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European Financial Services Proposals

I remind the House of my interests recorded in the register. It is not at all clear after 21 minutes of oration from the Liberal Democrat spokesman exactly where his party stands on the proposals, and whether in fact it would not just wave them through. The hon. Member for Taunton (Mr. Browne) asked for a little more clarity, for safeguards on data protection and so on, but it is not at all clear where his red lines lie. He accused Conservative Members of paranoia, but I draw to his attention the Treasury Committee report on the proposals, which is lying on the Table and which was signed by the two Liberal Democrat members of the Committee. The criticisms that the Treasury Committee made of the proposals were made by all parties in the House, particularly by the two Liberal Democrat Members who signed up to the report. The proposals are deeply flawed and damaging to the City of London and Britain, so they must be resisted. In my view, the Commission has gone far beyond the remit that it was originally given by the European Council in June, as the proposals seek to supervise not only the domestic regulators but domestic private financial institutions in member states. They have a dubious legal basis, as our Committee identified and as we have discussed. They would transfer much more supranational authority to the Commission than was originally envisaged, and they remove, in their current form, all the safeguards that the Heads of Government themselves wanted to include to protect their national taxpayers. Not only have the proposals been drawn up in great haste, as hon. Members on both sides of the House have pointed out, but they ignore the work under way in other international forums. Proposals have emerged from the G20, and new work is under way to produce proposals in the Basel committee. Proposals have emerged from Congress with which these proposals, in the end, have to sit, otherwise we may well find that we are once again in the midst of the kind of regulatory arbitrage that got us into difficulty before, as we are dealing with finance houses that are increasingly global in operation. In my intervention on the Minister, I pointed out that in the draft as it stands there is absolutely no guarantee that the non-eurozone countries will be properly represented on the proposed European systemic risk board. To me, and I think to my hon. Friend the Member for Fareham (Mr. Hoban), that should be a red line that applies not simply to the United Kingdom but to other important financial countries such as Sweden that are outside the eurozone. It is essential that the non-eurozone countries are represented on the board, and I hope that when the Minister makes her winding-up speech, she will make it clear that that is in fact one of the Government's red lines and is not simply an aspiration. We should not agree to a proposal to set up the board if it does not include proper representation as a requirement for the non-eurozone countries. Another problem is the kind of powers that the ESRB will have. Some witnesses who appeared before the Treasury Committee thought that it would be something of a talking shop, but that is no bad thing. Across the European architecture, there should be some way for the ECB governors and others to meet to discuss the issues collectively—that was the bit that was missing between the ECB and the national supervisory authorities before, and I do not oppose it. Equally, however, our conclusion was that the board may well be more effective than simply being a forum for discussion, and we said that""it would be a mistake to underestimate the extent of the ESRB's potential to trigger real effects"." Again, I should like to hear from the Minister whether it is the Government's position that the board should be more than a discussion group, and that she is prepared to concede that it should have some real influence. After all, as we pointed out, if the three so-called ESAs are set up, their chairmen will serve on the ESRB and I suspect that in time it will become an important forum. The Treasury Committee was unsure of the proper basis for the powers that will be delegated to the supervisory authorities. If they have powers to ensure compliance with EU law, that takes them to the very edge of European law. If the powers that are granted to them are new, they are outside the existing powers in the treaties, so the legal basis for those supervisory authorities is extremely tenuous. However, the powers that they are giving themselves are not tenuous—they are very clear. In articles 9, 10 and 11, the supervisory authorities will have direct power to give instructions or directions to individual financial institutions. In other words, the European banking authority could issue an instruction to Barclays bank in the UK, to HSBC, or even to the Royal Bank of Scotland, which is taxpayer-owned. An instruction may be received from the authority that would override other interests, including those of shareholders and taxpayers. We need to be much clearer which directives the banking and other supervisory authorities are supervising. We were told in evidence to the Committee that various directives might have to be amended to enable the supervisory authorities to supervise the bodies concerned. Again, before we set up these authorities to supervise other bodies, we should be clear exactly what is being supervised. There is also the issue of an emergency situation. It is wrong that the definition of what constitutes an emergency situation should be left to the Commission, of all people. Indeed, as the proposal is drafted, it would simply be for the Commission to decide that there are some "adverse developments" somewhere across the European Union. It can then declare an emergency situation, which triggers a series of new executive powers. That is not the Commission's job, nor is the Commission the right body to do this. The Commission does not have a balance sheet or a direct relationship with the European Central Bank, and it has no interest in protecting the interests of national taxpayers.