COMMITTEE VOICES CONCERN ABOUT OVER-HASTY PACE OF EUROPEAN FINANCIAL REGULATION
Following an urgent inquiry into the European Commission’s proposals for Macro and Microprudential Financial Regulation, the Treasury Committee today (Monday 16 November) publishes its report, The Committee’s Opinion on Proposals for European Financial Regulation. The proposals are due to be discussed at the ECOFIN meeting on 2 December. The House of Commons European Scrutiny Committee has recommended they should be debated on the floor of the House before then. This Report, prepared at the request of the European Scrutiny Committee, is intended to inform that debate.
The Committee concludes:
Reaching agreement on such an ambitious package in less than three months is extremely ambitious; we believe it is overambitious. Even though there is a consensus that reform of the European financial institutions is needed, that reform needs to be carefully established; it is better to be right than quick. We have identified serious problems with the Commission’s proposals which need to be dealt with before the Council ages to the draft legislation and it moves on to the next stage.
John McFall, Chairman of the Committee, said:
“The banking crisis, which began some two years ago and is still playing out today, has prompted calls for new systems of international regulation. Indeed, our Committee has been vociferous in those calls. The collapse of the Icelandic banking system and the devastating impact it had on British savers is proof that we need new Europe-wide arrangements that promote financial stability across the EU and EEA.
“However, while the intention of the European proposals is widely welcomed, there is a great deal of unease about the detail, both within our Committee and from the evidence we received from outside. There is still more unease about the timetable for agreement. The Presidency is pressing for adoption of the proposals by ECOFIN on 2 December. We consider that is far too fast: the proposals will set in place a framework which should last for many decades, and there should be proper time for consideration, otherwise, this could end up as a recipe for a muddle.”
On the detail of the proposals, the Report says:
The timetable would be less worrying (although still over hasty) if the proposals were without controversy. However, even on a short examination we have found serious cause for concern. It is not clear how these proposals relate to global initiatives for regulatory reform. There are concerns about the size and composition of the ESRB. There is doubt about the extent to which it is desirable or possible to delegate discretionary powers to the European Supervisory Authorities; there is unease about the potential power they will have to override the decisions of national regulators; there are concerns that the Commission will have unilateral power to declare an emergency, which will give ESAs power to direct national regulators still further.
Most significantly, the proposals do not appear to give due weight to ECOFIN’s conclusion in June 2009 which stressed that the measures “should not impinge on the fiscal responsibilities of the Member States.” We believe the proposals go far beyond the ECOFIN agreement, and need to be reconsidered. Lord Myners indicated to the Treasury Committee that he would be prepared to use his veto power if necessary; today’s Report sets out some of the circumstances in which we believe it would be appropriate to do this.
However, the financial industry should not take our recommendation that the regulations be considered in a more measured and thorough way as a signal that the world is about to return to “business as usual.” The events of the last two years have shown there was a real gap in national and international regulation; the question is not whether to fill that gap, but how best to do so. We will keep the European proposals under review, and in the meantime, we hope they can be improved.
John McFall said:
“Fears that political appetite for reform will fade are misplaced. The financial industry should not take our concern about these proposals as a tacit licence to return to business as usual. Far from it. We remain convinced of the need for more effective financial regulation and supervision; we simply believe it’s much more important to get it right than rush it through.”