The House of Lords EU Committee report 'The post-crisis EU financial regulatory framework' concludes that, given the magnitude of the task that they faced in responding to a once-in-a-generation crisis, the EU institutions performed well.
Nonetheless the sheer scale of the reforms, amounting to 41 legislative proposals in total, means that the reformed framework inevitably contains some weaknesses. In particular, the expected high standards of consultation and impact assessments were not always maintained, and not enough consideration was given to the overall effect on the financial sector of such a huge programme of reform.
The report concludes that the three European Supervisory Authorities (ESAs) have experienced a baptism of fire, but have been responsible for much good work. Yet they are hampered by several fundamental weaknesses, including a lack of authority, independence, resources and influence over the legislative process.
The most flawed of the legislative proposals were the result of political pressure to take action and/or to make the financial sector pay for the crisis. The Alternative Investment Fund Managers Directive (AIFMD), the bank remuneration provisions in the Capital Requirements Directive (CRD IV) and the contentious plans for a Financial Transaction Tax are three cases in point. Yet they are exceptions. The Committee found that the bulk of the new regulatory framework was necessary and proportionate, and would have been implemented by the UK even if action had not been taken at the EU level.
The UK and EU Financial Services Agenda
The Committee criticises the belated recognition of the importance of the growth agenda. It welcomes proposals for an Investment Plan for Europe and for a Capital Markets Union. Yet the responsibility for promoting growth and prosperity lies not only with the Commission but with every Member State.
The UK has the largest financial sector in the EU, and the implications of these reforms for this country are therefore immense. Yet the Committee finds that the UK’s influence over the EU financial services agenda is diminishing. It calls on the Government and all UK authorities to take urgent steps to correct this. The prosperity of the City of London, and the financial services industry it hosts, is in the interests not only of the UK but of the EU as a whole.