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The proposals before us seek to create three European supervisory authorities with rule-making and binding mediation powers: the European banking authority, the European insurance and occupational pensions authority
and the European securities and markets authority. The regulations also establish the European systemic risk board, which will allow for macro-prudential oversight of the financial system, but it is worth repeating some of the Treasury Committee's report, which was published earlier this month and has been referred to many times in this debate. It states:
"There is a great...unease about the detail. There is still more unease about the speed with which it is hoped to agree them... the proposals will set in place a framework which should last for many decades, and there should be proper time for consideration."
Does the Minister share the concerns of that Committee? If not, will she admit that the Government are placing the need for new systems of international regulation above the need for careful consideration and impact assessment? Does she envisage the proposals being approved by 2 December, which after all is only tomorrow, as the Swedish presidency has called for? I am not clear whether she suggested earlier that things will go through as planned or whether she was sitting on the fence, because she was not quite clear about what will actually happen. She has a valuable opportunity this evening to outline in more detail what she envisages happening at the discussions tomorrow.
I am sure I do not have to stress that putting forward without proper examination proposals that have far-reaching and serious consequences for the UK's financial sector could genuinely be detrimental to us here in the United Kingdom. I understand that the Government had hoped to secure a rotating chairmanship of the ESRB, but they failed to do so. Will the Minister elaborate on those negotiations? They are crucial to the way in which we consider the proposals before us.
Are the Government satisfied that the structural arrangements for the ESRB are in Britain's interest? From today's discussions, I am not so sure that there is a great consensus on that in the Chamber, and the Minister owes it to the House to be clear about that. The Treasury Committee's report also highlighted concerns about the size of the board. What is the Minister's assessment of the Committee's comments in that respect? Does she accept that with more than 60 institutions represented, the decision making of the ESRB will be neither effective nor efficient?
I have concerns about the capacity of the three European supervisory authorities to give binding technical standards to member states and, directly, to institutions in emergency circumstances. I should like to put to the Minister yet again the question that has been posed several times in the debate: can she be more specific about what will qualify as an emergency circumstance? What safeguards will be put in place to ensure that the powers of national regulators-this is the crucial part-are not undermined? Any decisions that have fiscal implications for the British taxpayer should, without a doubt, remain with national regulators, but it is unclear how that corresponds to the supervisory authority's ability to make binding decisions. I should very much like the Minister to clarify that point to me and to the House this evening.
Following that, there is a concern that the powers associated with the ESA might run contrary to what is allowed under current EU legislation, so what is being done to resolve those very reasonable concerns? The Minister will be aware that some hedge fund managers and other financial service professionals are moving offshore, to places such as New York and Switzerland,
to avoid tighter EU regulations and heavier tax burdens. That has to be worrying news, and the Government must do all they can to ensure that private firms are given the proper incentives to operate in the United Kingdom, albeit ethically and responsibly. That must be taken into account when we consider how we operate from here on in, given what has gone on in the past.
What is the Minister's response to the news that some private firms are choosing to move out of the UK? That point has not been addressed in the debate, so I hope that she will spend a couple of minutes telling the House her view, because that move has wider implications for the financial centre in the City of London, for the companies dealing in hedge funds and for all the other organisations and companies that serve that industry. That move will have ramifications for employment prospects in the City and beyond as a result. Is she concerned that it will set a precedent, and that further regulation will exacerbate the problem?
I worry that reform of financial services regulation will harm the UK's financial services sector if it is undertaken without due care and, most importantly, consideration. We must ensure that our economic interests are fully protected and, importantly, upheld, but Ministers have been too slow to defend in Brussels the interests of the City. That was demonstrated neatly by the recent internal markets commissionership, as I have already described. I wait to see how the Government approach the redrafted directive on alternative investment fund managers, and I call on Ministers to ensure that any proposals enhance the UK's financial industry, rather than damage it in the way that my hon. Friend the Member for Sevenoaks described.
