PROPOSALS TO strengthen the regulation of financial services across Europe pose no threat to the IFSC, an Oireachtas committee heard yesterday.

The European Commission aims to introduce a single set of harmonised rules on financial regulation and to co-ordinate the supervision of cross-border financial groups within the EU.

The new regulatory regime, expected to be in place by the start of 2011, will also give supervisory authorities the power to act at a European level in the event of a financial crisis.

Addressing a meeting of the Oireachtas Joint Committee on European Scrutiny yesterday, Financial Services Ireland director Brendan Kelly said he expected the proposals to strengthen the European single market in financial services, which in turn was “a positive development” for businesses in the IFSC involved in cross-border financial services.

However, Mr Kelly warned that the proposals contained a number of key risks. For example, a new council tasked with monitoring potential threats to the financial system will be made up primarily of central bankers.

“There are some concerns that this may result in the extension of regulatory standards from banking into insurance, asset management or funds without recognising the different prudential or systemic risks presented by these sectors,” he said.

But he said he was “quite happy”, in the context of the new regime, that the IFSC would continue to attract investment.

If Ireland is to continue attracting broader foreign direct investment, it is “extremely important” that problems in the Irish banking system are addressed, Mr Kelly added.

Meanwhile, Patrick Brady of the Irish Financial Services Regulatory Authority told committee members he did not believe remuneration and bonuses in the banking sector could be capped under the new harmonised regime, as this was a political issue and so would still be determined at a national level.

It is also envisaged that, in the event of a financial crisis, the independent decision-making by national authorities on short selling that occurred in October 2008 would be replaced by a co-ordinated approach, he said.

Pat Farrell, chief executive of the Irish Banking Federation, said the EU must be careful not to proceed too quickly with the development of the new regime, as it must take into account regulatory developments in other jurisdictions, in particular the US.