Proposals for European financial supervision: further report - Treasury Contents

1 Matters arising from further evidence

1.  Last session we conducted an urgent inquiry into proposals for European financial supervision and regulation, which are to be discussed at the Ecofin meeting on 2 December this year. These proposals would establish a European Systemic Risk Board, and a supervisory system based on three European Supervisory Agencies. The European Scrutiny Committee asked us for a formal Opinion on these proposals, and subsequently recommended that they be debated on the Floor of the House.[1] Because of the urgency of the situation, we agreed our Report on 11 November. Since then, we have received several further pieces of evidence, all of high quality, from the City of London Corporation, JWG, a financial services think tank, Jane Welch of the British Institute of International and Comparative Law, the Hedge Funds Standards Board, the City of London Law Society, Marica Frangakis and John Grahl, the Association for Financial Markets in Europe, GC100, the Quoted Companies Alliance and NYSE Euronext. The Leader of the House has announced that the debate on the European Union proposals will be held on 1 December. We wish to draw this evidence to the attention of the House for use in that debate. By the time of the debate we will also have taken evidence from the Bank of England and the FSA and the uncorrected transcripts of these sessions should be available.

2.  The evidence confirms our earlier view that the timetable proposed for agreeing these proposals is too hasty. We draw attention to a number of new points raised in the evidence, which we did not have time to explore in our earlier report, but all the submissions make valuable contributions. We believe the following points deserve fuller consideration:

  • the matters which a single rulebook for various aspects of financial supervision should cover, given the differences in the economies of European Union Member States;[2]
  • macroeconomic differences between Member States, within the eurozone and outside it;[3]
  • the interplay between the technical standards which are to be drawn up by the new supervisory bodies and national supervisory judgements,[4] and even wider policy aims,[5]
  • the difficulties of securing high quality data, and ensuring its confidentiality;[6]
  • the extent to which it is appropriate to extend European regulation of securities markets;[7]
  • the Commission's October proposal for ""EU central counterparty clearing houses" to be authorised and supervised direct by the European Securities and Markets Authority ("ESMA"), rather than by the relevant national authorities";[8]
  • further areas of legal uncertainty in the way the proposals are drafted.[9]

3.  The memoranda dealing with regulation of securities raise several matters of principle. We mentioned the extension of European regulation to takeovers in our previous Report. This is raised in several of the new memoranda, but there are also wider concerns at the proposals for European regulation of securities markets. The City of London Law Society claims regulation of securities is being brought forward without any attempt to "articulate a proper justification of the imposition of a new layer of regulatory responsibility for these areas".[10] It considers that "the approach up to now in relation to securities regulation has been to allow national authorities to operate their national rules that implement the Community legislation, an approach which reflects the continuing diversity of financial markets each operate under different structural conditions."[11] Concerns about regulation of securities are also raised by GC100, the group for general counsel and company secretaries in the FTSE100, and by Quoted Companies Alliance, a membership organisation working for small and mid cap quoted companies, which warned "we need to remain careful to ensure that the needs of small and medium-sized businesses are not simply submerged in the need to regulate large and complex multinational financial services businesses."

4.  We have not had the opportunity to come to a view on the concerns raised in these further memoranda, but they reinforce our opinion that the process is unduly rushed. As the Quoted Companies Alliance put it "the political process is moving rather faster than the legislative machinery can catch up."[12] The detail of legislation matters, and although it is inherent in the European system that much of that detail will be elaborated in other forums than the Council of Ministers, the Council needs to have confidence that the legislative framework it agrees is correct, and will not have unintended consequences. We reiterate our earlier opinion that the Minister should not hesitate to use the veto on 2 December if it is necessary, not just to protect the UK's fiscal position, but to ensure that more time is available to deal with these important issues.

1   European Scrutiny Committee, Thirtieth Report of Session 2008-09, Documents considered by the Committee on 21 October 2009, HC 19-xviii; European Scrutiny Committee, Thirty-Second Report of Session 2008-09, Documents considered by the Committee on 4 November 2009, HC 19-xxx Back

2   City of London Corporation, Hedge Funds Standard Board, Association for Financial Markets in Europe, GC100, Quoted Companies Alliance Back

3   Marica Frangakis and John Grahl Back

4   Hedge Funds Standard Board, City of London Law Society, Association for Financial Markets in Europe Back

5   Marica Frangakis and John Grahl, Quoted Companies Alliance Back

6   JWG, Jane Welch, Association for Financial Markets in Europe Back

7   City of London Law Society, GC 100 Back

8   NYSE Euronext Back

9   Jane Welch, City of London Law Society Back

10   Ev 8 Back

11   Ev 10 Back

12   Ev 33 Back

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Prepared 26 November 2009