Barnier draws UK lawmakers’ fire over new European supervisory structure

Lawmakers on an influential UK parliamentary committee on Monday voiced their scepticism over the new European supervisory structure, at a hearing in which Michel Barnier, the European Commissioner for internal market regulation, was grilled over how the new bodies would work.

Members of UK Parliament's Treasury Committee made their concerns over the remit of the European Securities and Markets Authority (Esma), European Banking Authority (EBA) and European Insurance and Occupational Pension Authority (EIOPA) clear from the outset. Andrew Tyrie, the committee's chairman, repeatedly pressed Barnier, who in early November turned down the original request by the parliamentary committee to testify, as to why the European Commission proposed Esma be given the authority to overrule national authorities. Barnier sought to soothe their concerns, saying that the purpose of the three new authorities was not to undermine national regulators, but rather to ensure that they "work together". Barnier added, when the question was put to him again, that the right to overrule was only to be used "in certain emergency cases, not systematically."

The issue was again revisited by Jesse Norman, a member of the committee, who asked whether there were circumstances under which the Bank of England might find itself overruled by one of three bodies. Barnier replied that this was not "the spirit in which the package was prepared."

However, pushed further on the issue, he said there were three situations in which any national regulatory authority might find itself overridden. These were: if it is impossible to resolve a dispute between national authorities on the subject of regulatory arbitrage; in the event of a breach of European law; and if an "emergency situation" were to arise in the markets. He added: "We need to make provisions for such eventualities, where a European decision must be taken in the general interest of the union." Barnier failed to define what might constitute an emergency situation in depth. One example of a situation in which the European authority would take over, however, was where a bank refused to comply with the rules of a host country regulator.

Others were concerned that the new bodies might be under-resourced, given that they must have the weight of authority to overrule national regulators. "It is not a question of overriding the national authorities - that is not the philosophy, mandate or objective of the [European supervisory authorities]," Barnier said. Neither was there need for concern that they would face a dearth of talent, he added, saying he had received 300 applications for the top six roles across the three bodies. "It's a question of working with competent but limited numbers of staff and drawing on the [ground-level] expertise of the national authorities."

The new European supervisory structure, which continental lawmakers sealed a deal on at the start of September, has met with a mixed response. While some analysts believe the cross-border view of Esma, EBA and EIOPA - along with the European Systemic Risk Board - will allow authorities to keep a handle on systemic risk, others have been less convinces. Charles Goodhart, a former Bank of England rate-setter, in September told the same parliamentary committee that the move was a "waste and a mistake."

City exodus
The lawmakers were also concerned that the playing field would be tilted against the City of London, as regulations proposed by the European Commission were likely to drive banks into countries such as Singapore and Hong Kong, which are considered by members of the committee to take a more "light-touch" approach to regulation. Others have echoed this view: Xavier Rolet, the head of the London Stock Exchange, in October said Esma would undermine the United Kingdom's financial services sector, and that French and German politicians were "jealous" of its success.

Charged with placing the City in peril by driving business to Asia, Barnier said the Commission had gone to great lengths to ensure it did not over-regulate, pointing to its decision not to ban short-selling as an example. "We've clearly avoided taking measures that [would tighten liquidity] and this is why I didn't want to ban short-selling, contrary to some recommendations." The proposal adopted by the European Commission calls for heightened market transparency and represents a softer line than that the outright ban issued in May by Berlin.

Barnier had faith that bankers would choose to stick with the City, he added. "My personal opinion is that there won't be a flight of talent from London... we are right at the heart of the [global] financial sector here."

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