Memorandum by Barclays
ABOUT BARCLAYS
Barclays PLC is a major global financial services
provider engaged in retail and commercial banking, credit cards,
investment banking, wealth management and investment management
services. We are one of the largest financial services companies
in the world by market capitalisation. Operating in over 50 countries
and employing 123,000 people, we move, lend, invest and protect
money for over 27 million customers and clients worldwide. Barclays
PLC has over 300 years of history and expertise in banking.
Barclays is pleased to give evidence to the
Committee as part of its inquiry into the Commission's review
of the single market.
1. What has been achieved so far and what
are the remaining significant barriers to achieving the Single
Market?
— Significant progress has been made
in creating a single market in wholesale financial services through
the Financial Services Action Plan (FSAP), 42 separate pieces
of legislation.
— The FSAP highlighted, rightly, that
legislation does not of itself create an integrated market. Remaining
barriers to a Single Market need to be identified and tackled
using non-legislative solutions.
— A global wholesale market arguably
already exists, and care needs to be taken not to fracture it,
or to drive it outside the EU, by overly prescriptive regulation
or legislation. The concentration of reinsurance offshore in Bermuda
illustrates how mobile business can now be.
— While there needs to be greater convergence
of regulatory practices and greater clarity around the respective
roles and responsibilities of home and host regulators, there
is little need for more legislation in the wholesale area. Market
practitioners need time to, digest the legislation that has already
been passed (and not all of it has been implemented) and to understand
the impact that it is likely to have. Post-implementation reviews
of legislation should be carried out to identify areas where the
law could be simplified or streamlined to bring it more in line
with risk based regulation.
— Turning to specific wholesale issues,
the recent call for evidence by the Commission with regard to
private placement regimes is very welcome, as the lack of a pan-European
regime on a safe-harbour for marketing investment funds to professional
investors cross-border is hindering wholesale integration in this
area. A lack of consistency in such regimes means increased legal
expenses for issuers and that the same products are not available
in all markets.
— There has been less integration in
retail financial services, for various reasons. These include
different consumer behaviour and legal frameworks across Member
States. Different structures of state provision across Member
States also mean that consumers in different states do not all
have the same needs for retail financial services, especially
those of the more complex variety. The European Commission's recent
sector inquiry into Retail Banking has acknowledged that retail
banking markets are national markets.
2. What have been the benefits of the integration
of the EU financial services sector to your business? Which segments
of your business have benefited most, and which have remained
unaffected? How have consumers benefited?
— In the late 1990s our investment
bank, Barclays Capital, set out to take advantage of the advent
of the Euro, a strategic decision that has been critical to its
subsequent success. More recently, the increasingly integrated
market in wholesale financial services has also been important
in its ongoing growth, and Barclays Capital is now one of the
largest investment banks in Europe.
— Greater liquidity in European capital
markets should have had the overall effect of bringing down the
cost of credit and the cost of accessing financial markets for
users.
— The convergence of conduct of business
rules in particular will benefit wholesale businesses and markets,
since most cross-border business is wholesale.
— At a retail level, although we have
expanded organically and inorganically in Europe in recent years
this has been driven by the opportunities offered in specific
markets rather than by any particular changes in European legislation.
— For example, in 2003 we purchased
Banco Zaragozano in Spain and combined it with our existing Spanish
business to create a network of over 550 branches. We have also
doubled our retail presence in Portugal in the last two years,
where we now have 100 branches.
— We believe that consumers have benefited
through our compelling offering in each of these markets. For
example, Barclays Portugal has been recognised for offering the
best quality in customer service in the Portuguese market since
2004.
— Despite this, it is worth noting
that while there is a common core of consumer needs for financial
services which all consumers share, these are very much focused
on the basic services of payments and savings accounts, and possibly
mortgages. For the rest, European consumers needs may vary for
more complex financial and investment services given the different
standards of social security provision around the EU. This makes
a clear definition of "the European consumer" difficult.
3. What has been the impact of the Financial
Services Action Plan (FSAP) on the financial services sector?
Has the regulatory burden under the FSAP increased more in some
areas than others?
