Examination of Witnesses (Questions 115
- 119)
MONDAY 9 JULY 2007
Ms Angela Knight
Q115 Chairman: Thank you very
much indeed for coming and for the submission of the written document
beforehand. It is much appreciated. I understand it might be convenient
for you to make an opening statement for the record and then we
will go into questions and try to conclude at about five o'clock.
Ms Knight: We have provided written evidence
to this inquiry and thank you for asking us to provide oral evidence.
I would like to pick up a couple of points, if I may, in my introductory
remarks saying first of all why the BBA has taken such interest
in this and other European issues. Our association, the British
Bankers' Association, is the leading UK banking and financial
services trade body and we act on behalf of our members domestically
and on international issues. We have 219 members and they are
from 60 different countries and collectively provide the full
range of banking and financial services. That is from the retail,
domestic account right the way through to international, wholesale
banking. As such the whole question of market access and open
markets is of considerable importance to us and we believe that
the single market will bring benefits, not just to our members
but indeed to Europe as a whole. We participated in the whole
of the single market programme throughout the Financial Service
Action Plan and indeed the Basle process as well. Overall these
will bring some positive developments and although there are failures
these tend to relate to, for example, the failure to undertake
market studies first, the failures of the Commission to really
understand what the business is all about and indeed what the
barriers are. Our members are multi-jurisdictional. Many of them
interestingly already have the majority of their wholesale business
operating out of the UK, out of London in particular, irrespective
of where they are supposed to be quartered. In effect we are seeing
some considerable market shifts already taking place in advance
of the full implementation of the FSAP measures. Changes are taking
place across Europe. Annually we produce an abstract of banking
statistics. We have not quite published the ones for 2006 but
I have brought the essence of some useful numbers, I hope, to
this Committee with me. Bank earnings from the exports of services
totalled £10 billion in 2006. That is 21% higher than 2005.
Banks in the UK now hold nearly 23% of all European banking assets.
That again is an increase on last year. The 9% growth in 2006
of international lending by banks operating in the UK reflected
an increase in their European business. Thus our involvement as
an association with the European agenda is clearly very important
and undoubtedly those numbers do start to display just how changes
have started to take place, even though some of those barriers
which are still in place across Europe are yet to be fully addressed.
Q116 Chairman: This Committee
is looking prospectively at what further action is needed, initiated
by the Commission, to perfect the internal market as it relates
for example to financial services. What we are not doing, because
that is the responsibility of another committee, is to look at
the individual pieces of secondary legislation which will flow
and which will be examined. I wonder if you could tell the Committee
which areas in your judgment have not been covered by the Financial
Services Directive and need to be looked at carefully and studied
by the Commission in the future?
Ms Knight: If we look at the body of legislation
which is on its way through right now, that is very substantial
and it affects more or less everything and every entity that operates
within the financial services industry. Yes, there are some exceptions
but they are few. The extent of the involvement also varies depending
on the type of business but nevertheless this is a very substantial
body of legislation. Although in Brussels terminology they have
completed the action plan, in the terminology of the countries
that are implementing it, we are only part of the way through.
Some of the main changes do not start to take effect until the
end of this year. Thus it is impossible to say really what it
is the Commission should be doing next in that part of the financial
services market other than ensuring that once the changes have
taken place they look at them, where any lacunae lie, where any
issues of barriers which can be reasonably addressed lie and also
do some further market studies. The part of the single market
which is yet to be properly looked at is that which relates to
retail, the individual consumer. That is much harder than in the
wholesale side because you are talking about people, different
languages and them often wanting only to deal with people that
they know in a system that they understand. In that area do lie
some actions and activities that have not been addressed yet and
those are areas which the Commission needs to start looking at
properly. It has launched now a Green Paper looking at the retail
financial market scene and also there is some secondary inquiry
which is looking at bank accounts in particular. There is some
work under way but it is really only just at the start. It is
a long way from completion and inevitably there will be many more
gaps, even though it is a much harder area to address than has
been the case in the broadly speaking wholesale measures that
have been looked at so far.
Q117 Lord Haskel: You spoke
about this mass of legislation which is on its way through. Obviously
it will be up to each of the nation state regulators to carry
this through. There is no actual model on how these regulators
are set up or how they should act. Are you satisfied that in each
of the nation states the regulators will be able to enforce the
legislation which is coming through?
Ms Knight: I do not think I am satisfied at
all. I think it is the big conundrum right now. The work of the
Commission in this area of equivalent implementation and equivalent
regulation is work that to date the Commission has not really
addressed or undertaken. If I may mention one particular directive
known as MiFID, the Market and Financial Instruments Directive,
which is the big framework directive of the current legislative
programme, that is due to be implemented across Europe in November
of this year. At the moment, the only countries that are likely
to be ready are the UK—and indeed we will be ready—and
Bulgaria. Ireland will be a little bit late. One of the Scandinavians
might make it and that, broadly speaking, is it. The rest of the
countries are going to be six months, nine months or maybe even
further behind. Even that ability to implement at the same time
is not there. Secondly, within the various regulatory structures
in the various countries, there are all sorts of different responsibilities.
