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Background
The European Parliament's position on financial supervision
Economic and monetary affairs - 07-07-2010 - 12:46
Long before the financial crisis the European Parliament regularly pointed out the significant failures in the EU’s supervision of ever more integrated financial markets.
Most notably in 2000 a resolution raised the point that stateless financial groups called into question the traditional structure of supervision. In 2002 a resolution called for the setting up at the EU level of a system for the monitoring of systemic risk. Then, in 2008 MEPs called for the supervisory committees to be given a legal status and the ability to issue binding decisions on national supervisors.
In the case of this package, the rapporteurs were chosen in October 2009 and presented their draft reports in the Economic and Monetary Affairs committee in February 2010. Four rapporteurs are responsible for piloting the EP’s position on the four different bodies to be set up with another three rapporteurs responsible for the more technical aspects of the package.
The EP rapporteurs on the latest reforms to financial supervision in the EU- Statement from political groups and rapporteurs (7th July 2010): European Parliament pushes for an ambitious agreement on financial supervision package
- The current situation for financial supervision in Europe
- The need for change
- Notable events over the last year
REF.: 20100707BKG78052
The EP rapporteurs on the latest reforms to financial supervision in the EU
The rapporteurs have signalled that more European integration is necessary in the field of financial supervision because the only other option is to have a less open single market. They also argue that the structure which existed during the crisis led to fragmented responses and prevented a clear picture from emerging for the supervisory committees. For these reasons they consider that tinkering with the current system will not be the solution and that a root and branch reform is necessary.
The EP rapporteurs are:
Sylvie Goulard (ALDE, FR) for the European Systemic Risk Board, Peter Skinner (S&D, UK) for the European Insurance and Occupational Pensions Authority, Jose-Maria Garcia Margall Y Marfil (EPP, ES) for the European Banking Authority, and Sven Giegold (Greens/EFA, DE) for the European Securities and Markets Authority.
Ramon Tremosa I Balcells (ALDE, ES) for the Specific Tasks of the ECB in the ESRB, Antolin Sanchez Presedo (S&D, ES) and Burhard Balz (EPP, DE) for the two omnibus amending directives
Statement from political groups and rapporteurs (7th July 2010): European Parliament pushes for an ambitious agreement on financial supervision package
MEPs have just voted in plenary on amendments to the texts setting up the EU's new supervisory architecture, tabled by the four main political groups (EPP, S&D, ALDE, Greens). The EP has decided not to vote on a legislative resolution in order to leave open the possibility of a first reading after the summer recess.
The message is clear: Parliament is willing to negotiate, but it is united in its view that the European authorities must be equipped with sufficient powers to prevent future crises and to strengthen the Single Market. The ball is now firmly in the Council's court to come forward with the necessary compromises.
This gesture is a final endeavour on the part of the rapporteurs to help the new Belgian Presidency - whose efforts to date we applaud - to move the Member States to a more satisfactory position.
This gesture is a final endeavour on the part of the rapporteurs to help the new Belgian Presidency - whose efforts to date we applaud - to move the Member States to a more satisfactory position.
Since voting on a text in the EP's economics committee in May, Parliament's rapporteurs have taken part in around 20 trilogues with Council and Commission. Significant - but not sufficient - advances have been made. Critically, we require that the new supervisory architecture be in keeping with the vision laid out in the De Larosière report. Europe's citizens will accept nothing less than the most ambitious response from lawmakers to correct the problems.
Parliament stands ready to reach an agreement with Council. This is why we did not vote on a first reading, and why we will keep the process open. But in case the Council does not show the commitment and willingness needed within the weeks to come, Parliament is ready to do vote on a first reading after the summer break. We feel that progress is being made and agree to allow more time for the Council to move towards a position that reflects the needs of European citizens. Today's actions reflect our expectation of such a move in the coming days and weeks. It's a question of European credibility on a global level and in the eyes of European citizens hit by the crisis.
The current situation for financial supervision in Europe
The current EU financial services committees have advisory powers and can issue non-binding guidelines and recommendations. National supervisors of cross-border financial institutions must co-operate within colleges of supervisors. In the event of disagreement however, there is no mechanism to resolve the issue. Many technical rules are determined at Member State level, and there is considerable variation between Member States. Even where rules are harmonised, application can be inconsistent. This fragmented supervision undermines the single market, imposes extra costs for financial institutions, and increases the likelihood of failure of financial institutions with potentially additional costs for taxpayers.
The Committee of European Banking Supervisors (CEBS), Committee of European Insurance and Occupational Pensions Committee (CEIOPS) and the Committee of European Securities Regulators (CESR), widely known as the "Lamfalussy level 3 committees".