— The overall impact of the FSAP has
been positive for the financial services sector, especially in
permitting the more efficient use of capital by allowing greater
use of branches to conduct cross-border business. Although it
could be argued that there was a pre-existing global single market
in wholesale financial services, there has also been a benefit
in terms of raising market standards overall.
— However, complying with the new regulation
it has generated has been onerous. It is estimated that compliance
with Markets in Financial Instruments Directive (MiFID) will cost
the City between £877 million and £1.17 billion for
around £200 million of benefits.[3]
The non-capital costs of implementing the Capital Requirements
Directive will, for large institutions such as Barclays, amount
to over £150 million each over a four to five year period,
with total implementation costs for the UK bank and building society
sector alone estimated in 2006 at around £1.1 billion over
the same period.[4]
Costs have since increased.
— The Commission's focus should now
shift from initiating new legislative proposals to ensuring consistency
of implementation by Member States, and to enforcing the legislation
that is in place. Given the high costs of implementing EU measures,
it is important that the effects of legislation that has been
passed are monitored, and that actions to mitigate unintended
consequences and eliminate unnecessary provisions are taken.
4. What do you consider to be the remaining
gaps in the FSAP?
— There is a need to modernise the
supervision of insurance companies. This will be the subject of
the Solvency II Directive, on which the Commission is likely to
make a proposal on 10 or 11 July.
— There is a need to modernise the
EU Concentration Risk/Large Exposures regime to bring it into
line with the Capital Requirements Directive. This is currently
under examination.
— The Commission's recent exposure
draft on removing barriers to pan-European investment fund business
is welcome, excepting that it only proposes only a "partial
passport" for the UCITS management company, under which the
functions of calculating the net asset value of the fund and maintaining
unit holder registers would have to take place in the domicile
of the fund. A number of funds are already administered in another
EU Member State and so this would be a step backwards.
— Overall, there is also a need for
"care and maintenance" on various Directives. This is
all minor. For the most part, the FSAP simply needs time to bed
down.
— It is right that the effects of the
FSAP should be monitored, but at this time it is too soon to say
what the cumulative effect of FSAP measures will be, especially
as not all of them have been implemented. There needs to be greater
clarity about the respective roles of home and host supervisors,
but in the first instance this will largely require discussions
between supervisors in the Level 3 Committees, not legislative
proposals by the Commission.
— On a more structural and significant
level, there is a need for greater understanding on how a financial
crisis affecting an institution that is active across national
borders would be handled. This is also a topic that is currently
under discussion. This would make some countries, especially those
where the banking sector is effectively foreign-owned, more relaxed
about the way in which their markets have been opened.
5. In light of the increasing focus on the
competition policy, do you think there is sufficient coordination
between regulators and competition authorities?
— We do not believe that a single market
can be created through legislation alone and we welcome the increasing
use of competition policy—and other such non-legislative
tools—in the European Union as a means of opening markets.
— However, we would like to see greater
co-operation and co-ordination between different competition authorities
both in Member States and at an EU level.
— Regulation inevitably sometimes involves
creating barriers to entry and therefore may limit competition
(eg the need for prudential capital reserves by banks). It is
important that such regulatory barriers are the minimum necessary
to achieve essential policy goals. Competition authorities have
an important role to play in ensuring that regulation does not
become stifling of entry and innovation; by the same token financial
services regulators have an important role to play in setting
limits to the play of unfettered competition for the common good.
It is important, therefore, that regulators are consulted with
regard to competition issues at the policy-making stage—to
ensure that regulation is compliant with competition policy and
that competition policy does not prevent policy goals such as
reduction in financial crime or stability of the financial system
from being pursued.
6. Is there a need for greater cooperation
between National Regulatory Authorities of different Member States?
— Yes. As indicated in our responses
above, greater co-operation between national regulatory authorities
is important for the further development of the single market.
— Such co-operation is provided for
by the Level 3 regulatory committees within the Lamfalussy process
(CESR, CEIOPS, and CEBS).
— So far, however, these committees
(with the exception of CEBS) have been more focussed on the other
key part of their role, the provision of advice to the Commission
on the implementation of legislation.
