Rushing in EC directive will damage the City, warn Lords

“Rushed” European Commission proposals in response to the financial crisis could be “hugely damaging” to the City of London, a House of Lords committee warned today.

Crucial elements of the Markets in Financial Instruments Directive (MiFID II) risk creating unnecessary red tape, excluding American and Chinese companies from key markets and reducing competition and innovation in the financial sector, said the Lords’ economic and 
financial affairs EU sub-committee.

In a report released today, the committee called on the UK 
government to play an active part in negotiations with the European Commission, the European Council and the European Parliament to amend the proposed regulations.

MiFID II is due for implementation in 2015 and will affect a wide range of services, from global investment banks trading complex securities to fund managers investing pension funds, stock-broking firms and small high street financial advisers providing financial advice to the general public.

It aims to update the earlier MiFID I regulatory package to take account of changes since it came into effect in 2007, including developments in technology and the fallout from the financial crisis of 2008.

A consultation was launched in December 2010 and the UK government responded last year, but today’s report warned that more time was needed to consider the potential impact of the new directive.

The report highlighted proposals to limit third-country access to EU markets, which the peers said would create a “fortress Europe” excluding countries like the US and China to the detriment of consumers.

A “one-size-fits-all” approach to transparency under the directive failed to take account of the sensitivity of information before a trade is made, risking damage to liquidity and competition, said the committee.

And they warned that proposals to limit trading to regulated venues with the status of Organised Trading Facilities would create unnecessary red tape and an overly complicated regulatory framework.

The committee’s chairman, Labour peer and former MEP Lord Harrison, said: “We are very concerned that the undue haste with which MiFID II has been brought forward means that the Commission simply hasn’t had time to think through the implications of its proposals.”