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European Financial Services Proposals

Part of Oral Answers to Questions — Foreign and Commonwealth Office – in the House of Commons at 4:49 pm on 1st December 2009.

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Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury) 4:49 pm, 1st December 2009

The hon. Gentleman is being a little hasty in reaching any conclusions about a discrepancy in views between myself and my hon. Friends. I have just talked about the timetable, but there are other matters that I want to discuss that are related to the substance of the proposals, on which we have a great deal in common. It is not just about the time scale and process, it is about substance as well.

I wish to touch on a point that the Exchequer Secretary glossed over, but which has caused a great deal of concern for both the ESC and the Treasury Committee-the constitutional nature of the powers in question. There was a debate in the Treasury Committee about whether the powers to be granted in the proposals before us have a legal basis. In written evidence to the Committee, Stuart Popham and Simon Gleeson of Clifford Chance wrote:

"The ESAs will not have power to take decisions or to make rules-European law requires that these powers are reserved to the Commission, and we believe that this could not be changed without an amendment to the EU treaty. The attempt to give the committees the power to review the issue of whether individual national regulators have correctly implemented EU legislation appears to be an attempt to stretch this point."

As we have seen, though, the ESAs will issue binding directions on compliance with EU law and on mediation between two regulators. If the power is to ensure compliance with the law that already exists, it is hard to see of what use it is. Is it a discretionary power or not? As it is presented, it is not clear, and the Commission itself seemed to allude to the same issue in the context of potential interference with the fiscal responsibility of member states when it stated:

"Incorrect application of Community law cannot be justified by financial grounds. The remainder of the Authorities decisions are either not directed to individual supervisors, or non-binding, and therefore by definition cannot have fiscal implications."

In other words, member states must surely already be compliant with EU law, even on fiscal grounds, so no decision made by the ESAs could have fiscal consequences. Once again, therefore, we must ask what the power is for exactly.

The confusion does not end there. Mr. Gleeson pointed out in his evidence to the Treasury Committee that if the power was found to be discretionary and was subsequently deployed, the European Court of Justice would be likely to consider any such directives

"ultra vires to the treaty", and they would, as Stuart Popham put it, "cease to exist."

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