would be helpful as a process, I would imagine,
to get more global agreement on what the issues are and how they
need to be addressed if there were some co-ordination amongst
at least the 27 European countries as to what the problem is.
Q76 Mr Todd: There already are a
number of committees on which knowledge is exchanged, best practice
is discussed, information is shared. That would appear a valuable
function. I just wonder what value is brought by having a regulatory
framework which brings together nations of very different scale
in terms of financial sector engagement to provide an attempt
at what appears to be second-guessing the regulatory activities
of individual states.
Mr Villeneuve: It is clear that
these proposals have grown out of the fact that the current structure
did not help prevent this crisis.
Q77 Mr Todd: Indeed, but that does
not mean that another one developed from it is going to be better.
Mr Villeneuve: All the people
who have studied this, including Lord Turner, would suggest that
we needed more attention on the macro issues that were arising
out of this and this is one mechanism that the European Union
can put forward on this. You raise a very important question about
the relative size of financial services. I would link that to
the question about qualified majority voting. I know you will
probably come on to that but I would imagine that the system of
qualified majority voting should also recognise the size and importance
of financial services relative to each country's GDP, and certainly
from a practitioner point of view I would like to see that. It
does not at the moment.
Q78 Mr Todd: Indeed it does not,
but do you think that is at all likely to be an outcome?
Mr Villeneuve: Unfortunately not.
Q79 Mr Todd: It is an intriguing
suggestion, though not obviously realisable.
Mr Villeneuve: In the interests
of compromise, unfortunately not, but that would be a desirable
outcome.
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