Fears are growing over Britain’s future as a world financial centre after the Government agreed to sweeping new European controls over banks, finance houses and insurance firms. Channcellor Alistair Darling was accused of a ‘sell out’ after signing up to a deal that will mean the creation of three powerful new EU regulators. It came days after French President Nicolas Sarkozy declared that the EU was now determined to end the ‘free-wheeling Anglo-Saxon model’ of finance.
Now an economic risk watchdog and EU agencies to oversee banks, insurers and investment firms will be charged with preventing a repeat of the worst global crisis since the Great Depression. Experts warned a tide of new regulation from Brussels would drive leading banks and other financial institutions to move out of Europe altogether. Britain will be worst hit, since we have a bigger financial sector than any other EU country.
After the deal was struck French finance minister Christine Lagarde declared: ‘We’re in the process of creating a real European authority. It was a laborious process; not everyone was on the same wavelength.’ Last night there were reports that British officials had walked out of the negotiations at one point as they were so angry at French triumphalism. This was denied by the Treasury.
The clash in Brussels came amid widespread concern in Britain that the appointment of Michel Barnier, an ally of President Sarkozy, as EU commissioner for internal markets will see London face a tougher regulatory environment. ‘It’s the first time in 50 years that France has had this role,’ President Sarkozy said. ‘The English are the big losers in this business.’
The deal agreed in Brussels by Mr Darling and other EU finance ministers yesterday will create a European Banking Authority, European Insurance and Occupational Pensions Authority and European Securities and Markets Authority. The three will be part of a European System of Financial Supervisors, which finance ministers agreed should work ‘in cooperation’ with national financial regulators. Their precise powers are not yet clear, but the regulators will ensure EU market laws are implemented in the same way in every country and ‘strengthen supervision’ across all 27 nations.
They will issue warnings and recommendations – for instance, if they believe a particular sector is over-extending itself. The requirements could affect the amount of cash banks are forced to hold. The top focus of the regulators is not expected to be on bonuses.
However big European banks will be as reluctant as their British counterparts to see a draconian crackdown. For instance, firms such as Deutsche Bank and Societe Generale have large London operations and are just as generous with bonus payments as UK and US counterparts.
Under the deal, countries will only be able to overturn European supervisors’ decisions if they can garner a majority among the 27 EU members. Mr Darling claimed Britain had secured its key ‘red line’ in the talks by insisting the EU regulators would not be able to ‘impinge on the fiscal responsibilities of the member states’.
Officials said that would prevent any of the new bodies forcing a national government to bail out its banks. ‘Today’s deal says that no decision these authorities adopt impinges in any way on the fiscal responsibilities of member states,’ the Chancellor said. ‘The UK very much supports this agreement, which I believe will go a long way to tighten up the regulatory position.’ But critics said Britain would be powerless to prevent EU interference in hedge funds and other institutions crucial to the economy.
Tory financial spokesman Mark Hoban said: ‘The Government has caved in on its red line that there should be no fiscal impact from the activities of the European supervisory authorities.’ Angela Knight, chief executive of the British Bankers’ Association said: ‘If anyone in the European project thinks for a minute they are capable of subverting the years of effort it took us to make the UK the world’s financial centre, they are sadly mistaken.
‘At stake here are at least half a million jobs and the tax revenues which will contribute more than anything else to replenishing the Exchequer after this recession. Mats Persson, research director of the think tank Open Europe, said: ‘The UK has lost out badly in the negotiations. The key thing is the UK can be outvoted at any time.’