Examination of Witnesses (Questions 100-119)
MRF STUART
POPHAM, MR
SIMON GLEESON,
MS BARBARA
RIDPATH AND
MR ANDRÉ
VILLENEUVE
3 NOVEMBER 2009
Q100 Nick Ainger: But is there not
a judgment to be made about what is a great risk?
Mr Gleeson: Yes.
Q101 Nick Ainger: An individual state
may well find it difficult for a given period but, if you like,
in terms of the overall global economy being in depression as
an alternative to an individual country being in recession, presumably
the judgment will be best stay out of a global depression?
Ms Ridpath: In the UK over half
the banking assets are not by UK institutions so there is only
so much effect that changing FSA capital requirements would have
on lending in the United Kingdom.
Q102 Mr Plaskitt: Mr Gleeson, you
have given the impression so far that you think there is not a
lot in these proposals that fundamentally changes from the status
quo, but in your view are there any meaningful new emergency powers
being proposed here?
Mr Gleeson: That comes to the
issue that the Chairman was raising a little earlier. We have
this power to give individual decisions to individual financial
institutions but it is immensely unclear how that would work and
what the consequences would be either for that institution or
for the government concerned. What we have here is a hook on which
the appropriate procedures could be used to build a meaningful
sanction, but at the moment in the draft we have nothing more
than a hook.
Q103 Mr Plaskitt: Do you think it
is satisfactory to proceed with a draft that has only that?
Mr Gleeson: I certainly do not.
Q104 Mr Plaskitt: What would you
like to see it have instead?
Mr Gleeson: It seems to me that
what this draft seeks to do is complete the establishment of these
bodies and then to leave it to themselves to decide what they
will do and how. My personal view is that that determination should
be made by the Member States and not by the bodies once they have
been established, and I think that that discussion should precede
the finalisation of these documents.
Q105 Mr Plaskitt: In the case of
identifying emergency circumstances or, as the current draft says,
"adverse developments", is it safe to leave that to
a bunch of Member States who might all disagree whether it is
adverse or not, whereas this envisages one power determining that?
I think that this discussion illustrates that there should at
least be dialogue, if not agreement, on what we mean by "adverse
developments" before we put it into the directive and then
proceed.
Q106 Mr Plaskitt: You will have heard
the previous witnesses suggest that there was not a lot of improvement
in these proposals in respect of having effective early warning
mechanisms. Do all of you share that view or do any of you dissent
from that view?
Ms Ridpath: I do not know if we
share so much the early warning mechanisms which are in here rather
than whether they have the teeth to take any actions about those
mechanisms. There are recommendations to go to the national level
but where the teeth lie to apply changes in interest rates, quantitative
credit restrictions, things like that, is not clear at all.
Q107 Mr Plaskitt: I am getting the
impression that some of you think all of this is saying what the
Union thinks needs to be said rather than changing things in fundamental
ways. Is that what you are telling us?
Mr Gleeson: It is fair to say
that to make any significant fundamental change in the way that
this is done you would need a change in the treaty. Since that
is completely out of court then you can see very clearly on the
drafting that what is happening here is an attempt to work within
the constraints of what can be done under the existing arrangements.
Q108 Mr Plaskitt: So is this a window-dressing
exercise?
Mr Gleeson: I can see how it could
be called that.
Mr Popham: We normally charge
a lot for that!
Q109 Chairman: What do you change
in the treaty? You said you need to change something.
Mr Gleeson: It is not possible
to give these entities under the current institutional arrangement
the power either to make rules or to exercise discretion, and
in order to achieve the European regulatory bodies which were
the original objective of this exercise that would need to change.
Q110 Chairman: But that is what the
draft before us proposed to do, to give them the powers.
Mr Gleeson: If that is the case
then there is a risk.
Q111 Chairman: The regulations say
they can.
Mr Gleeson: If that is the case
then the risk is that the European Court of Justice will take
the view that these directives are effectively ultra vires
to the treaty.
Mr Popham: And at that stage they
will cease to exist.
Q112 Mr Plaskitt: If that were the
case then all we would have done here was a piece of window-dressing
in your view, because it is still subject to a potential ECJ test;
is that right?
Mr Gleeson: Absolutely.
Q113 Mr Plaskitt: Is that not true
of any development that takes place within existing treaties,
so there is nothing novel about this, is there?
Mr Gleeson: What is novel about
this is that analytically it exists on the outer edge of the possible.
The vast majority of what the Commission does is so clearly within
the treaty that these issues do not arise.
Q114 Mr Plaskitt: All right. I am
not sure we are going to get much further with this.
Mr Popham: Can I come back with
an alternative for you, which is that if the intention is to ensure
an easier means of co-ordinating a forum in which people can get
together and decide whether a whistle should be blown, a mechanism
by which best standards can be adopted and encouraged, then all
of that is well within the treaty power, all of that is desirable.
If, however, you think it is going to go further and the intention
is to go further, to issue a central diktat or to overrule continuously
national rights, that is where there probably is not the treaty
authority and it runs the risk of going astray, and then you are
into the conspiracy theory.
Q115 Mr Plaskitt: I think it is very
important to establish that. Can I finally come back to this global
question? Given the discussion we are having, would you say that,
as currently constituted and, given what we established about
whether this alters powers within existing treaties, adoption
of this poses no risk to the European Union losing out as a result
of regulatory arbitrage?
Mr Villeneuve: It is extremely
important that anything that is done in the EU is synchronised
with what the US in particular does but also Asian countries do.
If we front-run the US, that is very bad for the EU and for London.
In this particular instance there are a lot of discussions going
on with the US and I am more encouraged than I was a few months
ago that there is a serious attempt being made to engage with
the US authorities on how we might not have exactly the same system
but we might have similar systems but at least work together.
There are other aspects of EU legislation for financial services
where I cannot be so positive, but we are talking about this now.
Q116 Mr Plaskitt: Do you think any
of this is running ahead of where the US is and therefore posing
a risk?
Mr Villeneuve: I think it risked
looking like that at one time but I think now there is a serious
attempt to synchronise with the US. It would be very bad indeed
if, as I said earlier, we forged ahead of the international standard
setters as well. Very important in this is Basel, so if we try
and front-run Basel that is bad news. There are some people in
Europe who might want us to take a more aggressive view and show
the lead to the rest of the world, but that is just nonsense.
Mr Plaskitt: And there is a whole separate
question on whether Basel itself is adequate, but we have not
got time to go into that, I suspect.
Q117 Chairman: Thank you. Richard
Portes told us that it was politically inconceivable that the
FSA would be overruled in the Supervisory Authorities. Are you
confident that that is the case?
Mr Gleeson: We have seen at least
one case of the FSA being effectively overruled, albeit on a technical
matter, in CESR, the committee which is the predecessor of one
of these, so not only is it not inconceivable; there is at least
one precedent.
Q118 Chairman: Any supporters of
Portes?
Mr Villeneuve: I would say yes,
it is conceivable, and I would also say that the FSA needs to
play a very active role, and as a committee I would also be concerned
to make sure that they have enough people ready to play that active
role.
Q119 Chairman: You say here the Supervisory
Authorities have no powers or, if they do have powers, they will
be operating at the far edge of legality. Do you agree with that?
Mr Gleeson: Yes.
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