Brdo, 07/04/2008 (Agence Europe) - Improving the European system for controlling financial actors promises to be a long drawn out process. The issue was examined during the informal meeting of EU finance ministers in Slovenia on 4 April. The meeting enabled ministers to reiterate the major axes of reflection defined in the roadmap for revising the “Lamfalussy” process, adopted last December (EUROPE 9557), confirming, above all, the need to provide further detail to a significant number of technical points. The Commission and the Economic and Finance Committee (EFC) have already examined the issue and are instructed to step up the work, particularly with regard to how the supervisory committees function, the mandates of the national supervisors and the role of the colleges of supervisors. During the next Ecofin Council in May, ministers will adopt conclusions on roadmap implementation.
Revision of the “Lamfalussy” process (which defines the rules for the adoption and implementation of European legislation on financial services) aims to develop controls of cross-border financial institutions at the same pace as market integration. The most pragmatic way to achieve this (which also obtained most consensus) is by strengthening cooperation at the Committee of European Banking Supervisors (CEBS) and Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) and the subsequent homogeneity of European legislation. Modifications have already been proposed by several figures but they do not concur on the level of adjustment to be made. Initial proposals were made in December 2007, by the Italian finance minister, Tommaso Padoa-Schioppa (creation of a single rule book for supervising multinational financial groups and a supervisory authority that is more integrated with cross-border groups). The most radical response to this came in February from the Hungarian prime minister, Ferenc Gyurcsany, who launched the idea of a European supervisory authority based on the model of the European Central Bank and Eurosystem. This initiative would, however, require amendment to the treaties and did not gain wide support, apart from being envisaged as a measure in the distant future. Finally, the Chancellor of the Exchequer, Alistair Darling proposed at the beginning of March the setting up of a college of supervisors to increase control of cross-border financial institutions, as well as cross-border stability groups to provide an efficient response to crises.
The most developed option of the four put on the table last week by Commissioner McCreevy to clarify and strengthen the role of the level 3 committees (EUROPE 9634) consists of transforming these European committees into agencies (with a legal personality). According to a press release from the Slovenian Presidency of the EU (published after the informal meeting), ministers were “unanimous” in acknowledging that the legal status of the committees should not be modified. They also expressed a preference to keep the current institutional balance the same, as well as the committees' accountability.
Broad consensus also exists on the supervisory committees' national mandates taking into account the European dimension of their activities, which must be translated into conclusions in May, even if the exact shape of the mandate still needs working out. The objective is two-pronged: firstly, European supervisors should work towards a convergence in European supervision, and their duties should include EU level cooperation between them and between each financial sector; secondly, they should take into consideration concerns about financial stability in other member states.
Ministers recognised that the remit for the level 3 European committees should also be expanded to include alarm procedures to take with regard to financial stability in Europe. Ministers also wanted to include responsibility for financial stability follow-up and risk assessment in their mandates. Translating these developments into European legislation on a case by case basis, especially into the Solvency II Directive, as well as into the Capital Requirement Directive, could be a way of improving convergence. This is what the Commission will, in any case, be advocating. It also seeks to explain current and additional tasks that the committees will be performing. What exactly the additional tasks will entail, still requires some precision. This clarification will be obtained on the basis of progress made after the introduction into the supervisory committees' statutes of rules for qualified majority voting (expected for June 2008). In compliance with European Council recommendations, the Presidency will call for work to be speeded up on convergence of regulatory and financial information. Supervisory committees and the Commission are expected to present a calendar in June that will lead to standardised formats for Europe-wide financial information. The question of financial, logistic and human resources (for the national authorities and level 3 committees alike) is also the basis for effective supervision. Commission proposals on the funding of committees constitute an important phase towards the provision of assurances on projects with a European dimension receiving EU budget support (EUROPE 9634).
The Slovenian Presidency indicated: “Broad consensus exists among the EU member states that colleges of supervisors should provide a positive contribution to enhance the cross-border supervision of EU financial groups”. The press release also explained that these colleges of supervisors are expected to have their remit expanded in the area of organisation of information exchange and cooperation. European banking groups will be the subject of supervision that is increasingly coordinated between supervisors from the host country, those from the foreign entities and the supervisor from the member state where the parent company is registered. There are, however, a number of problems, especially with regard to the question of burden sharing. According to an EFC report obtained by EUROPE, this involves: - the colleges' scope of application (should they be applied to all cross-border financial, including the big subsidiaries or branches of companies?); - their legal basis (should they be integrated into European legislation?); - the role of the supervisors from the countries of origin and those from the host countries to the colleges (what are their respective competencies, which of them will be the leading body?). This question is particularly worrying to the countries in which financial institutions from other member states are operating, and whose influence could be diluted in a college that does not work according to consensus; - college relations with the committees themselves. Clarification of the question on burden sharing and evaluation by the supervisory committees (by next June) of the possibility for establishing common operational guidelines for the colleges, would help towards making progress on these different points.
The totality of the work is therefore expected to be significantly fleshed out over the next few months. The possible need for a more integrated approach may be assessed at the end of 2009, in light of the progress made in the different areas raised (mandates, colleges, functioning of supervisory committees and harmonisation of key rules) and the way the memorandum of understanding works on cross-border financial crisis management. (A.B)