EU seeks to patch up differences with UK over banks

LONDON Tue Feb 7, 2012 12:22pm EST

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LONDON Feb 7 (Reuters) - The European Union (EU) sought to patch up differences with Britain over financial regulation, saying on Tuesday there was room for exemptions in a draft European banking law to accommodate stricter local supervision of lenders.

Jonathan Faull, head of the European Commission's financial services unit, said it was a matter of crafting exemptions in the draft EU bank law so Britain, Sweden and others can tailor their local supervision.

"I am sure that this will end up in a perfectly reasonable set of rules which will respect the general principles, that we have wherever possible a single rule book in the EU," Faull told an industry conference.

The UK worries its ability to continue imposing additional capital and liquidity requirements on domestic banks will be significantly curbed under a draft EU law now being approved.

Government, Bank of England and the Financial Services Authority officials lined up to ram home the message.

Jurisdictions must retain the right to apply higher levels of regulation, Britain's Financial Services Minister Mark Hoban told the conference.

"This is particularly important for countries like the UK that are home to large global financial centres," Hoban said.

Andrew Bailey, director of UK banks at the FSA, said there was a very clear need for EU bodies like the European Banking Authority (EBA) to set "sensible boundaries" where supervision remains national and where there should be proper pan-EU coordination.

The European Commission, which drafted the bank capital law that is troubling Britain, wants a single set of rules for the EBA to apply across the 27-nation bloc.

EU states and the European Parliament have the final say on the new law and Faull cautioned that the Commission would not allow the clock to be turned back on the "bad old days" of shortsighted, uncoordinated national supervision.

"We have been there, tried it and failed," Faull said, adding that a single rulebook was not a straitjacket.

Bankers urged the regulators to look at the bigger picture.

There was a "real need for leadership" to say when no more rules should be added to the lengthy EU and global reform agenda and to see whether enough has been done to change behaviour, HSBC Chairman Douglas Flint said.

"If we are to make the most of this reform period, we really do need to focus more on what we want the financial system to do in aggregate and less on where there is a need for detailed reform," Flint told the conference.

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