De Larosière report

A group of experts appointed by the European Commission and headed by former IMF managing director Jacques de Larosière has presented its advice on improving financial supervision. The group recommends supplementing the work of domestic regulators with a new pan-European body to stimulate the provision of information and to mediate in disputes. The new body will be active in the banking and insurance sectors and securities markets and should receive statutory authority to transcend disputes if domestic regulatory bodies disagree.

The report also recommends that the European Central Bank distance itself from supervision of individual banks as this could endanger its independence.

Response of European Commission

In a statement to the Council of Europe on 19 and 20 March 2009, the Commission proposes an extensive reform of the financial sector in keeping with the De Larosière report. The proposed reforms include an increase in regulation at EU level although domestic supervisory bodies will continue to have a clear role. The Commission supports the proposals set out in the De Larosière report to set up an organisation under the auspices of the European Central Bank that can identify systematic risks at an early stage allowing timely intervention. The Commission also supports the recommendation to set up a number of fundamental regulatory standards for the entire European Union.

In April the Commission will reveal a number of initiatives regarding hedge funds, private equity and remuneration structures. In the autumn, it will present its recommendations for the new supervisory framework as well as proposals to address liquidity risk and excessive leverage, improve protection of deposit holders and policyholders, and ensure more effective sanctions in the event of misconduct.

Response of Dutch Finance Minister Bos

By letter, Finance Minister Bos informed the Second Chamber of Parliament that he agrees with most of the findings and recommendations in the report. The view of the Netherlands on the future of European regulation, however, deviates from the report on one issue. The government of the Netherlands prefers to have two European regulatory bodies: one for prudential regulation and the other for market conduct regulation. The expert group envisions three separate bodies stemming from the current Level 3 committees (CEBS, CESR and CEIOPS).