On September 23, the European Commission announced that it had adopted a package of draft legislation designed to significantly strengthen the supervision of the financial sector in Europe. The proposals are based on the de Larosière report on the future of European supervision and regulation. The June 2009 EU Summit endorsed the new supervisory framework and called for the rapid adoption of the necessary legislative texts.

The proposals aim to:

  • Address risks to financial stability throughout the EU
  • Create consistent supervision and enforcement throughout the EU
  • Ensure early identification of risks in the financial system
  • Achieve effective cooperation in emergencies, and dispute resolution among supervisors

Under the proposals, the following new bodies will be created:

  • European Systemic Risk Board (ESRB)—a “macro-prudential” supervisor which will monitor and assess risks to the stability of the financial system as a whole. The ESRB will be tasked with providing early warning of systemic risks that may be building up and, where necessary, recommendations for action to deal with these risks.
  • European System of Financial Supervisors (ESFS)—a “micro-prudential” supervisor for the supervision of individual financial institutions. It will consist of a network of national financial supervisors working in tandem with three new European Supervisory Authorities (a European Banking Authority (EBA), a European Insurance and Occupational Pensions Authority (EIOPA), and a European Securities and Markets Authority (ESMA)). ESFS will absorb and replace the existing Committees for the banking securities and insurance and occupational pensions sectors: the Committee of European Banking Supervisors (CEBS), Committee of European Insurance and Occupational Pensions Committee (CEIOPS) and the Committee of European Securities Regulators (CESR). In addition ESFS will be tasked with the following:
    • Developing proposals for technical standards, respecting better regulation principles
    • Resolving cases of disagreement between national supervisors
    • Ensuring consistent application of relevant EU rules
    • A coordination role in emergency situations

The ESMA will also exercise direct supervisory powers over Credit Rating Agencies.

Click here for more information on financial services supervision and committee architecture. Click here for more information on the new legislative proposals.