Brussels, 19/07/2010 (Agence Europe) - On Thursday 22 July, national ambassadors to the European Union will again tackle the issue of the legislative package for reforming the European financial supervisory system (EUROPE 10182). Negotiations between the Council and European Parliament (the two co-legislating institutions) have entered their final phase and are mainly focused on the extent of the powers the future European Financial Supervisors (EFS) will have.
Member states now accept that the three EFS have binding powers on their national authorities, indeed, a financial institution, in the following three cases: infringement of European legislation; emergency situation and agreement between national supervisors. This is an “obvious advance” to the benefit of the EP and which is putting the texts on the table that are “very close to the Commission's initial proposal”, underlined a source close to this European institution. Although the principle of a binding decision-making power for the EFS is noted, the extent of such a power still needs to be worked out for emergency situations and when there are disagreements between national supervisors. Unsurprisingly, the Council wants to limit the EFS' field of action, whereas MEPs favour extended competencies. During an emergency situation on which only the Council can decide, the EP would like the EFS to be able to make decisions on rectifying any kind of market tension. According to member states, any EFS competency must first of all be included in European sectoral legislation. Modification in the sense of directives on banking capital requirements (Basel II), insurers' solvability (Solvability II) and markets in financial instruments directive (MiFID), as well as market abuses, would therefore prove necessary and would delay the application of entry for the EFS' binding powers.
The situation appears similar for disagreements between national supervisors. The EP wants the EFS to be able to take decisions in all situations involving cooperation between supervisors from the countries of origin for cross border financial institutions and those hosting them. The Council is proving rather reluctant on the question of giving the EFS a “blank cheque” and prefers limited powers to be given to the European authorities, which will have to be included in sectoral legislation beforehand.
Supervision of pan-European undertakings. In its initial proposal, the Commission will suggest granting an EFS powers for supervising pan-European undertakings. As well as the financial rating agencies for whom the principle of European supervision is already noted and the legislative proposal on the table (EUROPE 10151), the clearing houses will be the subject of a Commission legislative inactive in September. The Council opposes the EP and is rejecting any clause that would make the transfer of an exclusive supervisory power of these pan-European undertakings to a European level. This expert underlines the Commission's power of initiative and pointed out that this certainly involves a political but, above all, “symbolic” problem. Seeking balance, the European institutions are looking at the possibility of granting this supervisory power over pan-European bodies to certain kinds of EFS only.
The ban at a European level of certain financial products or practices, such as short selling, was also the subject of bitter discussions. The Council was initially opposed but now agrees giving the EFS such a remit, although only in urgent situations and when European sectoral legislation stipulates.
Financial institutions of systemic importance will not be supervised at a European level as sought by the EP, particularly because of reasons linked to Community jurisprudence according to which a European regulatory authority cannot have such powers if sectoral legislation does not stipulate this. MEPs managed to get bank and insurance sector EFS involved in the supervision of systemic risk and the ESRB will be in charge of detection in this connection. The two ESFs will take part in “enhanced supervision” exercises of financial institutions of system importance by participating in the updating of appropriate methodology (including the carrying out of stress tests and developing quantitative and qualitative indicators).
A budgetary safeguard clause will also added, according to which any decision by an ESF will not be able to encroach on national budgetary sovereignty - such as the provision drafted by the Council and sought by the EP, which is aimed at preventing any abuse by member states. (M.B./transl.fl)