ABOUT BARCLAYS

  Barclays PLC is a major global financial services provider engaged in retail and commercial banking, credit cards, investment banking, wealth management and investment management services. We are one of the largest financial services companies in the world by market capitalisation. Operating in over 50 countries and employing 123,000 people, we move, lend, invest and protect money for over 27 million customers and clients worldwide. Barclays PLC has over 300 years of history and expertise in banking.

  Barclays is pleased to give evidence to the Committee as part of its inquiry into the Commission's review of the single market.

1.  What has been achieved so far and what are the remaining significant barriers to achieving the Single Market?

—  Significant progress has been made in creating a single market in wholesale financial services through the Financial Services Action Plan (FSAP), 42 separate pieces of legislation.

—  The FSAP highlighted, rightly, that legislation does not of itself create an integrated market. Remaining barriers to a Single Market need to be identified and tackled using non-legislative solutions.

—  A global wholesale market arguably already exists, and care needs to be taken not to fracture it, or to drive it outside the EU, by overly prescriptive regulation or legislation. The concentration of reinsurance offshore in Bermuda illustrates how mobile business can now be.

—  While there needs to be greater convergence of regulatory practices and greater clarity around the respective roles and responsibilities of home and host regulators, there is little need for more legislation in the wholesale area. Market practitioners need time to, digest the legislation that has already been passed (and not all of it has been implemented) and to understand the impact that it is likely to have. Post-implementation reviews of legislation should be carried out to identify areas where the law could be simplified or streamlined to bring it more in line with risk based regulation.

—  Turning to specific wholesale issues, the recent call for evidence by the Commission with regard to private placement regimes is very welcome, as the lack of a pan-European regime on a safe-harbour for marketing investment funds to professional investors cross-border is hindering wholesale integration in this area. A lack of consistency in such regimes means increased legal expenses for issuers and that the same products are not available in all markets.

—  There has been less integration in retail financial services, for various reasons. These include different consumer behaviour and legal frameworks across Member States. Different structures of state provision across Member States also mean that consumers in different states do not all have the same needs for retail financial services, especially those of the more complex variety. The European Commission's recent sector inquiry into Retail Banking has acknowledged that retail banking markets are national markets.

2.  What have been the benefits of the integration of the EU financial services sector to your business? Which segments of your business have benefited most, and which have remained unaffected? How have consumers benefited?

—  In the late 1990s our investment bank, Barclays Capital, set out to take advantage of the advent of the Euro, a strategic decision that has been critical to its subsequent success. More recently, the increasingly integrated market in wholesale financial services has also been important in its ongoing growth, and Barclays Capital is now one of the largest investment banks in Europe.

—  Greater liquidity in European capital markets should have had the overall effect of bringing down the cost of credit and the cost of accessing financial markets for users.

—  The convergence of conduct of business rules in particular will benefit wholesale businesses and markets, since most cross-border business is wholesale.

—  At a retail level, although we have expanded organically and inorganically in Europe in recent years this has been driven by the opportunities offered in specific markets rather than by any particular changes in European legislation.

—  For example, in 2003 we purchased Banco Zaragozano in Spain and combined it with our existing Spanish business to create a network of over 550 branches. We have also doubled our retail presence in Portugal in the last two years, where we now have 100 branches.

—  We believe that consumers have benefited through our compelling offering in each of these markets. For example, Barclays Portugal has been recognised for offering the best quality in customer service in the Portuguese market since 2004.

—  Despite this, it is worth noting that while there is a common core of consumer needs for financial services which all consumers share, these are very much focused on the basic services of payments and savings accounts, and possibly mortgages. For the rest, European consumers needs may vary for more complex financial and investment services given the different standards of social security provision around the EU. This makes a clear definition of "the European consumer" difficult.

3.  What has been the impact of the Financial Services Action Plan (FSAP) on the financial services sector? Has the regulatory burden under the FSAP increased more in some areas than others?

