The European Commission has adopted a Communication on Financial Supervision in Europe. The Communication proposes a set of ambitious reforms to the current architecture of financial services committees, with the creation of a new European Systemic Risk Council (ESRC) and European System of Financial Supervisors (ESFS), composed of new European Supervisory Authorities. Legislation to embody these proposals will follow in the autumn. The Commission also invites all interested parties to submit their reactions on the Communication before 15 July.
The financial supervision package proposed in this Communication involves two key elements.
– a European Systemic Risk Council (ESRC) which should monitor and assess risks to the stability of the financial system as a whole (“macro-prudential supervision”). The ESRC will provide early warning of systemic risks that may be building up and, where necessary, recommendations for action to deal with these risks. The creation of the ESRC would address one of the fundamental weaknesses highlighted by this crisis, which is the exposure of the financial system to interconnected, complex, sectoral and cross-sectoral systemic risks.
– a European System of Financial Supervisors (ESFS) for the supervision of individual financial institutions (“micro-prudential supervision”), consisting of a robust network of national financial supervisors working in tandem with new European Supervisory Authorities, created by the transformation of existing Committees for the banking securities and insurance and occupational pensions sectors.
The ESFS is to be built on shared and mutually-reinforcing responsibilities, combining nationally-based supervision of firms with specific tasks at the European level. It aims to foster harmonised rules and coherent supervisory practice and enforcement. This network should be based on the principles of partnership, flexibility and subsidiarity and should aim to enhance trust between national supervisors by ensuring, inter alia, that host supervisors have an appropriate say in setting financial stability and investor protection policies so that cross-border risks can be addressed more effectively.
“Better supervision of cross-border financial markets is crucial for ethical and economic reasons. That is why I asked Jacques de Larosire and his group to produce their report. The Commission is making proposals today to help restore confidence, guard against future crises and protect growth and jobs. The new system will help the EU and its Member States to tackle both problems with cross-border firms and the build up of overall systemic risk,” Jos Manuel Barroso, president.
“I am very pleased with the general support Member States gave the de Larosire report at the Spring European Council. I now urge EU leaders at the June European Council to endorse the concrete, timetabled steps we are setting out today. I would like the new architecture up and running during 2010.”
“Financial supervision in Europe has not kept track with market integration. The crisis has shown that the current system is not sufficiently responsive and not appropriate for a single financial services market,” says Charlie McCreevy, internal market and services commissioner.
“This new system will combine the expertise of all those responsible for safeguarding financial stability, with strong European bodies to coordinate their work. With this initiative, the Commission is responding to the weaknesses identified during the crisis as well as to the G20 call to take action to build a stronger, more globally consistent, regulatory and supervisory system for financial services.”
“The financial sector was one of the main drivers of growth since the creation of the single market in the early 90s, but it also nearly brought the economy to a halt at the turn of the year,” says Joaqun Almunia, economic and monetary affairs commissioner.
“The reforms proposed today would create a new European body, the European Systemic Risk Council, charged with assessing potential threats to financial stability that might arise from macro-economic developments and from developments within the financial system as a whole. Byproviding analysis, issuing early warnings of system-wide risks and, where necessary, recommendations to deal with these risks, the new body would for the first time equip the EU with a pan-European macro-prudential supervision system.”
L.D.