Lords fear Brussels red tape damage to City

Crucial elements of the Markets in Financial Instruments Directive (MiFID II) risk creating unnecessary red tape, excluding United States 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 yesterday, the committee called on the UK Government to play an active part in negotiations with the 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.

It aims to update the earlier MiFID I regulatory package to take account of changes since it came into effect in 2007.

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

The report highlighted proposals to limit third-country access to European Union 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.

It warned that proposals to limit trading to regulated venues with the status of Organised Trading Facilities would create unnecessary red tape.

The committee’s chairman, Labour peer and former MEP Lord Harrison, said: “While we absolutely agree that a review of MiFID I was needed, we simply can’t risk locking third country firms out of EU financial markets or damaging the provision of investment services.”