UK MPs fear ‘scale and pace’ of EU reform
Friday February 04 2011 | 03:41 AM

A report from the UK Treasury Select Committee has raised concerns about the sheer "scale and pace" of European reforms, fearing that meeting G20 regulatory requirements alone will place a huge demand on UK regulators.

Released this morning, the 83-page TSC report into financial regulation focuses on the potential of the newly created European Supervisory Authorities to force through rushed financial regulatory coordination, which the TSC says may hamper UK regulators.

The committee argues that political pressure to implement inappropriate regulation will not only hamper the UK, but also the EU as a whole.

"Implementing the G20 priorities alone will place a heavy legislative burden on the EU. The lion's share of action will need to be taken at a global level if it is to be effective," the report states.

"If the European Supervisory Authorities focus on improving coordination between regulators, and drawing up technical standards which are based on a deep understanding of the markets regulators have to deal with, they can add value.

"However we are concerned at the sheer scale and pace of the reforms taking place at European level.

"The focus of European effort should be on explicit commitments by the G20 for reform."

The TSC is also fearful, on a domestic front, of the mandate of a new Prudential Regulatory Authority, due to be set up at the beginning of 2012 to oversee the day-to-day operations of UK banks.

It raises concerns that the PRA's efforts will be focused on supervising what it considers to be medium and high-impact banks, noting that the failure of "low-impact" firm Northern Rock engendered a systemic loss of confidence in the banking sector when it required a bail-out in 2007.

The report is also critical of remarks made by Hector Sants, chief executive of the Financial Services Authority, who has stated that the PRA will have a "low tolerance" for failure of systemically important financial institutions.

It warns that an assumption that certain firms cannot be allowed to fail will result in "market distortion, [which] entrenches the market power of large incumbents and thereby stifles competition.

"That lack of market discipline may, over the long term, itself engender systemic instability. Although there may be combinations of circumstances in which individual firms require support to limit systemic risks, we reiterate our predecessor committee's recommendation that no firm should be too important to fail."