THE EUROPEAN Commission (EC) is being too hasty in its drive for pan-European regulatory reform, a House of Lords committee will warn this week, as fears mount in the City over encroachment from Brussels on the UK financial services sector.<br /><br />The House of Lords sub-committee on economic and financial affairs will say that the pace of reform risks causing lasting damage to the financial services sector, City A.M. has learned.<br /><br />Stuart Fraser, chair of the policy and resources committee of the City of London, warned that the EC&rsquo;s proposals constituted the &ldquo;greatest competitive threat that the UK faces&rdquo;.<br /><br />He said: &ldquo;If the cost of doing business here rises, we risk driving people away from London to places such as Geneva and the Far East. They want the talent and we&rsquo;ve got it.&rdquo;<br /><br />He said the proposals were &ldquo;emotive rather than rational&rdquo; and urged UK financial institutions to come up with their own suggestions.<br /><br />&ldquo;I strongly believe that our industry needs to get on the front foot and start putting forward our own ideas, or we'll end up having them imposed upon us,&rdquo; he added.<br /><br />City minister Lord Myners said the UK &ldquo;could not live with&hellip;an agreement at a European level that would have had domestic fiscal consequences for domestic governments&rdquo;.<br /><br />His comments followed chancellor Alistair Darling&rsquo;s battle with EU finance ministers last week to insert a clause into the EC proposals safeguarding the sanctity of national taxation policy.<br /><br />The European Commission wants to create two bodies to oversee financial institutions. The European Systemic Risk Council (ESRC) would identify threats to stability and make recommendations to national supervisors, while the European System of Financial Supervisors (ESFS) would see national regulators and European supervisors working together to oversee individual institutions. Despite its reservations, the House of Lords committee, led by acting chairman Lord Woolmer of Leeds, is expected to back Jacques de la Rosi&egrave;re&rsquo;s recommendation to create a central European regulatory body.<br /><br />Yet there are mounting fears in the City that any EU-wide centralisation of power will lead to decisions that are not taken in Britain&rsquo;s or the City&rsquo;s best interests and that over time business will migrate to Singapore or Dubai.<br /><br />A growing number of hedge funds are threatening to quit the UK as a result of a proposed new directive, while the alternative investment industry is set to lobby the new members of the European parliament to dilute the directive.