Some countries still have regulation more set in statutory legislation.
Others like ourselves have the regulator set up by statute but
then are given devolved powers to implement and change rules,
obviously a much more flexible process. The calibre of regulators
and the framework in which they operate are also different. Frankly,
these are the sorts of issues that the Commission ought to have
looked at much earlier rather than setting on the path of change
but we are where we are. My personal view is that before the Commission
starts on any further legislation it has to get the current situation
in a much better place and it has to look at legislation as being
a last resort rather than a first resort, because the laws of
unintended consequences play very strongly in this area and costs
are very significant indeed. Your question is entirely right.
No, I am not content with the current process. It has a long way
to go.
Q118 Lord St John of Bletso:
You mentioned the Green Paper and the launch of the retail financial
services. In paragraph 22 you make the very strong point that
there is a collection of 27 separate markets, with particular
emphasis on "separate", and that banks cannot ignore
the commercial reality. Do you see the likelihood for, for example,
UK players getting more involved in the retail financial services
market in Europe more by acquisition or by organic growth? Clearly
you say here that the likelihood of organic growth will be a lot
tougher by acquiring local players.
Ms Knight: Absolutely. I think it will be. When
you are discussing with individuals, each individual wants it
in their language, done in their way, under their rules and with
a person next door. It is going to take a long time before we
move from that particular position. Whilst there undoubtedly will
be some appetite for cross border sales of retail products where
the entity is quartered in one country and selling to individuals
in another country, we consider that for some considerable time
ahead that will be the minority, not the majority way, in which
individuals get involved in financial markets. That is why, when
looking at a retail agenda, it has to be based in reality. The
first thing to do is some consumer research. Too often there is
a leap to, "What can we do? Where shall we do it? There must
be this barrier or that barrier. Let's create a directive."
It is quite rare that proper market studies in any form are done
first. Before we move down the path of a retail agenda which goes
from a centralised perspective, that consumer research has to
be done and that is the major point that the BBA is making in
its response on this Green Paper inquiry by the Commission.
Q119 Lord Geddes: My question
was on exactly the same subject but I wanted to probe a little
further. You said in your opening remarks vis a vis the retail
side that there was a number of areas that needed to be explored.
Could you expand a bit on that?
Ms Knight: Yes, I can. I will do it, if I may,
by three examples. The first is that we have an increasingly mobile
working population in Europe. Sometimes it feels that all the
young Poles are here in the UK. That might exaggerate to make
a point but anybody living or working in London knows from daily
experience that there is a mobile, young, working population of
Europe. In the financial services industry it tends to be somewhat
exaggerated in the sense that there are a lot of international
people operating in financial services. We have young people in
jobs moving across Europe. They will open a bank account in the
country in which they went to university. They will be taken on
by a company in another country. Their girlfriend is from a third
and they get seconded to work in a fourth. Does anybody know for
certain, apart from the individual themselves, how easy it is
for that individual to open those various bank accounts under
current anti-money laundering legislation, to pay bills in one
country from money earned in another? There are some things that
can be done easily; there are some things that cannot. That is
the first area of exploration. What is it that we need to think
about in the financial services industry that means that that
mobile population of Europe, which will only increase, can get
its financial services done and at a reasonable price. A chunk
of legal issues there will no doubt remain as problems. There
will be tax issues as well but there are other things in there
which we need to think about. That is one example of areas where
"something should be done". The second is that the Consumer
Credit Directive has just been more or less agreed. It still has
a stage to go but that is a long time piece of legislation beloved
by the Brussels political classes. The idea is to make credit
more easily accessible right across Europe. The theory is not
a bad idea. The practice of creating that Directive has been frankly
ghastly and the results are unknown. If I am a bank and I am going
to offer credit to an individual, I need to know something about
that individual. I need to be able to look at some data about
them and yet at the moment there is little or no exchange of information
about individuals because the data collection is different across
Europe. It is in different pieces of home grown legislation. Different
things are collected. If we are going to be serious about trying
to open up markets a bit, we need to go back to some fundamentals
and look to see what could be done there before just addressing
what is believed to be some other problem. That is another area
which I think needs to be explored within this data area. The
third is the role of the Internet. All of us increasingly use
the Internet for something. Some of us use the Internet for more
things than others. For example, if you Google financial services,
up will come all sorts of things. On that first page, you will
get at least half a dozen comparison sites. If you go into a comparison
site and you want to compare bank accounts, insurance, a financial
product—say, a collective investment of some sort—you
only have to put in a little bit of information about yourself
and then come up some further choices of what you can buy, who
you can buy it from and the price at which you can buy. Put in
a bit more information, refine your choice and you get further
options come up. The ability of the use of the Internet to open
up choice and offerings to individuals, wherever they are quartered
in Europe, is very good. It is not something for which one legislates.
In fact, it might be that there is some legislation that results
in that choice and that use of the Internet becoming rather less
attractive in some countries than in others. That is a further
area where exploration is required. Let us just look to see what
the true barriers are and what the true opportunities are and
then facilitate rather than having some centralised view of what
a single market should be and just going for it.
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