Brussels, 11/05/2010 (Agence Europe) - MEPs on the European Parliament's economic and monetary affairs committee have put their money where their mouth is and raised the bar of financial supervision in Europe, backed by all four major political parties at the Parliament. Their highly ambitious views on the seven draft reports on the financial supervision package were voted through on Monday 10 May and the MEPs want to go further than the EU Council of Ministers with regard to microeconomic supervision (see EUROPE 10032), and beyond some of the ideas set out in the European Commission's initial proposals (see EUROPE 9983). An intense period of inter-institutional negotiations will now open, starting with an initial meeting between the three EU institutions on Tuesday 11 May. It is not easy to say at this stage how the latest eurozone and Greek sovereign debt crisis will impact on the talks. Broadly speaking, the EP and the Commission want a joined-up financial supervision system, but the Council of Ministers wants member states' financial supervisors to have the lion's share of the task. The official aim is still to reach formal agreement on the legislation in first reading in July 2010 so it can come into force next year.
As expected, the MEPs have endorsed the structures recommended to the Council of Ministers by the European Commission. At macroeconomic level, there would be a European Economic Crisis Committee (CERS) to detect risks to financial stability; at microeconomic levels, there would be a supervisory network of three new European supervision authorities (ESAs), one for banking, one for insurance and one for securities. Supervision on a daily basis would be carried out by national financial supervision authorities and colleges of supervisors would monitor multinationals.
CERS. The economic and monetary affairs committee wants to give greater powers to the CERS. In addition to detecting the risk of meltdown and issuing warnings and recommendations (some of which may be made public), the Economic Crisis Committee would have the power to announce a state of emergency. Together with the ESAs, it would draw up a series of quantitative and qualitative indicators to determine a multinational company's risk. The MEPs say that the indicators would be crucial in deciding whether to directly scrutinise the company or whether to intervene in a failing company. The MEPs wanted to give the CERS a whole battery of instruments so it can highlight long-term macroeconomic trends and act when necessary, French ALDE MEP Sylvie Goulard (rapporteur on the draft regulation setting up the CERS) told this newsletter. The MEPs say that during his or her term of office as president of the European Central Bank, the ECB president should also chair the CERS and the CERS' decision-making body should comprise six independent figures in addition to central bank representatives, national financial supervisors and the European Commission. The CERS would be required to report to the European Parliament as well.
Microeconomic supervision. For microeconomic supervision, the MEPs have crossed a line in the sand drawn by the member states in December 2009. The member states say that the ESA of the relevant industry would take the lead in supervising EU-wide financial institutions and would act by delegating some of its work to national supervisory authorities. It would then be for the CERS to identify the bodies concerned using criteria matching the criteria used by international bodies (like the FSB and the IMF). The MEPs, however, recommend that three European Stability Funds be set up, one for banking, one for insurance and one for securities. They also recommend the setting up of two European Savings Guarantee Funds, one for banks and one for insurance. The funds would comprise cash from too-big-to-fail companies, decided pro rata in line with the riskiness of their business to financial stability. A diplomat involved in the talks said that it was coherent of the EP to want to introduce direct EU supervision and set up special funds to cover risk, but both aspects are “technically lacking and politically premature”. Goulard responded that the EU cannot supervise the financial world without the necessary resources, commenting that EU Internal Market Commissioner Michel Barnier had announced plans in April to propose a European crisis management framework. An expert representing the financial industry's interests said that the ESAs were being given a lot of powers and wondered whether they would match up to the expectations.
The economic and monetary affairs committee has re-introduced the European Commission's idea of giving the EU financial supervision authorities the power to issue binding decisions for banks and other financial institutions in any of the three following situations: to force a financial institution to respect EU rules; to settle disputes between two or more national supervisory authorities at the college of supervisors; and in emergencies, to force financial institutions to respect EU rules or cease certain practices.
Like member states, MEPs acknowledge the need to establish a “single EU rule book” for the whole of the financial industry. They strengthen the EP's right of scrutiny in the process of developing technical standards to be proposed by the financial supervisory authorities and endorsed by the Commission. It should be noted that the parliamentary committee wants a single geographical location, in this case Frankfurt, for the three European financial supervisory authorities. This is an approach which promotes efficiency in the “European general interest”, Sylvie Goulard said. By suggesting a single location, MEPs want to “send a signal”, she said, mainly seeing this as a “bargaining chip” with a view to interinstitutional talks.
ESMA. The parliamentary committee attributes to the future market supervision authority (ESMA) the power of supervision not only on rating agencies but also on central counterparty clearing houses (CCP), which facilitates trading done in European derivatives and equities markets. Acting as a leader in the management of a systemic financial crisis, ESMA would also be empowered to temporarily ban certain products or transactions in order to protect investors and ensure market integrity works as it should. Sven Giegold (Greens/EFA, Germany), who is rapporteur on the draft regulation establishing ESMA, voluntarily chose far-reaching wording in order to be able to rapidly respond to financial innovation. MEPs have an eye on financial products such as contracts covering against the risk of credit default swaps (CDS) or practices such as naked short selling. Circles around Sven Giegold say there should be no competition between member states about who should ban naked short selling first - as the decision must be taken at European level. The Council is in favour of European supervision of rating agencies but says nothing about the supervision of central clearing houses for derivatives or the granting to ESMA of powers to ban certain products or practices.
Safeguard clause. Negotiated by the United Kingdom, a safeguard clause guarantees that the decisions by European financial supervisory authorities will not encroach upon the budgetary sovereignty of member states in emergency situations or in the event of disagreement between national supervisors. The parliamentary committee restricts the possibility of member states to invoke this clause. “We are breaking the lock by reversing the burden of proof”, Goulard said. It is up to a member state to provide evidence that a decision taken by the financial supervisory authorities encroaches upon national budgetary sovereignty. Circles around Sven Giegold add that the country in question should present a quantitative analysis of the impact that a decision by the supervisory authorities has on budgetary sovereignty. Unlike the Council, MEPs take the view that a procedure launched by a member state under the safeguard clause cannot, at this stage, have suspensive effect on decisions by the supervisory authorities. The Ecofin Council will decide by simple majority whether to maintain or, by qualified majority (55% of the number of member states and 65% of the EU population), to revoke the decision concerned, in the knowledge that the member states referring the matter to Council will not have right of vote. On the procedure and decision-making at the Ecofin Council, the United Kingdom had obtained additional guarantees by establishing a triple-lock system. (M.B./transl.fl/jl)