Brussels, 27/05/2009 (Agence Europe) - As if to underline the future importance of the subject within the field of financial services, no fewer than three commissioners on Wednesday 27 May presented the communication of the European Commission describing the reform of the system of financial supervision in Europe, to be implemented on an ongoing basis. The proposed architecture, which will be the subject of legislative proposals after the summer, is based on the recommendations of the "Larosière" report on the micro-and macro-prudential planks (EUROPE 9848). Amongst other things, the Commission proposes that the President of the European Central Bank (ECB) takes the chair of the future European Council on systemic risk, which will be tasked with warning on threats to the financial stability of the EU. The June European Council is called upon to take a position on the communication.
It is "now or never" for the reform of the European financial supervision system, warned José Manuel Barroso. The president of the Commission said that the proposals contained within the communication adopted "unanimously" by the College constituted "an achievable and entirely ambitious step". Achievable, because it will be built on the foundation of the existing structures, rather than attempt to create a single supervisor. Ambitious, because the objective is to create an integrated system, with the involvement of the national regulators and new ad hoc European entities, to remedy the shortfalls observed against this backdrop of financial crisis. "The essential difference" with the "Larosière" report is that we wish to "move more swiftly" so that the new system can be in place "in 2010 rather than 2012", Mr Barroso added. He believes that a political agreement will be reached more quickly if the European leaders tackle the dossier at the forthcoming summit and "give clear indications on the path" to follow in order to bring about the reform.
The Commission proposes the creation of a European Systemic Risk Council (ESRC), tasked with providing warnings on threats to financial stability and making recommendations to the Ecofin Council as to how these can be dealt with. Even if these recommendations will not be legally binding, the Council will act in line with them or will have to explain why they have chosen not to do so. The ESCR, which will not have a legal personality, will be based on article 95 of the European Treaty, which authorises the creation of European entities competent to bring the national legislations further into line with each other. "We propose that the ESRC be chaired by the president of the ECB and that the ECB plays a key role in its functioning", explained Commissioner for Economic Affairs Joaquín Almunia. This means that the Commission is going back on its initial idea of allowing the chairmanship of the ESRC to be granted to the central bank of a country which has not adopted the single currency. In this event, the vice-presidency of the ESRC could go to a central bank of a country outside the euro zone. It is worth noting that giving the ECB an increased role in micro-prudential supervision must be approved by a unanimous decision of the Council, on the basis of article 105(6) of the treaty. Lastly, the ESRC will also work very closely with the IMF and the Financial Stability Council, the creation of which was decided upon by the summit of the G20.
In the field of micro-prudential supervision, the national regulators will remain responsible for the day-to-day supervision of financial institutions and will meet at the colleges of supervisors, for the pan-European bodies. At European level, the three committees of national regulators in the sectors of securities (CESR), banking (CEBS) and insurance (CEIOPS) will be replaced by three European supervisory authorities with extended powers. Amongst other things, these authorities would be able to play a mediation role, or to make a final decision, in the event of disagreement between two national supervisors. "A crucial issue is the dispute settlement mechanism, which aims to balance the home and host supervisors" of a cross-border financial institution, confirmed Commissioner Charlie McCreevy for the internal market. He added: "It is important to stress that decisions under this mechanism should not directly impinge on the fiscal responsibilities of the member states. It would relate to issues concerning the organisation of supervision, the technical implementation of prudential rules and issues like balanced information-sharing between home and host authorities". The three authorities would thus be able to make recommendations in the event that a national regulator or financial institution appeared to be infringing European legislation, although the European Commission will remain the only institution authorised to launch infringement proceedings. Above all, the authorities would have to guarantee a harmonious application of the rules by means of the adoption of technical standards and guidelines.
Burden sharing. When asked about the division of the financial burden to be borne by the member states in the event that a cross-border bank should fail, Mr McCreevy explained that the provisions on this point would entail changes to the European Treaty, something that is impossible at this stage. Mr Almunia acknowledged that at this moment in time, no country could be forced to accept obligations in the use of its budgetary resources to bail out a bankrupt player. The only thing that exists in the EU is a Memorandum of Understanding (MoU) on crisis management, which was amended in 2008 (EUROPE 9503). For the time being, the Commission will go no further than to ask the European Council to support the acceleration of work in this field, "including on guaranteed regimes and burden sharing". (M.B./transl.fl)