FSA to overtake EU on Regulations

by Mark Johnston

In an attempt to make the UK more regulated than the rest of Europe, UK regulators have been shoehorning in regulation independently to the EU directives coming down the road.  Mervin King has accused the UK regulators of damaging unilateral action in their attempts to rush through new regulation ahead of the EU. 

The Rt. Hon John Gummer, Lord Deben, praised the European Commission’s inclusive approach towards legislation and called for more certainty over how the legislative approach would work across borders in countries within Europe. 

There is an impression that the UK regulators are attempting to introduce legislation to appear more stringent than the rest of the European Union.  Lord Beden went on to say that “I hope that our regulators don’t think they can get little bits [of regulation] in before European legislation comes in to make us more regulated than the rest of Europe. We have to accept that that we are already over regulated as an industry.”

The Markets in Financial Instruments Directive (MiFID) is new regulation brought in a few years ago and the Chairman of the European Parliament Economic and Monetary Affairs commented that the position that the FSA are taking towards early and hard regulation out of line with the rest of the EU may leave them in a difficult negotiating position in the future.   

With the preliminary review from the Independent Commission on Banking out now, the fact that there will not be a regulation requiring the break up of the so called universal bank.  This saw the share price for Barclays and RBS rise by 3 per cent.  Lloyds saw it’s shares rise also as the ICB felt that the merger between the Lloyds Group and HBOS should not be reversed despite concerns raised on the competition rules.

We reported recently that Lloyds were set to sell 600 branches and private discussions have revealed that the sale is due to generate somewhere in the region of between £2 billion and £3 billion on the market and accounts for about 5 per cent of the U.K’s checking account market.  The sale must go ahead, according to the stipulation of their bailout, by the end of 2013 in order to comply with the terms and conditions. 

Lloyds may be ordered to sell further branches further impacting the livelihood of this group.

The government will review the ICB report and produce their own recommendation later this year in September but for the moment, the collective banking and lending companies are breathing a huge sigh of relief.  Any further turmoil in this industry may tip the fragile recovery experienced so far.  A cancellation that the banks will have to put up with will be the greater capital they will be required to hold in reserves now, at least 10 per cent.  Banks and lenders will have to follow international guidelines and their capital safeguards will be available to transfer over all their banking units. 

One of the recent events saw the rumours that HSBC Bank plc would remove and relocate their head quarters from the UK to Hong Kong.  The report out recently has gone some way to keep HSBC, Barclays and RBS internationally competitive and not gone too far to push them out of the UK.  This would truly be tragic for the UK economy and wider recovery.

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