As I stated as the start of my speech, the City is the world's financial centre and the UK Government should lead and drive the debate about regulatory reform. So far, all the evidence points towards Ministers taking the back seat. That is the wrong way to go forward in the best interests of our nation and our standing on the world stage.
Sarah McCarthy-Fry: I thank all hon. Members for their participation in this debate. There has been a theme, in that the hon. Members for Sevenoaks (Mr. Fallon) and for South-West Norfolk (Christopher Fraser), and others, said that they did not believe that the Government were engaged. I disagree and assure them that the Government have been, and continue to be, heavily engaged at official and ministerial levels. Indeed, over the past months UK officials have consulted on and discussed the key legislative proposals with numerous member states. Those meetings have informed others of our positions and enabled us better to understand our European partners' views. We have strong working relationships and regular dialogue throughout the EU.
On hedge funds, the alternative investment fund managers directive, which has been mentioned, is a key example of a situation in which the Commission's initial legislative proposal was unacceptable. As a result of significant work by officials and Ministers, however, we have seen considerable improvements to it, and my noble Friend Lord Myners has personally committed a substantial part of his time to achieving a good outcome for the UK on EU directives. He has had useful discussions
with many EU stakeholders, including Members of the European Parliament, the Swedish presidency and the incoming Spanish presidency.
Many hon. Members spoke about the timetable, and we were very clear that national Parliaments needed time to scrutinise the proposals. The Chancellor's view at the October ECOFIN meeting was that October was far too early to sign up to a general approach, but we always said that we would aim for agreement on the complete package by December, and that was included in the explanatory memorandum.
The timeline was set out at the June European Council. We hope that tomorrow, ECOFIN will agree on the general approach, which will then become the Council negotiating position through the European Parliament. The European Parliament, through its Committee on Economic and Monetary Affairs, will agree its negotiating position; the Council presidency, the Commission and the European Parliament will identify, if necessary, a compromise position; changes will be approved, or otherwise, by ECOFIN in the spring; and the European Parliament will vote on the agreement. That is the timetable.
The hon. Members for Fareham (Mr. Hoban) and for South-West Norfolk, and many others, spoke about last week's Commission appointments. I think that those decisions, and those taken by the European Council, are good for Britain, good for Europe and good for Britain in Europe. We have, in Baroness Ashton and her appointment as High Representative for Foreign Affairs and Security Policy, someone who gives Britain a powerful voice in the Commission and the Council, and she is the only commissioner to have a key role in the Council, too. As vice-president of the Commission, she will have a central and important role in driving progress across the full range of issues. She will be able to speak up on and have influence over all the issues, including those that matter most to the British public-economic recovery, security and tackling climate change.
On the appointment of Monsieur Barnier, it seems strange that some Frenchmen are wonderful and some are not. People are happy to quote Monsieur de Larosière but not so happy with Monsieur Barnier. I hope that hon. Members will note what he said in an interview on the radio yesterday:
"I know the importance of the City. I know the importance of this major financial centre for growth in Britain and the economy of Europe as a whole."
"I have every confidence that, together, we can forge a constructive working relationship."
We believe that in his hearings before the European Parliament, Monsieur Barnier will demonstrate his commitment to valuing and promoting the interests of the City of London as Europe's principal financial centre.
In addition, Britain will have a number of senior official posts in the new Commission. Monsieur Barnier has asked the President of the Commission, in the course of the next rotation of director general appointments, to appoint an official he knows well and has worked
with before-Jonathan Faull. President Barroso has said that he intends to appoint a senior British official to lead work on economic and financial issues in his cabinet. We understand from Monsieur Barnier that there will be a senior Briton in his cabinet dealing with financial services, and that he will want someone who is known to the City.
Christopher Fraser: Will the Minister please answer my question about what assessment she has made of the implications of these new appointments for the City of London? It is all very well giving us the CVs of the different people involved and quotes from other people, but we in this House need to know the Government's view on the direct implications for the City.
