ABBL

Since the economic crash and subsequent global crisis there have been calls for closer monitoring of the financial system and better EU coordination. Today,  it was the turn of the Parliament's Economic Committee to have its say on the proposals for a European Systemic Risk Board and a European System of Financial Supervisors. Stricter controls over hedge funds and other "alternative investment funds" will be voted on 17 May.

The aim is to prevent future crises and protect investors without throttling the market. The EP has long sought better supervision of markets and in 2009 the European Commission came up with proposals to improve oversight mechanisms within an EU-wide system of supervisors.

If the EP and Council agree, the measures will lead to greater EU oversight and closer coordination with national supervisory authorities over: the economy, systemically important institutions and alternative investment vehicles like hedge funds.

The main supervisory instruments are:

The European Systemic Risk Board (ESRB) will monitor the financial system. It will give early warning of impending instability due to the build up of systemic risks and propose solutions.

The ESRB will issue recommendations and warnings to EU countries and to the European Supervisory Authorities (ESFS), which must comply or explain why they have not done so. The EP will also receive the warnings to ensure implementation and will supervise the ESRB's work

It will be made up of the heads of the European Central Bank, the 27 EU central banks, the European Supervisory Authorities and national supervisors. It will be based in Frankfurt under the auspices of the ECB

3 supervisory authorities

A European System of Financial Supervisors (ESFS) will be set up to supervise individual (but unnamed) financial institutions important enough to pose a widespread threat if they encounter problems.

Alongside national supervisory authorities three EU supervisory authorities will be set up:

- the European Banking Authority (EBA) will supervise banks
- the European Insurance and Occupational Pensions Authority (EIOPA) will supervise insurance companies
- the European Securities and Markets Authority (ESMA) will supervise financial markets and credit rating agencies


The ESFS will also help harmonise standards and regulations EU-wide, the final objective being a "common rule book" for EU regulators. The steering committee will be made up of the "highest-level representatives from national supervisory authorities" plus a representative from each of the EU authorities.

Alternative Investment Fund Managers

The measures have excited a lot of discussion and MEPs have tabled 3000 amendments including the setting up of specific funds to help systemically important banks in case of trouble, the ability of the authorities to impose solutions on national regulators in the case of conflict, the right of the authorities to temporarily ban certain financial products and to take over direct supervision of specific institutions if necessary.

Possibly the most contentious proposal is on Alternative Investment Fund Managers (AIFM), including hedge funds, private equity funds and real estate funds. They will have to register in their member state, prove they have competent managers and structure, submit to audits and meet minimum capital requirements. The vote on AIFM was postponed.

 

(Source: Economic and monetary affairs, European Parliament)