We read that the Uk government wishes to protect home regulation of our banks from the new banking union proposed for the Euro area. We are told that they wish to do so whilst preserving the wider single market in banking and financial services. People are already arguing over the detail, worried lest the stronger Euro area banking regulation impinges on banking regulation in the EU outside the Euro area. A concession has been granted, modifying voting procedures on the European Banking Authority, to ensure some support to new rules from non Euro area members.
It is time people woke up to the reality. Over the last decade huge powers have been transferred from the UK to the EU, especially in the banking and financial services sectors. The FSA has written on its website that “70% of the FSA’s policy making effort is driven by EU initiaitives”. When the new bodies, the PRA and the FCA, replace the FSA we may well see the figure over 90%. The horse has bolted, long before this latest lock on the stable door comes up for inspection.
UK financial regulation is now subsidiary to EU regulation. The EU has recently established a European Banking Authority to regulate banks, a European Insurance and Occupational Pensions Authority, and a European Securities and Markets Authority. There is now a grand European Systemic Risk Board overseeing the whole pan European system.
There is plenty of EU law for them to implement and supervise. The Mifid Directive controls financial services. Banks are under the Banking Co-ordination Directive and the Capital Requirements Directive IV. Insurance has Solvency II. Most investment funds come under UCITs IV. There is the Money Laundering Directive and the Market Abuse Directive to regulate conduct. The EU has been busily working more recently on new legislation to govern OTC derivatives, mortgage credit, Insurance guarantee schemes, short selling, compensation and a wide range of other activities. There is the well named Omnibus Directive.
When the new Prudential regulatory Authority and the Financial Conduct Authority spring forward under Bank of England guidance, much of their work will be to enforce and interpret EU law. The latest proposals do entail an even stronger possibility that European authorities could force on UK banks regulations or requirements which did not please the UK government. It is, however, a matter of degree. That can already happen given the way powers have been systematically transferred over the last decade.
The latest proposals seek a single supervisory handbook for banks for the whole EU, with harmonised deposit insurance schemes, common capital requirements and a single European recovery and resolution framework. That does not leave a lot to national decision.
The document from the Commission says:
“To avoid fragmentation of the internal market following the establishment of the single supervisory mechanism, the proper functioning of the European Banking Authority needs to be ensured. The role of the EBA should therefore be preserved in order to further develop the single market and ensure convergence of supervisory practices all over the EU”
The UK government does need to stand up for more domestic control of these important matters. Like most things to do with the EU, just blocking the position getting worse is not enough. The government needs to admit the reality. Today, the UK financial and banking sector is largely controlled and regulated under EU law, with substantial influence from EU institutions. The Single rule book applies to the UK, and it is about to get much more detailed and wide ranging, even if we stay out of the new single supervisory mechanism for the Euro area.