The European Commission has proposed a more centralised European financial regulatory structure to strengthen cross-border supervision and risk controls and prevent future financial crises.
A consultation period ending 15 July will be followed by legislation in the autumn, with a new framework expected to be up and running during 2010.
The proposals, which closely follow the recommendations published by the de Larosière group on financial supervision on 25 February, will create two new pan-European supervisory entities. The 22-strong European Systemic Risk Council (ESRC) will monitor and assess risks to the stability of the financial system as a whole, while the European System of Financial Supervisors (ESFS) will focus on the supervision of individual financial institutions.
Under the plans, the three bodies currently charged with harmonising financial regulation across Europe – the Committee of European Banking Supervisors (CEBS), the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) and the Committee of European Securities Regulators (CESR) – will be transformed into three corresponding European Supervisory Authorities.
Within this structure, those companies that only operate in their country of origin will continue to be monitored by their national regulator. Cross-border institutions, however, will be overseen by ‘colleges’ of supervisors from the appropriate jurisdictions. The new European Supervisory Authorities would have the power to arbitrate in case of disagreement between the regulators.
The Commission said pan-European institutions will be more efficiently supervised at the European level, as national regulators only have a partial view of their activity and reaching consensus across all EU regulators would require “an unnecessary degree of coordination among supervisors”.
The formalisation of regulatory colleges could help avoid inconsistency in the implementation of MiFID in different EU member states, according to some observers.
“Complex cross-border groups and the big infrastructures that operate in a lot of countries already have colleges of regulators, but they aren’t legally established and don’t have budgets,” Tony Freeman, executive director of industry relations and market growth, EMEA, at post-trade processing firm Omgeo, told theTRADEnews.com. “If colleges get more established legal powers, more funding, permanent staff etc., then they can become a lot more effective.”
However, others see scope for further confusion. “I think it will make issues more murky and it will take longer to come to a decision,” said Bob McDowall, research director, Europe, at research and consulting firm TowerGroup.
While he acknowledges that the new structure does present further scope for wrangling between regulators, Freeman believes the greater powers afforded to CESR under the proposals should prevent this. “There will be more of a mechanism in place to resolve differences,” he said. “So far, CESR has only been able to make recommendations and give advice, and it doesn’t have the power to impose anything. Provided a political agreement can be reached as to how it makes decisions and comes to an agreement when there isn’t unanimity, CESR will have a lot more authority to intervene and resolve disputes between national supervisors.”
The Commission plans a full review of the new structure’s effectiveness no later than 2013.