I declare that I am chief executive of London First, a not-for-profit business membership organisation which includes financial institutions among its membership. I am also a board member of a Triplepoint venture capital trust.
It is very easy when discussing complex regulatory matters to focus disproportionately on the detail of the regulations themselves. The risk is that we lose sight of the purpose of the regulatory regime and whether it is fit for that purpose. For that reason, I greatly welcome today's debate.
The regulation of the financial system-globally, in Europe and here in the UK-is going through tremendous change. This is an understandable reaction to the banking crisis of 2008, and it is necessary to restore public confidence in the system. However, the impact is doubled in the UK thanks to the fact that we are simultaneously implementing a wholesale restructuring of our own regulatory regime little more than a decade after the last such major change.
In my contribution today, I would like to touch briefly on three issues that arise from the UK's changing regulatory structure and its relationship with its European counterparts: first, the importance of protecting the international competitiveness of our financial services sector and, therefore, our potential for growth; secondly, the need to ensure optimal co-ordination and collaboration between the new domestic supervisors and their European counterparts; and, thirdly, the need to resource all these regulators appropriately.
First, on ensuring that the UK is globally competitive, while the financial sector has been the unloved one since the credit crisis, emotion should be superseded by good economic sense when determining how it is policed in the future. This is important because the financial sector in the UK employs around 1 million people directly-and many more indirectly. It is also a major contributor of income and corporate tax revenue. Finally, as we attempt to increase exports to compensate for stagnant domestic demand, financial services are a vital source of future growth as one of our primary export industries.
Across the piece, the financial sector exists to provide essential services to Governments, businesses and individuals. The more effectively it can provide those services, the better for us all. In this context, I am surprised that the Government have failed to include the international competitiveness of UK financial services within the objectives of the successor bodies to the FSA. It seems wholly inconsistent for the Prime Minister to wield a veto in Brussels, at great political expense-ostensibly to defend the City from uncompetitive EU regulation-only then to exclude competitiveness from the remit of our domestic regulators. Margaret Cole, the interim managing director at the FSA, which will form the core of the new FCA, has publicly supported the inclusion of such an objective, and I would urge the Government to take note.
Secondly, on ensuring UK influence in Europe, if the UK's interests are to be given due consideration as the new European regime develops, we need to ensure that we have the right people in the right meetings saying the right things. Staff at the new UK regulators will have a key role to play in contributing to Europe-wide decision making through, for instance, regulatory colleges. I share the concern of the noble Lord, Lord Newby, that there is a potential risk here in that the UK's new "twin peaks" model does not mirror the structure at the EU level. Consideration of retail banking regulation, for example, may well require insights from both the prudential and conduct of business perspective. As a result, when seeking UK representatives for ESA meetings, the UK may find itself trying to fit square pegs into round holes.
It is vital that our new agencies are joined up in their approach and that there is effective dialogue and information-sharing between them. I welcome the Government's promise to legislate to require memoranda of understanding between the major players-the Treasury, the FCA, the PRA and the Bank of England. However, I join the noble Lord, Lord Newby, in supporting the suggestion in the draft report of the Joint Committee on the draft Financial Services Bill. It recommends the establishment of a committee to ensure that the UK authorities agree consistent objectives and exercise their functions accordingly. This further safeguard would give significant reassurance to the industry. Presenting a single, coherent voice with maximum influence in the international context is vital and should not be left to chance.
Thirdly, on resourcing our regulators properly, let me turn to the quality of regulatory staff. All of the new European supervisory agencies, the successor bodies to the FSA, the Treasury and the Bank of England need high-quality staff to deal with the extraordinary challenges that this sector faces. It is therefore vital that the new supervisors at both the UK and European level are not only adequately resourced in terms of numbers, but also offer sufficient remuneration to attract and retain the brightest and the best. In many cases, the best way of achieving this is to bring in employees who have worked or are working within the industry, and a more flexible approach to secondments from industry would be welcome.
I am heartened by the report's recognition of the contribution that UK regulators, as supervisors of the largest and most sophisticated markets, have historically made within the European supervisory context. I hope that the expertise and experience of our regulators will continue to play an important role within the ESAs, and I encourage the FSA and its successors to provide more experienced staff to assist the new supervisors as widely as possible. We and our European partners have a common interest in ensuring their success, and such engagement can help to ensure that we achieve a co-ordinated and committed European approach rather than one in which individual member states operate unilaterally.
To conclude, over centuries and through many crises the UK has built a competitive advantage, a global reputation for being a safe and honest place in which to do business, and offering a deep pool of knowledge and expertise that has made it at least one of the world's leading financial centres, if not the number one. It is right to review our regulatory arrangements in view of the recent economic turmoil, but one is left to wonder whether there is a limit to the number of times we need to reinvent this particular wheel. What is paramount is a stable and successful financial system that supports the country's continuing economic growth.