Brussels, 18/09/2009 (Agence Europe) - On Wednesday 23 September, the European Commission will present its legislative package to reform the European system of financial supervision at macro- and micro-economic levels, on the basis of the recommendations of the de Larosière committee (see EUROPE 9908) and in line with the guidelines set out by June's European Council (see EUROPE 9925). This package, a provisional copy of which has been obtained by EUROPE, comprises five legislative texts: - a regulation setting up the European Systemic Risk Board (ESRB) and a decision granting the European Central Bank (ECB) responsibility within the ESRB; - three regulations transforming the European national regulators' committees in securities (CESR), banking (CEBS) and insurance (CEIOPS) into European financial supervision authorities (FSA). The four draft regulations are based on Article 95 of the European Treaty which authorises the creation of European bodies competent in the area of approximation of national legislations. This legal basis implies adoption of the texts under the co-decision procedure and by qualified majority in the Council. It will give the CESR a mandate covering the whole of the financial sector, including the insurance sector, the Commission says. The Swedish Presidency will try to get political agreement before the end of the year so that the new supervision architecture can be set up in the course of 2010. The Commission suggests the new rules be applied from 2011.
At the micro-economic level, the European financial supervision system will be a network comprising: - national supervision authorities which will monitor the day-to-day running of financial institutions in their countries; - colleges bringing together supervisors from countries of origin and host countries which will monitor the 50 or so pan-European financial groups; - three European supervision authorities with binding powers to replace the three CESR, CEBS, and CEIOPS committees.
The three FSAs, each with a legal personality, will be headed by a Board made up of the 27 national sectoral regulators, plus a chair elected for five years. They will have the same bases as the current committees (CESR in Paris, CEBS in London and CEIOPS in Frankfurt) and will, under normal circumstances, reach decisions by simple majority. The aims of the three FSAs would seem to be the same: improving the functioning of the internal market, protecting investors, protection of the integrity of financial markets and enhancing international coordination on supervision. In order to improve inter-sectoral work, the three FSAs will be supported by a joint committee. There will, nevertheless, be differences in the roles of the authorities. In securities, for example, the authority will be responsible for supervising rating agencies.
The FSAs will have to take on various tasks. They will, first of all, work towards a single EU rule book by identifying, then eliminating, exceptions and national exemptions that exist in financial legislation. The areas concerned, technical and non-political, will be subject to technical standards adopted by the FSAs by qualified majority. For these standards to have the force of law in the EU, the Commission will be required to approve them.
The FSAs will have the power to require national supervisors to meet their obligations under Community law. To this end, a three-stage mechanism will be put in place: 1) the FSA considers a case of failure to comply with European rules and makes a recommendation to the relevant national authority, which has a month to comply; 2) if the situation continues, the Commission asks the supervisor to take action, this latter having 10 days to inform the FSA of action taken; 3) in exceptional cases, in the event of refusal by the supervisor to comply, the FSA will have the authority to override the national authority and take a decision affecting one or more financial players. The FSAs will also have a role to play in cases of disagreement between national supervisors, once again a three-stage mechanism will be put in place: 1) a conciliation procedure bringing together the FSA and the national authorities concerned will try to resolve the dispute; 2) if it fails, the FSA will be able, as a last resort, to make a decision; 3) in the event of non-compliance with the FSA decision, the FSA will have the power to take a unilateral decision affecting one or more financial players.
Safeguard clause. In line with the European Council request, a safeguard clause will be introduced so that the FSA decisions, relating to disagreements between national supervisors or in emergencies, do not infringe the budgetary responsibility of a member state. If an EU country feels that this has happened, it can inform the FSA and the Commission that its national supervisor does not intend to implement the FSA decision. Supporting evidence will have to be supplied in such cases. The FSA will have a month to indicate to the national authority whether it maintains (or cancels) its decision. If it maintains its original decision, the member state concerned will be able to refer the matter to the Council, in which case the FSA decision will be frozen. The Council will have one month to reach a decision, by qualified majority, on whether the FSA decision should be maintained or cancelled. This procedure may be shortened in urgent situations: the member state will have three days to notify its position and the Council, to which the matter will have been directly referred, will have 10 days to reach a decision by qualified majority.
There will also be the option for any individual, company or supervisory authority to appeal against any FSA decision concerning the uniform application of rules, emergency situations and the settlement of disputes between supervisors. The creation of a joint appeals body for all three EU financial supervisory authorities is envisaged.
The FSA would try to generate a true EU supervision culture by organising joint inspections on the ground. They may also take on a global role. The Commission suggests, for example that the FSA should act as a contact point for supervisors in countries outside the EU and that they should get involved in decisions about the equivalence of EU legislation and the rules applicable outside the EU. The FSA would also be expected to exchange information with the CERS.
CERS. The new European Systemic Risk Committee will be responsible for providing early warnings about macroeconomic risks to financial stability. It would not have its own legal personality and would not take any legally binding decisions. Nevertheless, given the prominence of its members, it would be difficult to ignore its warnings and recommendations. The recipients of a recommendation (the EU, Member States or an FSA) would have to comply or explain themselves if they failed to comply. As requested by the ECOFIN Council (see EUROPE 9917), every warning or recommendation would be sent to the Council and possibly to an FSA if the content of the warning/recommendation covers supervisory matters. The CERS would decide on a case-by-case basis, as long as two-thirds of its members agree, whether to make the warning/recommendation public. Publicising the information would increase pressure on the recipients but might cause turbulence on the financial markets, explains the Commission. In order to properly carry out its work, the CERS would need access to any information it required and would have to treat the information as confidential. The three FSAs, national central banks and Member States would be required to supply the CERS with any information it required. The CERS would be steered by a board of managers, which would decide by a simple majority vote. The board would have 62 members and meet four times a year. The following members would have the right to vote: national central bank governors, the ECB president and vice-president, a member of the European Commission and the chairs of the three FSAs. Members without the right to vote would include representatives of each Member State and the chair of the Council's Economic and Financial Committee. As agreed at the June 2009 European Council (see EUROPE 9925), the CERS' board would elect one of the members of the ECB's General Council to be the board's chairman or woman for a five year term of office. The CERS will report back to the European Parliament and the EU Council of Ministers twice a year.
The draft decision gives the ECB president and vice-president the authority to sit on the board of the European Systemic Risk Committee and gives the ECB responsibility for managing the CERS' secretariat. The draft decision is based on Article 105(6) of the European Treaty, which gives the Council the option, deciding unanimously and following an opinion by the EP, of conferring specific prudential tasks to the ECB. This is the first time that use has been made of this legal option. (M.B.transl.rt/fl)