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European Financial Services Proposals

Part of Oral Answers to Questions — Foreign and Commonwealth Office – in the House of Commons at 6:27 pm on 1st December 2009.

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Photo of Christopher Fraser Christopher Fraser Conservative, South West Norfolk 6:27 pm, 1st December 2009

It gives me great pleasure to speak after my hon. Friend Mr. Fallon, a person who has proved time and again that he understands the issues and is a wise and sage voice in this debate.

There is no question but that our financial institutions and the City are undergoing a difficult and challenging time, and there is no doubt that reform of our financial system is necessary. We need better and more effective oversight of the financial services sector, a banking system that properly supports small business, and recognition that the current tripartite system needs replacing. However, any changes made must not come at the expense of the City's competitiveness and ability to innovate.

Last month the World Economic Forum announced that the City of London had overtaken New York as the world's leading financial centre. That is excellent news. The City's long-term success will play a key role in boosting our economy at home and the wider European economy. Given that the Government have given away the vital role of Commissioner for the Internal Market and Services to France, as my hon. Friend pointed out, and to a politician who has a reputation for stringent protectionism, can the Minister tell the House what assessment has been made of the direct implications of this new appointment for the City of London? It is an extremely important point, which I hope the hon. Lady addresses when she winds up the debate shortly. Does she accept that future growth in this country could be undermined as a result? Why was not the Government's priority to ensure that that Commissioner's job came to the UK, for the reasons that I have just described?

The proposals before us seek to create three European supervisory authorities with rule-making and binding mediation powers: the European banking authority, the European insurance and occupational pensions authority and the European securities and markets authority. The regulations also establish the European systemic risk board, which will allow for macro-prudential oversight of the financial system, but it is worth repeating some of the Treasury Committee's report, which was published earlier this month and has been referred to many times in this debate. It states:

"There is a great...unease about the detail. There is still more unease about the speed with which it is hoped to agree them... the proposals will set in place a framework which should last for many decades, and there should be proper time for consideration."

Does the Minister share the concerns of that Committee? If not, will she admit that the Government are placing the need for new systems of international regulation above the need for careful consideration and impact assessment? Does she envisage the proposals being approved by 2 December, which after all is only tomorrow, as the Swedish presidency has called for? I am not clear whether she suggested earlier that things will go through as planned or whether she was sitting on the fence, because she was not quite clear about what will actually happen. She has a valuable opportunity this evening to outline in more detail what she envisages happening at the discussions tomorrow.

I am sure I do not have to stress that putting forward without proper examination proposals that have far-reaching and serious consequences for the UK's financial sector could genuinely be detrimental to us here in the United Kingdom. I understand that the Government had hoped to secure a rotating chairmanship of the ESRB, but they failed to do so. Will the Minister elaborate on those negotiations? They are crucial to the way in which we consider the proposals before us.

Are the Government satisfied that the structural arrangements for the ESRB are in Britain's interest? From today's discussions, I am not so sure that there is a great consensus on that in the Chamber, and the Minister owes it to the House to be clear about that. The Treasury Committee's report also highlighted concerns about the size of the board. What is the Minister's assessment of the Committee's comments in that respect? Does she accept that with more than 60 institutions represented, the decision making of the ESRB will be neither effective nor efficient?

I have concerns about the capacity of the three European supervisory authorities to give binding technical standards to member states and, directly, to institutions in emergency circumstances. I should like to put to the Minister yet again the question that has been posed several times in the debate: can she be more specific about what will qualify as an emergency circumstance? What safeguards will be put in place to ensure that the powers of national regulators-this is the crucial part-are not undermined? Any decisions that have fiscal implications for the British taxpayer should, without a doubt, remain with national regulators, but it is unclear how that corresponds to the supervisory authority's ability to make binding decisions. I should very much like the Minister to clarify that point to me and to the House this evening.

Following that, there is a concern that the powers associated with the ESA might run contrary to what is allowed under current EU legislation, so what is being done to resolve those very reasonable concerns? The Minister will be aware that some hedge fund managers and other financial service professionals are moving offshore, to places such as New York and Switzerland, to avoid tighter EU regulations and heavier tax burdens. That has to be worrying news, and the Government must do all they can to ensure that private firms are given the proper incentives to operate in the United Kingdom, albeit ethically and responsibly. That must be taken into account when we consider how we operate from here on in, given what has gone on in the past.

What is the Minister's response to the news that some private firms are choosing to move out of the UK? That point has not been addressed in the debate, so I hope that she will spend a couple of minutes telling the House her view, because that move has wider implications for the financial centre in the City of London, for the companies dealing in hedge funds and for all the other organisations and companies that serve that industry. That move will have ramifications for employment prospects in the City and beyond as a result. Is she concerned that it will set a precedent, and that further regulation will exacerbate the problem?

I worry that reform of financial services regulation will harm the UK's financial services sector if it is undertaken without due care and, most importantly, consideration. We must ensure that our economic interests are fully protected and, importantly, upheld, but Ministers have been too slow to defend in Brussels the interests of the City. That was demonstrated neatly by the recent internal markets commissionership, as I have already described. I wait to see how the Government approach the redrafted directive on alternative investment fund managers, and I call on Ministers to ensure that any proposals enhance the UK's financial industry, rather than damage it in the way that my hon. Friend the Member for Sevenoaks described.

As I stated as the start of my speech, the City is the world's financial centre and the UK Government should lead and drive the debate about regulatory reform. So far, all the evidence points towards Ministers taking the back seat. That is the wrong way to go forward in the best interests of our nation and our standing on the world stage.

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