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EU supervisory framework

Towards a new supervisory framework in the EU

On May 27, 2009, the European Commission revealed its plan for establishing a new European Supervisory Framework, which is largely based on the recommendations of the de Larosière Group Report of February 2009.

The Commission articulates the new framework according to two levels of supervision:

  • The micro-Prudential supervision, consisting in supervising the financial institutions on an individual basis;
  • The macro-Prudential supervision, focusing on the stability of the financial system as a whole. It aims at mitigating the systemic risk and relies on macro-economic indicators.

At the micro-prudential level, the Commission proposes a European System of Financial Supervisors (the ESFS) with the following characteristics:
 

  • Transforming the existing Level 3 Committees (CEBS, CEIOPS and CESR) into European Supervisory Authorities (the ESAs), which are granted legally binding powers to ensure the consistency and the convergence of supervisory rules and practices;
  • Maintaining the responsibility for the day-to-day supervision of financial institutions with national authorities.
  • The relevant ESA would participate in the colleges of supervisors as an observer. In case of disagreement among the supervisors of a college the ESA would, after a conciliation phase, settle the disagreement by taking a binding decision.

At the macro-prudential level, the Commission proposes the creation of a European Systemic Risk Council (the ESRC) in charge of identifying, examining and reporting on vulnerabilities in the Single Market.

After tense discussions, the Commission’s proposal has finally received the political support of the European Council of June 19, 2009. The most controversial issue was the binding nature of the ESAs’ decisions and the transfer of sovereignty it implies. The compromise found by the Council stipulates that “decisions taken by the ESAs should not impinge in any way on the fiscal responsibilities of Member States”. For example, the ESA could not force a Member State to rescue a bank using public money.

Read the full article on the subject by Gilles Pierre, Adviser for Banking Supervision, Risk Management, Accounting & Reporting at the ABBL.

 

Articles

  • 09/12/2009

    « The devil is in the detail » ont coutume d’affirmer nos amis anglo-saxons. Cette formule, pleine de bon sens, est empreinte du pragmatisme qui caractérise l’approche anglo-saxonne. Elle nous incite également, si besoin était, à examiner dans ses moindres détails la proposition de la Commission créant une Autorité Bancaire Européenne (l’EBA).

  • 03/12/2009

    The Council today agreed on a general approach on draft regulations aimed at establishing three new authorities for the supervision of financial services in the EU, namely:

    – a European Banking Authority;

    – a European Insurance and Occupational Pensions Authority; and

    – a European Securities and Markets Authority.

     

    It asked the presidency to start negotiations with the European Parliament with a view to enabling adoption of the texts at first reading. The draft regulations are part of a package of proposals to reform the EU framework for the supervision of banking, insurance and securities markets in the wake of the global financial crisis.

     

     

  • 26/10/2009

    The European Commission has adopted additional legislative proposals today to further strengthen financial supervision in Europe. Following the adoption of a legislative package to strengthen financial supervision in Europe on 23 September 2009, including the creation of a European System of Financial Supervisors with three new European Supervisory Authorities, the Commission proposes to make targeted changes to existing financial services legislation to ensure that the new Authorities can work effectively. In particular, these proposals lay down in detail the scope for the Authorities to exercise their powers, ensuring a more harmonised set of financial rules through the possibility to develop draft technical standards, settle disagreements between national supervisors and facilitate the sharing of micro-prudential information. The package will now be sent on to the Council and the European Parliament for consideration.

  • 21/10/2009

    The ministers agreed on an approach regarding macro-prudential supervision.  Ministers agreed to establish a specific body responsible for macro-prudential oversight across the EU financial system, the European Systematic Risk Board (ESRB). The ESRB will identify risks to financial stability and, where necessary, issue risk warnings and recommendations for action to address such risks.

  • 20/10/2009

    ABBL thinks that strong and concrete measures in the field of Prudential supervision and of financial stability are necessary in order to restore confidence in the global financial system. In that respect, ABBL has supported since its inception the reform of the supervisory architecture proposed in the de Larosière report and endorsed by the European Commission.

    Our comments focus on the Commission proposal of a regulation establishing a European Banking Authority (the EBA). They are also applicable to the proposals establishing both other Authorities, the ESMA and the EIOPA.

  • 23/09/2009

    The European Commission has adopted an important package of draft legislation today 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 (ESRB) 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 (ESFS), composed of national supervisors and three new European Supervisory Authorities for the banking, securities and insurance and occupational pensions sectors.

  • 07/09/2009

    The Group of Central Bank Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, reviewed today a comprehensive set of measures to strengthen the regulation, supervision and risk management of the banking sector. These measures will substantially reduce the probability and severity of economic and financial stress.

  • 31/07/2009

    ABBL: You have recently taken up the position of Director General of the Commission de Surveillance du Secteur Financier (CSSF), replacing Jean-Nicolas Schaus, who had held the position ever since the creation of the CSSF. What will be the main changes we can expect under your leadership?

    Jean Guill: The new management team of the CSSF sees no need for a “revolution” in the CSSF’s style or supervision. We will continue to exercise our duties with meticulous care and to adopt a prudent approach, as was the case in the past.

  • 31/07/2009

    On May 27, 2009, the European Commission revealed its plan for establishing a new European Supervisory Framework, which is largely based on the recommendations of the de Larosière Group Report of February 2009.

  • 08/07/2009

    The Luxembourg Bankers’ Association (the ABBL) welcomes the opportunity to comment the Commission Communication on the European financial supervision dated May 27, 2009.

    In line with our previous comments on the Commission Communication of March 4, 2009, we reiterate our support to the reform of the European supervisory architecture, which has received the political approval of the European Council of June 19, 2009.

    Our comments focus on the European System of Financial Supervisors (the ESFS), i.e. the role, the responsibilities and the governance of the future European Supervisory Authorities.
     

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