The high-level group on financial supervision in the EU, chaired by Jacques de Larosière, published an initial report recommending 'repair' of the oversight of financial services across Europe. In addition to de Larosière, the group is composed of seven senior European figures from the financial services industry and its regulators, including Leszek Balcerowicz, former president of the National Bank of Poland, and Callum McCarthy, former chairman of the UK's Financial Services Authority. The report acknowledges that some aspects of the European regulatory framework have been pro-cyclical (that is they have magnified economic or financial fluctuations), and helped to turn what was initially a liquidity problem into a solvency problem. The report makes 31 recommendations, split between supervisory and regulatory issues, for the reform of financial services supervision. Some of the key proposals affecting insurers include:
  • Credit rating agencies should be registered and supervised (click here to see our previous post on the supervision of credit rating agencies).
  • Solvency II must be adopted urgently (click here to see our posts on Solvency II). The report recommends that a complete package of measures (including the development of harmonised insurance guarantee schemes) in connection with the operation of the group support regime, which has recently stalled the Solvency II process, should be agreed by May 2009 when the European Parliament breaks for its elections.
  • The powers of supervisory authorities should be strengthened where necessary.
  • Core rules should be harmonised by removing national exceptions to European legislation which distort competition or promote regulatory arbitrage'.
  • Remuneration policies in financial services firms should be overseen by supervisory authorities.
  • There should be a greater focus on internal risk management, giving senior risk officers very high ranks in institutions. The report calls on authorities to inspect internal risk management systems frequently.

Click here to read the full report.