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EU: Financial Institutions

Volume 712: debated on Thursday 2 July 2009


Asked By

To ask Her Majesty’s Government what assessment they have made of how the powers granted to the new European Union financial institutions will develop in future; and whether they will affect the independence of the United Kingdom and its financial institutions.

My Lords, the Government have agreed with EU leaders that any powers granted to the new EU regulatory bodies should be targeted at strengthening regulation and the effectiveness of supervision and should not undermine the fiscal responsibilities of national Governments. The Government expect to see this reflected in the Commission’s draft proposals, which are due in the autumn.

My Lords, I thank the noble Lord for that reply. However, it does not accord with the view of the French President, which is worth putting on the record. He said:

“We have agreed a European system of supervision with binding powers … It is a complete sea-change in the Anglo-Saxon strategy … We could have gone further, but I believe that it will widen [its powers] through experience and practice, the way it’s always happened”.

Quite so. My first question is—

My Lords, that was a comment on the Minister’s Answer. When can we expect the Commission’s impact assessments on all this and on the proposed hedge fund directive? Will the Minister be good enough to put copies in your Lordships’ Library when he gets them? Secondly, have Her Majesty’s Government made their own assessment of the damage to our economy caused by firms leaving the City in droves, which they are already starting to do?

My Lords, I am sure that President Sarkozy will be delighted to know that the noble Lord, Lord Pearson of Rannoch, stands in this House as his spokesman; it is a significant change for Members of the House to see the noble Lord speaking on behalf of a leading European statesman. The outcome of the European Council meeting and the ECOFIN finance meeting was absolutely in accordance with what we set out to do, which was to ensure that the holder of the ECB presidency did not naturally chair the European systemic risk council and that the three upgraded Lamfalussy level 3 committees should have advisory but not statutory responsibilities for supervision. I am unaware of firms leaving the City of London in droves—quite the opposite. The City of London is continuing to grow in global significance, as underlined by the recent Bischoff report.

My Lords, does my noble friend acknowledge that the independence of the United Kingdom and its financial institutions is defended because we are playing an active role within the European Union and its financial institutions?

My Lords, I absolutely agree with my noble friend. We are doing that in terms of the architecture of regulation and supervision. As the noble Lord, Lord Pearson, raised the subject of the European draft directive on alternative investment management—that was the source of his original Question, before he changed his mind to ask a different question—let me say that we are also actively engaged in representing the views of those who invest in hedge funds and those involved in that industry and supporting it here in London. In that connection, I am regularly engaged with the Commission and with the new Swedish presidency to fight Britain’s corner.

My Lords, does the Minister accept that there is near unanimity, not necessarily extending to the noble Lord, Lord Pearson, on the need to develop and strengthen the international regulation of financial institutions? Does he agree that, unless the EU takes a lead on this, the chances of London surviving, prospering and developing as an international financial services centre will be jeopardised, not improved?

My Lords, I once again find myself in agreement with the noble Lord, Lord Newby. Britain’s central role in financial services in Europe is greatly enhanced by our ability to work with our European partners to ensure that we develop new methods of macro-prudential supervision, regulation and micro-supervision, which will strengthen confidence in the financial services and banking sectors across Europe. The fact that we have a powerful voice in Europe undoubtedly provides much useful opportunity.

My Lords, would the noble Lord like to confirm what I think he said, which was that President Sarkozy has got it all wrong and that the Minister and his colleagues, with their usual brilliance and charm, have negotiated in Europe an agreement that enables us to do exactly what we want, despite the opposing views of many in Europe? That is what he implied. Is that what he meant?

My Lords, the agreement secured at the European Council, endorsed by all members of the council and building on the work done the previous week at ECOFIN, was fully supported by all European nations, including France. At the heart of that agreement were proposals built on the original letter of 3 March from the Chancellor of the Exchequer to the Czech Republic presidency, as modified to take into account the de Larosière proposals and to address the issues to which I have referred relating to the upgraded Lamfalussy committees and the European systemic risk council.

My Lords, do those conclusions not include a provision whereby there could be arbitration between competing regulators and that the Lamfalussy committees would then have the power to impose a decision? Was the Commission not instructed to draw up legislation along these lines, or advancing further along these lines? This matter is by no means concluded.

My Lords, I fully agree with the noble Lord, Lord Trimble, that the matter will not be concluded until such time as the necessary legislation is approved. I think that, in referring to arbitration, he actually means binding mediation, which has been accepted in respect of disputes between home and host countries for banking regulation, precisely responding to a point emphasised and first raised by the Chancellor of the Exchequer in his letter of 3 March.

My Lords, when can we expect the Government’s White Paper on their regulatory proposals, which press reports have suggested is imminent?

My Lords, we are departing some way from the Question but, if it helps the House, I anticipate that the Government’s paper on the future of financial markets will be published within the next fortnight.

My Lords, does not the Minister find it very eccentric indeed that members of UKIP and some old-fashioned and eccentric people in the City are always going on about the virtues of the single market in all respects except when they suddenly regard the City of London as fit for special exemption? Is this not an illogical position to take, bearing in mind that we need a central single market in financial regulation as well?

My Lords, my regular contacts with the City suggest to me that most leaders of opinion and trade bodies in the City fully recognise the very real advantages that come from being a member of the single market.