The Position of London
116. The Committee also considered the consequences
of FSAP legislation on the markets located in the City of London.
We found that UK witnesses 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.
Witnesses also felt that the capital markets located in London
were regarded by other Member States as a UK asset rather than
as a resource that benefited EU industry as a whole and that,
as a result, attempts were being made to use the legislative tools
of the FSAP to "repatriate" business to other Member
Other witnesses thought that the FSAP's attempts to harmonise
regulation would prove burdensome and have the effect of driving
away non-EU business.
117. Continental witnesses tended to see things differently.
Mr Michel Prada, Inspecteur Générale des Finances,
Ministry of Economic and Financial Affairs, argued that:
"the City of London is old, strong and rich
and open and innovative enough not to worry about the consequences
of financial integration in Europe".
118. This is a view echoed by the Federation of European
Securities Exchanges who thought that the removal of barriers
to cross-border trades could only benefit those service providers
(in the UK and elsewhere), who understood and implemented the
play of competition better than others
- a view supported by a UK witness, ProShare.
119. We believe there has been increased awareness
in other Member States about the importance of the London markets
to the EU economy as a whole. Nevertheless, there are still,
in part, residual, protectionist inclinations. These come more
clearly to the fore in the Council rather than in the Commission
or the European Parliament as was evident by the vote in ECOFIN
on 7 October 2003.
120. We were heartened by the catalytic effect that
CESR has had in the implementation process that has led to an
increasing awareness of the different systems that need to be
brought into some form of harmony. We gained the distinct impression
from our discussions with witnesses in Brussels and Paris that
the views expressed by some of the UK witnesses may well have
applied in the early stages of the FSAP but that there had been,
in the intervening period, a change in attitudes as the complexity
of regulating these sophisticated markets was borne in on the
national regulators and finance ministers in other Member States.
121. The Committee recognises the fears of the
practitioners in the UK market. London is, undoubtedly, successful
and this attracts both admiration and envy from less successful
markets. A single market in financial services can only be to
the benefit of an efficient and competitive dominant market player.
Nevertheless, it will be important for the Government and the
financial services industry to monitor closely the implementation
of Directives as the Lamfalussy process evolves and to be prepared
to intervene at an early stage if EU legislative proposals contain
elements that might seriously inhibit the ability of the markets
in London to continue to attract non-EU issuers and participants.