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Financial regulation

PM urged to defend City over EU rules

David Cameron is being urged by Conservative MPs to consider a range of measures to prevent Britain’s financial services sector being hobbled by EU legislation, including possibly seeking an outright exemption from Brussels rules.

The Fresh Start group of Tory MPs is drawing up proposals for recasting Britain’s relationship with Europe and will this week produce new ideas focused on ensuring the City maintains its global competitive edge.

Many Tory MPs were encouraged by Mr Cameron’s use of the veto at a European summit last December, but believe he needs to go further to defend the financial services sector.

A green paper produced by the MPs – who regard themselves as moderate eurosceptics – argues that Britain could operate more effectively within existing structures, including working to put bright graduates and top officials into key positions in Brussels.

The MPs also argue that Westminster could enhance its scrutiny role over European legislation, which is often regarded as flimsy and occurring too late in the legislative process.

Their paper proposes that Britain could deploy the “Luxembourg compromise”, by which countries with an overriding national interest in an area of EU law can appeal to have the issue settled in their interest.

Andrea Leadsom, a member of the group, said: “Germany always believes it should have the final say over issues relating to the automotive industry; the same with the French and agriculture. We should be in the same position regarding financial services.”

The paper says that, more drastically, the UK government could seek a unilateral break on or exemption from EU financial services regulation, although it is extremely unlikely that other member states would ever agree.

It suggests a double lock: “Lock One would assert the special circumstances that are the UK’s stake in financial services, requiring the [European] Commission to reconsider proposals that impact disproportionately on the UK.

“Lock Two would give the UK a right of appeal for any proposal at any stage during the decision-making process before the proposal had been agreed by the Council and European parliament.”

However, despite an assertion by Nicolas Sarkozy, the French president, that the appointment of a Frenchman, Michel Barnier, as EU commissioner for financial services was a “defeat for Anglo-Saxon capitalism”, the Treasury claims it has blunted the worst of any potential damage from EU legislation by amending measures in Brussels.

Although the MPs fear EU laws could hinder the City’s expansion into emerging markets, it remains the case that Britain derives huge advantages from its ability to sell financial services to 26 other European countries.

Ms Leadsom said: “There are huge business opportunities opening up outside the EU, particularly in the Bric countries [Brazil, Russia, India and China]. We need certainty that Brussels will not be able to impose punitive controls on how it does business.”

Source: Financial Times

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