The EU’s financial services sector is now under constant surveillance in an attempt to avoid a repetition of the global financial crisis two years ago.
European Internal Market Commissioner Michel Barnier yesterday described the establishment of three new watchdogs for banks, markets and the insurance sector as a “turning point” in financial supervision.
The three EU-level authorities officially began work on January 1, after the European Parliament and Council hammered out a compromise on their powers last September.
“These new structures are the control tower and the radar screens that the financial sector needs,” Mr Barnier said.
The three authorities will work in close cooperation with a fourth body, the European Systemic Risk Board (ESRB), which was set up last month. The ESRB operates under the auspices of the European Central Bank – which provides its secretariat and president – and will be responsible for monitoring the build-up of risks in the EU as a whole, for example by issuing warnings on potential house price bubbles. However, it will have no clout beyond naming and shaming countries that fail to adhere to its warnings.
The establishment of the new watchdogs marks a change in the way banks and other financial institutions will conduct their business, with the three supervisory authorities responsible for drawing up common reporting standards and ensuring that companies apply EU law in the same way across the bloc. The agencies will be given unprecedented powers to intervene in national markets, including addressing decisions to individual banks if a future emergency is declared, where national regulators fail to enforce the rules or where there is a dispute between authorities in different member states.
However, member states led by the UK secured a crucial safeguard clause last year which will allow governments to appeal decisions handed down by the authorities if they impinge on national budgets. Meanwhile, the European Securities and Markets Authority will be given direct control over credit rating agencies and will be able to freeze or ban risky practices.
While day-to-day supervision will remain in member states’ hands – the Malta Financial Services Authority in Malta’s case – the three authorities will have a staff of 150 people – increasing to 300 after 2014 – and a budget of €40 million over the next seven years to carry out their role as EU watchdogs.
What is the new set-up?
European Systemic Risk Board (ESRB): Based in Frankfurt, shares a secretariat and president with the European Central Bank and issues early warnings on overall risks to the system
European Banking Authority (EBA): London-based, replaces the Committee of European Banking Supervisors.
European Securities and Markets Authority (ESMA): Based in Paris, replaces the Committee of European Securities Regulators, has direct power over credit rating agencies.
European Insurance and Occupational Pensions Authority (EIOPA): Headquartered in Frankfurt, replaces the Committee of European Insurance and Occupational Pensions Supervisors.