—  The overall impact of the FSAP has been positive for the financial services sector, especially in permitting the more efficient use of capital by allowing greater use of branches to conduct cross-border business. Although it could be argued that there was a pre-existing global single market in wholesale financial services, there has also been a benefit in terms of raising market standards overall.

—  However, complying with the new regulation it has generated has been onerous. It is estimated that compliance with Markets in Financial Instruments Directive (MiFID) will cost the City between £877 million and £1.17 billion for around £200 million of benefits.[3] The non-capital costs of implementing the Capital Requirements Directive will, for large institutions such as Barclays, amount to over £150 million each over a four to five year period, with total implementation costs for the UK bank and building society sector alone estimated in 2006 at around £1.1 billion over the same period.[4] Costs have since increased.

—  The Commission's focus should now shift from initiating new legislative proposals to ensuring consistency of implementation by Member States, and to enforcing the legislation that is in place. Given the high costs of implementing EU measures, it is important that the effects of legislation that has been passed are monitored, and that actions to mitigate unintended consequences and eliminate unnecessary provisions are taken.

4.  What do you consider to be the remaining gaps in the FSAP?

—  There is a need to modernise the supervision of insurance companies. This will be the subject of the Solvency II Directive, on which the Commission is likely to make a proposal on 10 or 11 July.

—  There is a need to modernise the EU Concentration Risk/Large Exposures regime to bring it into line with the Capital Requirements Directive. This is currently under examination.

—  The Commission's recent exposure draft on removing barriers to pan-European investment fund business is welcome, excepting that it only proposes only a "partial passport" for the UCITS management company, under which the functions of calculating the net asset value of the fund and maintaining unit holder registers would have to take place in the domicile of the fund. A number of funds are already administered in another EU Member State and so this would be a step backwards.

—  Overall, there is also a need for "care and maintenance" on various Directives. This is all minor. For the most part, the FSAP simply needs time to bed down.

—  It is right that the effects of the FSAP should be monitored, but at this time it is too soon to say what the cumulative effect of FSAP measures will be, especially as not all of them have been implemented. There needs to be greater clarity about the respective roles of home and host supervisors, but in the first instance this will largely require discussions between supervisors in the Level 3 Committees, not legislative proposals by the Commission.

—  On a more structural and significant level, there is a need for greater understanding on how a financial crisis affecting an institution that is active across national borders would be handled. This is also a topic that is currently under discussion. This would make some countries, especially those where the banking sector is effectively foreign-owned, more relaxed about the way in which their markets have been opened.

5.  In light of the increasing focus on the competition policy, do you think there is sufficient coordination between regulators and competition authorities?

—  We do not believe that a single market can be created through legislation alone and we welcome the increasing use of competition policy—and other such non-legislative tools—in the European Union as a means of opening markets.

—  However, we would like to see greater co-operation and co-ordination between different competition authorities both in Member States and at an EU level.

—  Regulation inevitably sometimes involves creating barriers to entry and therefore may limit competition (eg the need for prudential capital reserves by banks). It is important that such regulatory barriers are the minimum necessary to achieve essential policy goals. Competition authorities have an important role to play in ensuring that regulation does not become stifling of entry and innovation; by the same token financial services regulators have an important role to play in setting limits to the play of unfettered competition for the common good. It is important, therefore, that regulators are consulted with regard to competition issues at the policy-making stage—to ensure that regulation is compliant with competition policy and that competition policy does not prevent policy goals such as reduction in financial crime or stability of the financial system from being pursued.

6.  Is there a need for greater cooperation between National Regulatory Authorities of different Member States?

—  Yes. As indicated in our responses above, greater co-operation between national regulatory authorities is important for the further development of the single market.

—  Such co-operation is provided for by the Level 3 regulatory committees within the Lamfalussy process (CESR, CEIOPS, and CEBS).

—  So far, however, these committees (with the exception of CEBS) have been more focussed on the other key part of their role, the provision of advice to the Commission on the implementation of legislation.

