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Economic Secretary and City Minister Kitty Ussher rejected a one-size-fits-all regulatory approach or pan-European regulator for financial services, saying that either would not have the flexibility needed to allow EU markets to prosper. She said that to legislate for a common method of regulation would create a massive and dislocating economic distortion rather than increased prosperity.
Kitty Ussher was speaking to the Centre to European Reform on supervision of financial services in the EU and the challenges and opportunities of creating wealth by breaking down barriers in financial services markets today. She proposed that the most effective way to do this is moving away from more regulation to ensuring benefits from the decisions that have already been made, and that it is important to be in constant dialogue with the financial services sector, so that the Government can ensure that their voice is heard at the EU negotiating table.
Encouraging industry input in EU financial services supervision, today the Treasury and the FSA are publishing a discussion paper on the review of the Lamfalussy Arrangements for financial services supervision, a four-layered approach to regulation and supervision.
Kitty Ussher said:
"I hope that we can make the Lamfalussy arrangements work more effectively in future - both for Britain and for the rest of Europe. To do that, they need evolution not revolution; we must avoid drifting towards a pan-European regulator that would be rigid and stifling.
"These arrangements have provided an effective framework for enhancing regulatory efficiency and supervisory cooperation over the long term. But we think - pro-European but pro reform in Europe - that there are some practical enhancements that can be made that will deliver tangible benefits."
The proposed changes follow two principles:
- That regulation and supervision should not be ends in themselves - but should aim to improve markets, and deliver economic benefits. To do that, they should be proportionate; support innovation, competition and efficiency; and promote financial stability.
- That regulation and supervision should recognise the need for regulators to be accountable - principally through their Ministers to national governments and parliaments.
Kitty Ussher said:
"We can see the benefits of action in the European stage, but that doesn't mean we shouldn't work to make that action as effective as possible and ensure that the interests of the British financial services sector are at the heart of EU decision-making.
"The revised Lamfalussy arrangements can continue to play a major part in strengthening the single market in financial services, benefiting businesses, consumers and our economies, while Europe will have another political and economic achievement to be proud of."
Background
1. Practical enhancements proposed in the discussion paper include:
- Better regulation, using cost benefit analysis for new proposals
- Ensuring consistent implementation, through tools such as "comply or explain" and peer review
- Measures that encourage the convergence of supervisory practices
- Standard timescales and guidelines for implementation
- Enhancing accountability within the Lamfalussy framework
- Ensuring greater efficiency for cross-border groups, through greater use of group supervisory approaches.
2. Kitty Ussher was speaking to the Centre for European Reform. The full text of her speech is available.
3. The joint Treasury-FSA discussion paper Strengthening the EU regulatory and supervisory framework: a practical approach is available.
4. Kitty Ussher will present the UK's proposals on how to improve the Lamfalussy arrangements to Brussels at the end of the month.
5. The Lamfalussy arrangements were put in place for securities in 2001 and banking and insurance in 2004, with the aim of making the legislative process more efficient and enhancing supervisory co-operation and convergence. The arrangements take a four-layered approach to regulation and supervision:
- Level One - Directives or regulations proposed by the Commission and adopted by the Council of Members and the European Parliament in the normal way.
- Level Two - Assists the Commission in adopting relevant implementing measures, and is made up of committees of Member States' finance ministries.
- Level Three - Committees of national supervisors, which advise the Commission on implementing measures; and which work to ensure more consistent implementation in Member States, to improve co-ordination between national regulators and to enhance the convergence of supervisory practice.
- Level Four - Focuses on strengthening the enforcement of community rules.
6. The EU has played a significant role in Europe's prosperity - with the single market increasing GDP by 2.2%, or €225 billion, and benefiting Europe's consumers through lower prices, and businesses through easier trade.
