By Martin Banks - 27th September 2012
The text adopted by the committee contains dangerous loopholes
Senior British MEP Arlene McCarthy has called for a higher level of investor protection and an end to "abusive" speculation in commodity markets.
Speaking at a meeting of the economic and monetary affairs committee, she also voiced concern at the impact such speculation was having on global food prices.
At a meeting on Wednesday, the committee voted in favour of stronger regulation of commodity derivative markets.
Deputies also approved plans to create a new 'organised trading facility' as part of the revision of the markets in financial instruments directive and regulation.
The raft of proposals are designed to prevent banks and financial investors driving up food prices through financial speculation.
However, at least one leading NGO later expressed concern, saying the draft legislation approved by committee member contains "dangerous loopholes".
The meeting took place amid the noisy backdrop of a demonstration outside parliament about rising food prices.
Campaigners are calling for strict rule to stop speculation driving food price increases and price volatility.
Speaking after the meeting, McCarthy said, "Financial markets have changed radically over recent years but the current law has not managed to curb their excesses.
"Speculation on commodity markets causes food price spikes which ultimately is putting the poorest people in the developing world at risk.
"These price spikes also put pressure on household budgets from the fuel in your petrol tank to the food in your shopping basket."
According to the World Bank, food prices globally soared by 10 per cent in July.
McCarthy added, "In the face of intense lobbying by the industry we have voted in favour of mandatory position limits on speculation.
"We are committed to putting a brake on excessive food speculation and speculating giants profiting from hunger. We need to put an end to these practices which only serve the interests of profiteers. It is immoral.
"We must ensure that the full parliament vote in October closes any potential loopholes covering speculative contracts to ensure this legislation effectively limits speculation on food prices.
The committee did not back an EU-wide ban on all commissions from product providers to advisers, despite the fact that the UK and the Netherlands already have a ban and other EU countries are considering banning this anti-consumer practice.
On this issue McCarthy said, "We have however preserved the UK's national ban in order to ensure that UK consumers have access to real independent financial advice. Research conducted by the UK regulator, the FSA, shows that commission leads to sales, product and provider bias as well as numerous miss-selling cases.
"Not only will this benefit consumers as they will have better advice, but the industry who will no longer have to pay out massive compensation claims which have amounted to €10m in the recent PPI scandal."
Earlier this month, the EU proposed that the European Central Bank should supervise all eurozone banks as a first step towards creating a banking union.
But the plan has aroused worries in the 10 other member states, with their own currencies, that they will be indirectly affected.
At the meeting, German Greens deputy Sven Giegold expressed concern at the commission's banking union proposal, saying this "has the problem that it makes it very difficult for countries outside the euro".
"We have a big interest that countries outside have voting rights to stop a split between countries such as Poland and Germany. The same goes for Sweden."
ECR member Kay Swinburne said, ""This is a broad package which I believe still requires alteration and improvements. The vote in the committee, however, paves the way for negotiations with national governments to reach agreement on these important reforms. There is still a great deal of work to do but we now have a text that we can work with."
Reaction elsewhere to the outcome of the committee meeting was swift, with NGOs welcoming the introduction of mandatory limits on speculation, but warning that a number of loopholes "must be fixed" to make the proposed rules effective.
Marc Olivier Herman, Oxfam's EU policy advisor, said, "Betting on food prices is unacceptable in a world where nearly one billion people are going hungry.
"The vote shows that there is a majority in parliament in favour of limiting harmful financial speculation. However, the text adopted today falls short of what is needed to tackle food speculation."
Christine Haigh, the world development movement's policy officer, said, "The text adopted by the committee contains dangerous loopholes: an overly narrow definition of the limits to be imposed on speculation and generous exemption clauses excusing some companies from regulation.
"Unless these problems are fixed, harmful speculation will continue to fuel the devastating price volatility we are seeing on global food markets."
Legally, parliament will have no say in writing much of the legislation to underpin a banking union which aims to restore confidence in an industry, but it has powers to amend other important financial regulations.
Some believe that the European banking authority, set up to coordinate the supervision of banks in response to the financial crisis and which is run by regulators from across the EU could act as a counterbalance.
The commission has already suggested a special voting mechanism among EU regulators as a counterweight to the power of those in the eurozone.