MEPs vote to beef up financial supervisory package
Committee : Economic and Monetary Affairs
The EU's financial supervisory plans were beefed up by Economic and Monetary Affairs Committee MEPs on Monday, with new measures including a much bigger say for the nascent European Systemic Risk Board before and during crises affecting financial stability, direct EU supervision of systemically important financial institutions, the right to impose temporary bans on very risky financial products and the designation of two EU stability-assisting funds.
The text also provides for the possibility of temporarily banning a financial product if it is felt to pose too much risk. This power will be particularly relevant for ESMA, as it will be in a position to ban trading in a risky security. Finally, ESMA will be expected to advise on the supervision and regulation of credit rating agencies and clearing houses.
Firstly, the ESRB should be empowered not only to warn of an imminent emergency in the economy, but also to declare its existence. These warnings would be transmitted through the European Parliament and the three sector-specific authorities and not only through the Council.
The text also aims to make risk levels more easily understandable. It says the ESRB should develop a common set of indicators to permit uniform ratings of the riskiness of specific cross-border financial institutions and make it easier to identify the types of risks embedded in them.
To improve overall risk awareness, the text calls for the ESRB to establish colour-coded grades to reflect different risk levels. When the ESRB then makes warnings or recommendations on risk build-up it would use the colour-grade to indicate the level of risk.
To enhance the ESRB's visibility and credibility, the text says it must be chaired by the ECB President. The text also widens the ESRB board membership to include academics.
The committee text considerably reduces the latitude for a Member State to invoke the "safeguard clause" that allows it to avoid implementing a decision of one of the bodies if it considers that the decision creates budgetary problems. The text would require the Member State to provide much clearer proof than had been previously proposed by the Commission and the Council as to how the body’s decision creates budgetary problems for it. The European Commission would also be required, after three years, to evaluate the use of the safeguard clause.
The text also improves the review clause, to enable the whole European financial supervision system to be further strengthened, if, after a few years, this is considered necessary. The rapporteurs argued that this would allow the authorities to evolve over time, as events change and lessons are learnt.
The original Commission proposals called for the establishment of a European Systemic Risk Board (ESRB) and a network of financial supervisors which, inter alia, would be composed of three new EU sector-specific supervisory authorities covering the banking sector, the insurance and pensions sector and the securities and markets sector. This package, as amended by Parliament's Economic and Monetary Affairs Committee, replaces the Commission’s network with a financial supervision system that also includes the ESRB.