— Looking to the future it is important
that the Level 3 Committees—and national regulators—focus
on greater co-operation as a means of encouraging greater supervisory
coherence. This will be an important step in delivering the benefits
of the single market in financial services.
— Supervisory convergence to date has
been slow, reflecting the difficulty of achieving greater co-operation
in a cross-border context and differences of practice and culture.
— We support the principle recently
outlined by FSA Chief Executive John Tiner in a speech on 2 July—of
a "hard lead regulator". This would create greater regulatory
efficiencies for large, multi jurisdictional companies, whilst
also requiring regulators to work more closely and thereby facilitating
greater supervisory convergence. Developments such as the establishment
of a regulatory college for complex cross border financial groups
are also to be welcomed.
— There is also some pressure for Level
3 Committees to reach more decisions relating to supervision—rather
than technical advice—by qualified majority voting. We do
not believe that this is appropriate. It would turn a meeting
of supervisors into a quasi-legislator (albeit with a restricted
scope) and even if non-binding (with a comply or explain rule),
would introduce a greater element of politics into what should
be a technical forum seeking the correct technical approach.
7. Do you consider that the integration of
EU financial services sector is better achieved by market-led
initiatives as opposed to regulatory developments (eg the Code
of Conduct on Clearing and Settlement instead of a directive)?
— Yes. The FSAP, although well-intentioned,
has demonstrated that legislation alone cannot integrate markets.
It is important that legislation only be used where there is clear
market failure that cannot be addressed by other means.
— We welcome the greater focus now
being placed by the Commission on the use of non-legislative implements
and its espousal of the better regulation agenda when considering
legislation.
— Market-led initiatives in particular
are an important tool as they harness the natural efficiency of
markets and respond to a particular demand. Some financial services
policy-making at EU level has been too concerned with supply,
on the assumption that creating the conditions for the supply
of particular services will create demand for them—this
is not the case.
8. Do you consider further legislative measures
by the Commission to be necessary for the completion of the Single
Market? What would you consider appropriate?
— No. We do not consider that further
legislation from the Commission will assist the completion of
the Single Market. Rather, we would prefer the Commission to focus
on identifying the barriers to the further development of the
Single Market and tackling these using the non-legislative measures
at its disposal, including but not limited to competition policy,
market-led initiatives and self-regulation.
— This is particularly important for
retail markets where the Commission should focus on removing barriers
which prevent or restrict market entry or the development of effective
competition for retail products as a first priority.
— The Commission should also focus
on ensuring that the legislation that it has sponsored to date
is properly implemented and enacted. In the past, additional legislation
has sometimes been used as a means of avoiding tackling the issues
of implementation and creating a genuine single market.
— We would expect the European Commission
and Member State authorities to give the market time to react
to initiatives already in place or coming on line before considering
others.
9. To what extent do you consider that EU
Member States are fulfilling their responsibilities in setting
the framework for the integration of the EU financial services
sector (eg timely adoption of the Payment Services Directive or
transposing directives into domestic laws)?
— The UK has taken a lead in transposing
EU legislation relating to financial services into national law,
and the City of London has benefited from this approach. However,
the conditions that will allow a genuine single market in financial
services to develop will not be created until all Member States
have fulfilled their legislative responsibilities and implemented
them in a manner and spirit consistent with the EU's market opening
objectives. The issues associated with the implementation of MiFID
are a case in point.
— In addition to focusing on the easily
quantifiable fact of transposition, the Commission should also
needs to focus on the manner and spirit in which directives have
been transposed and whether they are being implemented in a way
that is consistent with the single market. The implementation
scorecard is perhaps too blunt a tool to accurately measure this
important area.
10. Are the current remedies available to
the Commission to enforce Single Market legislation adequate,
and are they used effectively?
— The tools are available, but the
Commission could devote more resource to studying the manner in
which EU legislation has been implemented, and in its choice of
the tools at its disposal.
6 July 2007
3 FSA, The Overall Impact of MiFID, November 2006. Back
4
PricewaterhouseCoopers, The Capital Requirements Directive, Non-Capital
Compliance Costs, published by the FSA as Annex 3 to CP06/3, Strengthening
Capital Standards 2. Back
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