Brussels, 24/11/2009 (Agence Europe) - The Swedish Presidency is pulling out all the stops to reach political agreement on the micro-economic chapter of the legislative package reforming the European system of financial supervision at the Ecofin Council on Wednesday 3 December. Following the agreement in principle at the end of October on setting up the European Systemic Risk Board (see EUROPE 10002), discussion has focused largely on deciding the responsibilities of the three European Supervision Authorities (ESAs) in the banking, insurance and securities sectors, and in particular on their ability to take decisions that override national supervision authorities and apply directly to financial players. The United Kingdom, with support in principle from Central and Eastern European countries, has put its full weight into the battle to weaken the legislative proposals on the table. Some experts feel the British are isolated on texts which require qualified majority in the Council and will be adopted through the co-decision procedure with the European Parliament.
In its initial proposal, the Commission gave European financial supervision authorities powers to take decisions that were binding on financial institutions when: - an ESA was exercising its power of monitoring of application of Community law; - disagreement over supervision of a cross-border group emerged between two national supervision authorities; - a crisis threatened financial stability. The United Kingdom, backed by several member states depending on the case in point (Bulgaria, Finland, Greece, the Czech Republic, Romania, Slovakia and Slovenia) is against such powers being granted at European level. A Swedish Presidency draft compromise, dating from Thursday 19 November, of which EUROPE has obtained a copy, has ceded a little to London: the ESAs' decisions relating directly to financial institutions will no longer apply in cases of emergency on the markets, but will continue to be applied in the area of monitoring of application of European legislation and in the event of disagreement between national authorities in a cross-border situation. In the event of a crisis, the relevant ESA will play the role of coordinator of action undertaken by national authorities.
“We should come to a compromise,” hoped one diplomat. He said that a solution could be to grant the ESAs directly binding powers over financial institutions only on monitoring application of Community law. This is already something if it is considered that, at the heart of the reform, there is the adoption of technical standards promoting the setting up of a single body of rules (“the single EU rule book”) and monitoring of compliance with Community law, he added.
Safeguard clause. A safeguard clause, called for by the United Kingdom, ensures that ESA decisions, when related to disagreements between national supervisors or emergencies, do not ride roughshod over member states' fiscal responsibilities. An ESA will not be able to force a member state to bail out a failing financial institution from the public purse. The Commission envisages a procedure (entity/institution concerned, timescale to be met) ensuring that an ESA decision does not impinge on national budgetary powers. Spain, the United Kingdom, Poland and Slovenia want to strengthen this clause so that member states retain greater room for manoeuvre. The Swedish Presidency compromise proposal sets out the suggested procedure requiring a legal decision from the Council to revoke an ESA decision challenged by a member state. However, provisions contained in the initial proposal relative to decision-making in the Council (qualified majority) and shortening the timescale in emergencies have been retained.
Several debates have considered the granting of responsibilities to the ESAs on supervision of pan-European entities. A large majority of member states is opposed to the ESAs having control over banks and insurance companies. The situation is different on the securities market. Member states agree on granting the ESA the power to supervise rating agencies regulated at European level. Only the United Kingdom is against the securities market ESA ultimately supervising derivatives clearing houses once their activities have been harmonised at European level (see EUROPE 9999).
A further stumbling block relates to the technical conditions required when a European supervision authority makes a decision on a disagreement between national supervision authorities. On a case-by-case basis, a panel of three members of the ESA Board (the Chairman of the ESA + representatives of two national authorities not involved) will be responsible for considering the dispute and preparing a decision. According to the Swedish Presidency, the ESA Board will endorse the panel's proposal unless three quarters of its members reject it. (M.B./transl.rt)