—  Looking to the future it is important that the Level 3 Committees—and national regulators—focus on greater co-operation as a means of encouraging greater supervisory coherence. This will be an important step in delivering the benefits of the single market in financial services.

—  Supervisory convergence to date has been slow, reflecting the difficulty of achieving greater co-operation in a cross-border context and differences of practice and culture.

—  We support the principle recently outlined by FSA Chief Executive John Tiner in a speech on 2 July—of a "hard lead regulator". This would create greater regulatory efficiencies for large, multi jurisdictional companies, whilst also requiring regulators to work more closely and thereby facilitating greater supervisory convergence. Developments such as the establishment of a regulatory college for complex cross border financial groups are also to be welcomed.

—  There is also some pressure for Level 3 Committees to reach more decisions relating to supervision—rather than technical advice—by qualified majority voting. We do not believe that this is appropriate. It would turn a meeting of supervisors into a quasi-legislator (albeit with a restricted scope) and even if non-binding (with a comply or explain rule), would introduce a greater element of politics into what should be a technical forum seeking the correct technical approach.

7.  Do you consider that the integration of EU financial services sector is better achieved by market-led initiatives as opposed to regulatory developments (eg the Code of Conduct on Clearing and Settlement instead of a directive)?

—  Yes. The FSAP, although well-intentioned, has demonstrated that legislation alone cannot integrate markets. It is important that legislation only be used where there is clear market failure that cannot be addressed by other means.

—  We welcome the greater focus now being placed by the Commission on the use of non-legislative implements and its espousal of the better regulation agenda when considering legislation.

—  Market-led initiatives in particular are an important tool as they harness the natural efficiency of markets and respond to a particular demand. Some financial services policy-making at EU level has been too concerned with supply, on the assumption that creating the conditions for the supply of particular services will create demand for them—this is not the case.

8.  Do you consider further legislative measures by the Commission to be necessary for the completion of the Single Market? What would you consider appropriate?

—  No. We do not consider that further legislation from the Commission will assist the completion of the Single Market. Rather, we would prefer the Commission to focus on identifying the barriers to the further development of the Single Market and tackling these using the non-legislative measures at its disposal, including but not limited to competition policy, market-led initiatives and self-regulation.

—  This is particularly important for retail markets where the Commission should focus on removing barriers which prevent or restrict market entry or the development of effective competition for retail products as a first priority.

—  The Commission should also focus on ensuring that the legislation that it has sponsored to date is properly implemented and enacted. In the past, additional legislation has sometimes been used as a means of avoiding tackling the issues of implementation and creating a genuine single market.

—  We would expect the European Commission and Member State authorities to give the market time to react to initiatives already in place or coming on line before considering others.

9.  To what extent do you consider that EU Member States are fulfilling their responsibilities in setting the framework for the integration of the EU financial services sector (eg timely adoption of the Payment Services Directive or transposing directives into domestic laws)?

—  The UK has taken a lead in transposing EU legislation relating to financial services into national law, and the City of London has benefited from this approach. However, the conditions that will allow a genuine single market in financial services to develop will not be created until all Member States have fulfilled their legislative responsibilities and implemented them in a manner and spirit consistent with the EU's market opening objectives. The issues associated with the implementation of MiFID are a case in point.

—  In addition to focusing on the easily quantifiable fact of transposition, the Commission should also needs to focus on the manner and spirit in which directives have been transposed and whether they are being implemented in a way that is consistent with the single market. The implementation scorecard is perhaps too blunt a tool to accurately measure this important area.

10.  Are the current remedies available to the Commission to enforce Single Market legislation adequate, and are they used effectively?

—  The tools are available, but the Commission could devote more resource to studying the manner in which EU legislation has been implemented, and in its choice of the tools at its disposal.

6 July 2007

4   PricewaterhouseCoopers, The Capital Requirements Directive, Non-Capital Compliance Costs, published by the FSA as Annex 3 to CP06/3, Strengthening Capital Standards 2. Back