03 December 2003

House of Lords report on progress of Single Financial Market

The House of Lords released its 45th report prepared by the Select Committee considering the Financial Services Action Plan and the progress towards a single market for finance in Europe.

The report considers that although deadlines are important to achieve political milestones, the quality of legislation should be the determining factor. The report also identifies that there is tension at the heart of this system between the light touch need for flexibility and the desire and intention of the regulators to achieve as much harmonisation as possible in order to bring about a level playing field.

While the Lamfalussy process faces enormous challenges, the Committee believes that it must be given time to see if it will work effectively in providing the regulatory framework that will enable a European single market to flourish. There is no support for the concept of a single European regulator.

The Committee also found that UK market participants were mostly nervous fearing that the implementation of the FSAP would be slewed by political negotiation and that this would adversely affect the very large and vibrant capital markets that have emerged in London. The report also states that UK market participants felt that attempts were being made to use the legislative tools of the FSAP to “repatriate” business to other Member States.

However, there has been a misunderstanding about the nature of the financial markets located in London. They are not an exclusive UK asset. London is a global market not a national one; it should be regarded as a EU asset. If overregulation or poorly drafted legislation drives business away from London, it will not go elsewhere in the European Union but to international markets where the regulatory touch is lighter.

Graham Bishop was a special advisor to the Committee.

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