After almost two years of bickering, a deal was announced yesterday on a new European financial supervision structure tasked with monitoring European markets and avoid a repetition of the 2008 banking crisis.

The new agency, which will be set up by the end of the year, will see three new authorities put in place and given powers over national financial regulators.

The compromise, reached following tough negotiations between the Belgian presidency of the EU and MEPs, is now expected to be given the green-light by EU Finance Ministers during a meeting next week in Brussels and then by the European Parliament plenary later on this month. The new mechanism, which will affect the Malta Financial Services Authority, is being supported by the government, which favours stronger supervision to avoid a repeat of the economic meltdown triggered by the fall-out of the European banking sector.Although the island already has among the most modern financial supervision rules in the EU, and its banks remained resilient throughout the crisis, the Finance Ministry backs the new proposals as they are considered to add value to Malta’s strong financial services sector.

According to the new structure, the EU will now set up a European Banking Authority, a European Insurance and Occupational Pensions Authority and a European Securities and Markets Authority, each with binding powers over national regulators. These will be hosted in London, Paris and Frankfurt respectively.

The package also includes a new European Systemic Risk Board, which would monitor threats to the EU’s economy as a whole and which will be headed by the president of the European Central Bank.

The new watchdogs will have the power to ban trading in certain financial instruments and settle disagreements between national financial regulators. They would also be able to give direct instructions to banks and other financial institutions in crisis situations and in cases where national supervisors are in clear breach of EU rules. The authorities will also draw up technical standards to be applied by national regulators.

European Internal Market Commissioner Michel Barnier praised the agreement and said the EU had finally agreed on the foundation of a new European supervision.

“This is just a first step... we will dispose of a framework in which the Commission will continue, brick by brick, piece by piece, to propose elements,” he said.

Although the new mechanism will take away some powers from the national regulators, member states will still have the upper hand as they will be able to overturn the European authorities’ decisions if they impinge on national fiscal competences. However, this right will be subject to an anti-abuse clause to prevent member states from making frivolous challenges.

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