The European Commission yesterday adopted an important package of draft legislation to significantly strengthen the supervision of the financial sector in Europe.
The aim of these enhanced cooperative arrangements is to sustainably reinforce financial stability throughout the EU; to ensure that the same basic technical rules are applied and enforced consistently; to identify risks in the system at an early stage; and to be able to act together far more effectively in emergency situations and in resolving disagreements among supervisors.
The legislation will create a new European Systemic Risk Board to detect risks to the financial system as a whole with a critical function to issue early risk warnings to be rapidly acted on. It will also set up a European System of Financial Supervisors composed of national supervisors and three new European supervisory authorities for the banking, securities and insurance and occupational pensions sectors.
European Commission President José Manuel Barroso said: "Financial markets are European and global, not only national. Their supervision must also be European and global. Today we are proposing a new European supervisory system, with the political backing of the member states and based on the de Larosière (a former managing director of the IMF) report.
"Our aim is to protect European taxpayers from a repeat of the dark days of autumn 2008, when governments had to pour billions of euros into the banks. This European system can also inspire a global one and we will argue for that in Pittsburgh".
Internal Market and Services Commissioner Charlie McCreevy said: "This package represents rapid and robust action by the Commission to remedy shortcomings in European financial supervision and will help prevent future financial crises. I commend this package to the Council and Parliament for rapid adoption, so that the new structures can begin functioning in 2010."
"The creation of a European Systemic Risk Board to detect and prevent risks to financial stability in the EU and new arrangements to improve supervision at institution level will go a long way towards tackling the imbalances in our financial systems and solving the weaknesses in our financial supervision system that are at least partly to blame for the financial crisis," added Economic and Monetary Affairs Commissioner Joaquín Almunia.
The proposed European Systemic Risk Board will have the power to issue recommendations and warnings to member states (including the national supervisors) and to the European supervisory authorities, which will have to comply or else explain why they have not done so. The heads of the ECB, national central banks, the European supervisory authorities, and national supervisors, will participate in the ESRB.
The new authorities will take over all the functions of all the financial services committees at EU level and will have certain extra competences.
These include developing proposals for technical standards, respecting better regulation principles, resolving cases of disagreement between national supervisors where legislation requires them to co-operate or to agree, contributing to ensuring consistent application of technical community rules and a co-ordination role in emergency situations.