The need for change
The economic and financial crisis of 2007 - 2008 shed light on some serious shortcomings in the existing system of financial supervision in Europe. Due to the single market financial institutions can operate across borders easily. Their supervision however remains uneven and often uncoordinated. A stronger EU financial sector for the future is seen as dependent on convergence between Member States on technical rules, and a mechanism for ensuring agreement and co-ordination between national supervisors. A rapid and effective mechanism to ensure consistent application of rules is also seen as necessary, as is co-ordinated decision making in emergency situations. The current advisory financial services committees are not currently equipped to carry out these functions.
Notable events over the last year
February 2009
Publication of the De Larosière report. A high level working group chaired by former managing director of the International Monetary Fund and former governor of the Bank of France Jacques De Larosière produced its findings on financial supervision in Europe.
Publication of the De Larosière report. A high level working group chaired by former managing director of the International Monetary Fund and former governor of the Bank of France Jacques De Larosière produced its findings on financial supervision in Europe.
The report called for:
- A common rulebook for similar supervision of financial institutions in Europe;
- The setting up of a European systemic risk board (ESRB) to monitor for the buildup of risks in the bloc's financial system as a whole;
- The creation of three European Supervisory authorities (ESAs) to replace CEBS, CEIOPS and CESR. The first new authority would cover the banking sector, the second the insurance sector and the third the securities sector. These authorities would have the power to establish supervisory standards and settle disputes between national supervisors, for instance on whether or not to bail out a particular bank.
September 2009
The European Commission produces its proposals for a new European financial supervisory architecture. The proposals take the form of a package of regulations with the main objective of establishing the bodies suggested in the De Larosière report. The powers of the bodies are however somewhat toned down.
The European Commission produces its proposals for a new European financial supervisory architecture. The proposals take the form of a package of regulations with the main objective of establishing the bodies suggested in the De Larosière report. The powers of the bodies are however somewhat toned down.
December 2009
Council (ECOFIN) adopts its draft common position on the topic. Among other things, this position introduces an appeals system allowing governments to challenge decisions made by the three sector specific supervisory authorities.
Council (ECOFIN) adopts its draft common position on the topic. Among other things, this position introduces an appeals system allowing governments to challenge decisions made by the three sector specific supervisory authorities.
December 2009
Representatives of the four largest political groups in the EP’s Economic and Monetary Affairs Committee issue a statement saying that the Council’s newly adopted position is not workable and that much of the substance in the De Larosière report needed to be restored.
Representatives of the four largest political groups in the EP’s Economic and Monetary Affairs Committee issue a statement saying that the Council’s newly adopted position is not workable and that much of the substance in the De Larosière report needed to be restored.
February 2010
The MEPs in charge of steering the package through Parliament present their proposals to the Economic and Monetary Affairs Committee.
The MEPs in charge of steering the package through Parliament present their proposals to the Economic and Monetary Affairs Committee.
May 2010
The EP's economic and monetary affairs committee adopts its position on the reports. On the ESAs, MEPs voted to give them more supervisory powers and a stronger mediating role than had been initially proposed by the Commission. Most particularly they proposed to grant them direct supervisory powers of systemically important financial institutions. The texts adopted would also allow the ESAs to issue binding decisions directed at a national supervisor and also individual financial institutions. The ESAs' role in colleges of supervisors was also considerably enhanced and the safeguard clause giving Member States the right not to collaborate with an ESA diminished. Finally MEPs voted to locate all ESAs in Frankfurt and to set up a European depositors guarantee fund and a fund for banking resolution.
The EP's economic and monetary affairs committee adopts its position on the reports. On the ESAs, MEPs voted to give them more supervisory powers and a stronger mediating role than had been initially proposed by the Commission. Most particularly they proposed to grant them direct supervisory powers of systemically important financial institutions. The texts adopted would also allow the ESAs to issue binding decisions directed at a national supervisor and also individual financial institutions. The ESAs' role in colleges of supervisors was also considerably enhanced and the safeguard clause giving Member States the right not to collaborate with an ESA diminished. Finally MEPs voted to locate all ESAs in Frankfurt and to set up a European depositors guarantee fund and a fund for banking resolution.
On the ESRB, MEPs voted to grant it the power to declare the existence of a financial emergency in Europe and not only warn about the eventuality of one. The text also empowered the ESRB with the task and tools to make risk levels more easily understandable and gradable. The president of the ECB would chair the ESRB and its board would include members from a wider range of backgrounds such as academia.