FINANCIAL SERVICES (12915/06)
Letter from the Chairman to Ed Balls MP,
Economic Secretary, HM Treasury
Thank you very much for your Explanatory Memorandum
12915/06. This was considered by Sub-Committee A at their meeting
on 24 October.
The Sub-Committee is concerned that legislation
in this area should be light touch and therefore has decided to
hold the document under scrutiny pending your clarification of
this.
In addition we would be interested to hear more
on the outcomes of the informal consultation that you have undertaken
on this proposed Directive. In particular, we would be interested
to know the views of UK-based financial institutions on the proposal
to achieve "a high level of harmonisation" of the criteria
for the prudential assessment of acquirers together with your
response to this.
The Committee would also like to know why a
UK Regulatory Impact Assessment will not be produced until after
the Directive is agreed.
I look forward to receiving updates on the negotiation
process for this proposed Directive.
24 October 2006
Letter from Ed Balls MP to the Chairman
Thank you for your letter regarding the above
Commission proposal to amend the supervisory review process for
cross-border mergers and acquisitions in five EU directives.
This proposal will not jeopardise the UK's light
touch approach to regulation. The amended legislation explicitly
states that the measures should be proportionate to their aim.
The amendments will make the procedure more transparent and predictable
for EU firms. It will facilitate an open and dynamic single market
and will ultimately bring other EU Member States' procedures into
line with those of the UK Financial Services Authority. UK firms
will therefore benefit as they will not have to comply with 25
different sets of legislation, but instead will follow a process
if they plan to merge or acquire a foreign-owned firm, that is
the same as the current process in the UK. This is a reduction
in the burden on firms and will encourage greater competition
in the EU financial services market.
As you are aware, HM Treasury has carried out
informal consultation leading up to the publication of the Commission's
official proposal and issued a discussion paper on the official
proposal on 25 September 2006.
HM Treasury has consulted with a vast number
of credit institutions, insurance and securities firms, as well
as all the major trade associations through both informal and
written consultation.
The written discussion paper of 25 October received
ten official responses from a wide variety of firms, including
the major trade associations and one consumer association.
All respondents agreed that the current process
and criteria for cross-border mergers and acquisitions could be
improved to limit political intervention and were keen to find
a transparent, market-friendly solution.
On the issue of maximum harmonisation, on which
you requested further information, all respondents agreed that
the key elements of the supervisory review process should be aligned
as far as possible across EU Member States to ensure consistency
of approach and to encourage the proper functioning of the market.
The key rationale for this was the divergence of national rules,
which had allowed scope for the abuse of supervisory power.
On the more specific issues raised in the discussion
paper respondents largely agreed with the following HM Treasury
priorities for negotiations:
— Criteria—In order to
minimise the scope for supervisory abuse, the criteria for the
approval of mergers and acquisitions should be exhaustive and
limited to prudential considerations.
— Level of application—The
application of the current regime to the likes of fund managers,
custodians, depositaries and trustees who have little if any influence
over the number of shares they hold in a particular company is
a severe burden on these operators. The UK should negotiate changes
so that the legislation only applies to firms intending to take
a controlling stake in both the voting rights and the capital
of another firm.
— Burden of proof—The
burden of proof in the Commission proposal is currently on the
supervisory authority to prove that the proposed acquirer has
not met the criteria. This is a reversal of the burden of proof
from the initial authorisation stage to carry out business within
a member state. It would seem logical to ensure consistency between
the two approaches.
— Appropriate time period—The
FSA tend to complete around 75% of their cases within an expedited
time period to that allowed by the existing European directives,
much closer to the time period suggested in the Commission proposal.
In these cases, an expedited time period with only one option
of "stopping-the clock" for 10 days would provide a
clearer, more efficient process.
Regarding the preparation of a regulatory impact
assessment, the negotiation of this directive has been unusual
in that the time period was expedited. The publication of the
Commission proposal in September and the expected political agreement
in Council in November is a particularly short period of time
for EU negotiations. Nonetheless, my officials are currently updating
the partial RIA issued with the HM Treasury domestic consultation
"Reducing reporting requirements: A consultation on reform
of the `controllers regime' in Part XII of the Financial Services
and Markets Act 2000" in line with the Commission proposal.
I would be happy to provide you with the partial RIA on its completion.
I hope I have covered all the issues raised
in your letter.
26 October 2006
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