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Lamfalussy enhancements proposed by the FSA and HM Treasury
Joint paper calls for a strengthened EU supervisory framework
LONDON – FSA and HM Treasury have published a joint discussion paper that aims to influence the review of the Lamfalussy process by the European Commission later this year. Introducing the paper, Kitty Ussher, secretary to the Treasury, in a speech on November 7 to the Centre for European Reform, stated that although the Lamfalussy arrangements have worked well in providing an effective framework for enhancing EU regulatory efficiency and supervisory co-operation, more practical enhancements need to be made.
The key proposals set out in the report include working towards better regulation: the UK authorities suggest robust economic analysis be undertaken systematically by the Level III committees when preparing advice to the European Commission for the formulation of implementing measures for EU directives and non-binding guidance to assist with implementation.
Also important is the need to ensure consistent implementation by minimising the use of national discretion by EU member states and that the Level III committees should introduce a “comply or explain regime for supervisors departing from the majority view, coupled with a system of peer review to ensure legislation is being properly implemented in all jurisdictions”, said Ussher.
With regards to decision-making and accountability, the paper recommends more formalised reporting by the Level III committees to the Council and the European Parliament. And, while the committees should aim to make their decision by consensus, forms of majority voting could be used to expedite business where appropriate. These decisions should be non-binding and should operate alongside the suggested “comply or explain” approach.
Improving the supervision of groups is high on the agenda for the UK authorities. The paper proposes a package of measures to develop group-based approaches to supervision and the home-host framework for supervisory co-operation. This consists of colleagues using supervisor on a more systematic and regular basis to promote supervisory co-operation and information-sharing between cross-border group supervisors; the creation of principles governing a more extensive delegation of tasks between supervisors to further develop the home-host framework; and further use of delegation.
The paper also suggests arrangements for cross-border crisis management in Europe need to be improved. In her speech, Ussher also touches on the subject of regulatory convergence and the prospect of having a pan-European regulator. She states that the concept of having one European regulator goes against the principles-based approach to regulation adopted by the UK regulator, and that it must be recognised that EU member states all have very different financial markets. She adds that “to legislate for a common method of supervision, and fully harmonised rules would create a massive and dislocating economic distortion that would… act against the very aim of increased prosperity that we are trying to achieve.” She goes on to say that although convergence in regulatory outcomes is desirable, “a one-size-fits-all supervisory approach with a common rulebook or a pan-European regulator, would be insufficiently flexible to allow all the markets of the EU to flourish, which is why we reject it, very simply, on economic grounds.”
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