07 November 2007

UK discussion paper on Lamfalussy review

The UK Treasury and the FSA issued a discussion paper on the review of the Lamfalussy arrangements which are being reviewed at the end of the year.

Overall the UK authorities believe the Lamfalussy arrangements are structurally sound, and have made a major contribution to the regulation and supervision of financial markets in the EU.

Nevertheless, the UK authorities propose a number of practical and ambitious proposals that they believe will deliver further tangible benefits in terms of the efficiency of the regulatory and supervisory process facing firms and the effectiveness in the way the Lamfalussy committees conduct their day-to-day business. Lessons to be learnt include delivering cost-effective regulation, where regulation is necessary, through the use of better regulation techniques, and deepening co-operation and collaboration between national supervisory authorities in the supervision of markets and firms.

UK authorities believe that supervisory convergence is primarily about delivering equivalent regulatory outcomes. That said, differences in national markets mean supervisors will often need to adopt different approaches, the paper states. In particular, the appropriate regulatory approach for international financial centres dominated by wholesale markets is clearly different to the appropriate approach for more retail focussed national markets in the EU.

Recommendations:

UK authorities recommend a package of measures to further develop group-based approaches to supervision and the home-host framework for supervisory co-operation that underpins it.

They recommend this package of measures comprise:

- the more systematic and regular use of colleges of supervisors to promote supervisory co-operation and information sharing between supervisors of a cross-border group;

- further developing the home-host framework through the creation of principles governing a more extensive delegation of tasks between supervisors (where this is judged to be appropriate). This could be developed by the Level III committees; and

- further use of delegation of, or sharing of, supervisory tasks, within supervisory colleges to avoid duplication of supervisory effort.

They also recommend more formalised reporting by the Level III committees to the Council and the European Parliament. In addition forms of majority voting could be used to expedite business.

Further recommendations include:

- Level III committees operate in accordance with a principles-based-approach, which aims to achieve equivalent regulatory outcomes.

- robust economic analysis be undertaken systematically by the Level III Committees when preparing advice to the European Commission.

- Member States should limit their use of national discretions to the minimum extent necessary and all Level III committees should introduce a “comply or explain” regime coupled with a comprehensive system of peer review.

Report

© Graham Bishop