The European Commission has announced the adoption of legislative proposals to strengthen financial supervision in Europe.

There will be a new European Systemic Risk Board (ESRB) to detect and warn against risks to the financial system. The legislation will also set up a European System of Financial Supervisors (ESFS), comprising national supervisors and three new European Supervisory Authorities for the banking, securities and insurance and occupational pensions sectors.  

The ESRB and the ESFS will, in effect, be respectively responsible for macro-prudential and micro-prudential supervision of the European financial system. The fundamental aims of this package of enhanced cooperative measures are to:

  • Reinforce financial stability in the EU.
  • Have a common set of basic technical rules applied and enforced consistently.
  • Identify risks in the system at an early stage.
  • Be able to cooperate more effectively in emergency situations and in resolving disagreements among supervisors.
  • The ESRB will have the power to issue recommendations and warnings to Member States and to the European Supervisory Authorities, which will have to comply or else explain why they have not done so.

The new European Supervisory Authorities will take over the functions currently exercised by CESR, CEBS and CEIOPS and will also have additional responsibilities including:

  • Developing proposals for technical standards.
  • Resolving cases of disagreement between national supervisors, where legislation requires them to co-operate or to agree.
  • Contributing to ensuring consistent application of technical Community rules.

European Commission President José Manuel Barroso said:

"Financial markets are European and global, not only national. Their supervision must also be European and global. Today we are proposing a new European supervisory system, with the political backing of the Member States and based on the de Larosière report. Our aim is to protect European taxpayers from a repeat of the dark days of autumn 2008, when governments had to pour billions of euros into the banks. This European system can also inspire a global one and we will argue for that in Pittsburgh."

Internal Market and Services Commissioner Charlie McCreevy said:

"This package represents rapid and robust action by the Commission to remedy shortcomings in European financial supervision and will help prevent future financial crises. I commend this package to the Council and Parliament for rapid adoption, so that the new structures can begin functioning in 2010."

Economic and Monetary Affairs Commissioner Joaquin Almunia added:

"The creation of a European Systemic Risk Board to detect and prevent risks to financial stability in the EU and new arrangements to improve supervision at institution level will go a long way towards tackling the imbalances in our financial systems and solving the weaknesses in our financial supervision system that are at least partly to blame for the financial crisis."