A couple of hon. Members said that the fiscal safeguard clause appears to be contradictory, because if this is covered in the legislation we should not need an opt-out clause. The whole point is that it should, in practice, never need to be used. It is clearly stated in the legislation that the ESAs are required to ensure that they do not impinge on member states' fiscal responsibilities, so that is not a problem.
Mr. Hoban: The Minister makes that assertion, but it is possible for the ESAs to override national supervisors to make decisions that impact on fiscal responsibility, and that member states then have to appeal against. Clearly the Government's red line is not being respected in this area.
Sarah McCarthy-Fry: The Government have a very clear red line in this area. Is the hon. Gentleman saying that the clause should not be there at all? We are very clear that the new framework should not impinge on member states' fiscal responsibilities.
Let me turn to the legal basis and respond to some of the detailed questions on that. On the delegation of powers to the ESAs, the Commission is, as the European Scrutiny Committee has recognised, legally able under the treaty to delegate powers to the new supervisory authorities where it had that power in the first place and where the decision-making powers delegated do not involve wide discretion. We are looking closely at the element whereby, under the current legislative proposal, the supervisory authorities appear to be able to exercise discretion. That is what we have to work through in respect of the legal basis. Clearly, the new framework must be able to withstand legal challenge.
Sarah McCarthy-Fry: As I said, we are hoping to agree a general approach at ECOFIN. The process is ongoing, according to the timetable that I outlined. We are satisfied that article 95 of the EC treaty is an appropriate legal base for the new European supervisory authorities.
The hon. Member for Fareham asked whether the ESAs have the power to implement the ESRB recommendations on fiscal impacts. Those recommendations are an early warning system for action to protect financial stability that are addressed to member states, supervisory authorities and central banks. If there were a fiscal impact, such recommendations would not be addressed to ESAs but to member states themselves.
A question was asked about whether further discussions on proposals would be binding in relation to the European Council. Anything that is included in the final co-decided text will be binding. The text under discussion at ECOFIN is about the Council's position. If the European Parliament disagrees with something, an agreement on the exact wording will take place between the Council and the European Parliament, and at that point, it would be binding.
My hon. Friend the Member for South Derbyshire (Mr. Todd) and the hon. Member for Taunton (Mr. Browne) asked about the ESAs' decision-making process and whether we will have the same weight as other member states. We expect to exercise significant influence through the Financial Services Authority, because rule making is expected to take place under the weighted qualified majority voting procedure used in the European Council. That will ensure that the FSA has a substantial number of votes.
The right hon. Member for Wells (Mr. Heathcoat-Amory) and the hon. Member for Taunton asked about the appointment process. The FSA will have the UK seat on the ESA. The appointments of the secretary-general and the staffing secretariat will follow normal EU appointments procedure under the staffing regulations. The chairs of ESAs are voted for by the ESAs themselves from within their memberships. As with members of the European Commission, the appointment will be subject to confirmation by the European Parliament.
The hon. Member for Taunton asked about information sharing and confidentiality. The information-sharing provisions in the legislation are subject to strict confidentiality requirements. That has been standard practice since the establishment of the single market.
The hon. Member for Sevenoaks (Mr. Fallon) asked about representation from the non-eurozone on the ESRB. Of course we want representation from the non-eurozone. During the ECOFIN discussions in October, the Chancellor stressed the need to ensure an appropriate balance of eurozone and non-eurozone members. We are confident that that position will be reflected in the Council's discussions with the European Parliament and, as I said, any agreed wording will then be binding.
We strongly support moves to improve the quality and consistency of supervision to ensure more effective rule making and enforcement, and better to identify risks. We want to be part of an EU playing a greater leadership role in setting global standards and avoiding
regulatory arbitrage. However, we need to ensure that day-to-day supervision and crisis management arrangements remain national. I value the contributions that hon. Members have made to the debate, and I am sure that the Chancellor will take note of them in his discussions at ECOFIN tomorrow. I think we all agree on the importance of maintaining our position that this framework must not impinge on member states' fiscal responsibilities, and that there should be no powers to undermine national supervision.
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