UK must do more to tackle its diminishing influence in Brussels, Lords report warns
EU efforts to ward off a future European financial crisis have been admirable, but flaws remain, says a House of Lords report out today.
The House of Lords EU Sub-Committee on Economic and Financial Affairs has been investigating the financial regulatory framework within the EU.
In its report, ‘The post-crisis EU financial regulatory framework: Do the pieces fit?' the Committee says that the efforts of the European institutions to regulate the financial sector after 2008 have been commendable, even impressive. But the report makes clear that the European Supervisory Authorities (ESAs), set up as watchdogs over the sector, have structural weaknesses which need to be addressed.
The report says that the ESAs lack both authority and funding, have insufficient independence from the Commission and are not adequately resourced to protect consumers.
The report also finds that the UK's influence in this area continues to diminish, a potential result of the ongoing debate about the UK's place in the EU, and the growing perception of UK antipathy to ‘Brussels regulation'.
Other recommendations of the report include:
- There needs to be an urgent review of reforms – Impact Assessments of the proposals have left a lot to be desired, and the Commission must carry out a full internal audit of the regulatory framework to identify key weaknesses.
- The growth agenda – While many of the regulatory reforms were necessary, the importance of the growth agenda was only belatedly recognised. The Committee welcomes the Commission's proposals for an Investment Plan for Europe and for a Capital Markets Union, but stresses that Member States also need to pull their weight.
- The implications for the UK – The Committee urges the UK Government to reverse its diminishing influence over financial regulation.
- The role of shadow banking – The EU must monitor shadow banking, staying alert to the impact that regulation may have in curbing its potential benefits.
Commenting on the report, Lord Harrison, chair of the Committee, said:
"Since the banking collapse in 2008, there has been an enormous, collective effort to make sure the European taxpayer is protected from another crisis. Our Committee set out to take a closer look at the current regulatory framework, the 40 or so new financial regulations that were designed to offer this very protection.
The Committee found that the efforts of the main players, such as the European Commission and the European Parliament, were admirable and in many cases transformed the regulatory landscape for the better. With some exceptions like the bank bonus rules and the ghastly Financial Transaction Tax, the bulk of the EU's proposals were necessary and proportionate.
However, the ESAs, the all-important supervisory watchdogs, need to be better equipped to do their job - they need more power, more resources and an effective legal basis on which to take action. Without these improvements, the risks of another financial crisis are greater.
We urge the Commission to carry out a far-reaching audit of the regulatory framework, find weaknesses and root them out. Moreover, we call on the Commission to make sure it road tests all its legislation through high-quality Impact Assessments. The Committee looks forward to discussing these issues with Commissioner Hill when he appears before us on 3 February.
The Committee regrets the fact that the UK's influence over EU financial regulation is diminishing. We urge the Government to do all it can to restore the influence the UK once had in Brussels, and to keep our place at the front and centre of the debate. The City of London is a prized asset not only for the UK but for the EU as a whole. Yet the UK, for all its expertise, risks being side-lined. As we say in the report, there can be no excuse for a failure to act."
To view a video of Lord Harrison talking about the report, please visit this YouTube link.