Brussels, 23/12/2010 (Agence Europe) - The new EU financial supervision system will be up and running on 1 January 2011 (see EUROPE 10259). It involves the creation of the European Systemic Risk Committee (CERS) to issue warnings about macro-economic risks to the financial system and recommendations about how to deal with them. Three new EU supervision authorities will also be set up, one for banking, one for insurance and one for securities. They will have binding powers over national supervisors and will replace the existing EU regulatory committees.
The CERS will not be given 'legal personality.' It is being set up in Frankfurt, Germany, under the aegis of the European Central Bank (ECB). As desired by the European Parliament, the ECB president, currently Jean-Claude Trichet of France (until the autumn of 2011) will also chair the CERS fir the first five years of its existence. The governor of the Bank of England, Mervyn King, will be the vice-president. National central governments, the European Commission, the three new EU supervisory authorities and national supervisory authorities will also be involved in the work of the CERS but without voting rights. The CERS will meet for the first time on Thursday 20 January 2011 and may decide to makes its warnings and recommendations public. The receivers of the warnings (Member States or EU authorities) will submit to the CERS details of corrective measures taken or explain whey measures have not been taken.
The European Banking Authority (EBA), the European Securities Markets Authority (ESMA) and the European Insurance and Occupational Pensions Authority will ensure uniform application of EU rules and ensure a convergence in practice of prudential control through technical standards at EU level. In the event of an emergency where there is disagreement among national supervisors, the authorities will be able to issue binding decisions forcing the supervisors to take action and may also directly issue instructions to financial players. These discretionary powers will be added to the legislation covering the industries in question. The EU legislator has given ESMA power to directly supervise financial rating agencies registered in the EU (see EUROPE 10278). ESMA should also have the power to ban particular financial products or practices in the event of an emergency, such as derivatives or naked short selling under draft legislation already being discussed. The EBA will play a greater coordinating role in applying bank stress tests. Ahead of a new series of stress tests planned for February 2011, it is currently revising with the Commission the methodology used in the previous stress tests that were discredited by the excesses seen in the Irish banking system that led to the Irish government having to ask for international financial aid despite the banks having passed the stress tests without problem. The appointment procedure for the heads of the three EU authorities is being finalised and will be ready by next spring. (M.B. trans fl)