Parliamentary Connections

Similar proposals for wide-ranging anti-discrimination laws have been working their way through the European legislative system and reached the European Parliament last week where they were passed with some important exemptions for banking and insurance included. The ABI was rightly quick to welcome these exemptions which would allow insurers to continue to charge different rates and impose different terms for age, gender or disability so long as the information used in assessing the risks is accurate and relevant. MEPs went out of their way to stress the need for precision.

The UK's Equality Bill is looking to legislate on similar areas and MPs and Peers have already made it clear that there are cross-party concerns about the potential for age discrimination in travel insurance. They will see this demand for precision and accuracy as a way of putting further pressure on the industry to justify the current range of age limits on most travel insurance policies. So, the ABI will have to focus on this area if the positive effect of the European wide approach is not to be frittered away when the same issues are debated in the UK.

As the ABI turns its attention to lobbying on this in the UK it might want to make sure its gets the name of the bill right: it is the Equality Bill, not the Equalities Bill.

I have written before on how the UK appears to be on the back foot in this debate with the European Commission setting the agenda through the Larosiere report and its proposals for the setting up of pan-European regulatory bodies that potentially downgrade the role of the Financial Services Authority and other national regulators. The UK has been very lukewarm, even quietly hostile, to this policy.

Yesterday's elections seem to me to make it even more likely that the European view - driven by an intense belief that the Anglo-Saxon approach to financial services regulation was one of the causes of last autumn's financial meltdown - will triumph. In France, where President Sarkosy has led the way in challenging the US-UK view of regulation, the President's centre-right party swept the board. Similarly in Germany and, to a lesser extent, in Italy. Reading and listening to reports from those countries last night and this morning it is clear that their endorsement of the governing parties is in part a vote of confidence in their reaction to the economic and financial crisis. This huge strengthening of the European People's Party in the European Parliament is a major boost to the backers of the Larosiere approach. 

In tandem with this significant electoral endorsement of the pan-European regulatory solution we have the British Conservatives walking out on the European People's Party, now by far the largest group in the Parliament: with them goes the one hope of any real UK influence as the proposals make their way through the Parliament. Inside the EPP, the Conservatives might have had some say as they appear to share the broad stance of the UK government that strong national regulators backed by true global action as proposed by G20 is the right way forward, not regional regulation. Outside the EPP, they will have no say as they line up with various fringe right-wing parties from eastern Europe. This debate on the Tories' place in Europe may have a few twists and turns yet, however.

With a weak and totally distracted British government and no voice in the major group in the European Parliament it is hard to see how the UK can stop it being full steam ahead for the Larosiere approach.

Fortunately, some wiser voices are being heard in this debate.

As expected the Swedish presidency of the EU is taking a rather more measured and co-ordinated approach to the complex issues arising out of the global financial crisis. The pre-G20 summit meeting of EU leaders is part of that more thoughtful approach. The Swedes have realised that crudely attacking London will damage the whole EU and that the AIFMD as it currently stands would effectively prevent any EU citizen, pension fund or investor getting access to a very wide range of offshore funds (and offshore is where they would go under these proposals). Consequently, last week the Swedes told members states that they would prepare a modified version of the directive for discussion at the EU meeting on 22 September, prior to the G20 summit two days later in Pittsburgh.

A similarly conciliatory view is being taken by the new chair of the important European Parliament Economic and Monetary Affairs Committee, Sharon Bowles, a UK Liberal Democrat. She criticised EU regulators for their "impatience and need to be seen to be doing something", adding that many of the issues that have caused problems in the past are already being addressed by national regulators such as the UK Financial Services Authority.

This does not mean that hedge fund managers can sit back and think nothing will change. There will be new rules, and it is unclear still whether these will be dictated by national regulators, Europe or through the sort of co-ordinated global action that is likely to emerge from the G20 summit. They are likely to be quite tough rules too. However, they will not now be framed in such a way as to "punish" London and New York.

The upshot of the government's mishandling of the discussions about the distribution of key EC portfolios is that the UK is in the weakest position in the EU since it joined in 1973.

It all started with the misguided promotion of Tony Blair as a candidate for the new post of permanent president of the commission. A survey of the European press will show all too clearly that the only people who took this seriously were 10 Downing Street and the Daily Mail - it was a non-starter as far as the rest of Europe was concerned. Having woken up late in the day to the fact that the Blair campaign was doomed to failure, Gordon Brown then focussed on the other new post covering foreign affairs. There was a false start with the attempt to put forward David Milliband as a candidate but he had the sense to see that this was potentially a political backwater and refused to have anything to do with it. But the UK government had convinced itself that this was a deserved consolation prize for not getting the presidency and was being encouraged in this thinking by France and Germany. So, step forward Lady Ashton whose best qualification for the job seems to be that she has taken a few foreign holidays.

Having sold the UK a pup, the French and Germans then had the field to themselves in carving up the key economic portfolios and so Frenchman Michel Barnier ended up in the internal market and financial services beat with a clear mandate to focus on the City of London. The Germans wanted, and got, energy.

Lining up alongside Barnier in the other economic portfolios will be two liberals - Finland's Olli Rhen (trade) and Karel de Gucht of Belgium (economic and financial affairs) - neither of whom can be expected to be slow in supporting tougher regulation of financial markets. To complete this gloomy picture is the appointment of a Spanish socialist - Joaquin Almunia - as competition commissioner.

It looks as if the UK's financial services sector will have to look outside the Commission for support and is likely to find itself increasingly reliant on the European Parliament to get its voice heard which will make the role of UK Liberal Democrat MEP Sharon Bowles even more important to the City than it was before. She chairs the parliament's economic and monetary affairs committee which has to approve any Commission proposals on financial regulation before they can be passed into EU law. In her few months in the post she has proved a safe and sensible pair of hands when it comes to the rushed attempts to force through new regulations on hedge funds. I imagine quite a few public affairs departments in the City will be looking her up this week.