It has been agreed by European Parliament (EP) and European Council (EC) negotiators
that the new European Union (EU) supervisory authorities (ESAs) and the European
Systemic Risk Board (ESRB) are to get new powers to settle disputes among national
financial supervisors and to ban risky financial products and activities.
In the revamp of EU financial supervision, the three ESAs, covering banking,
insurance and securities, are to be given a strong role within the current setup
of colleges of national supervisors. This will enable them to guide national
supervisors to ensure tighter supervision of cross-border financial institutions.
In the event of disagreements between national supervisors, ESAs will also
be able to impose legally-binding mediation and, if no agreement can be reached
within the relevant college of supervisors, to impose supervisory decisions
on the financial institution concerned. ESAs will also be able to intervene
as mediators at their own discretion, rather than at the request of one of the
national supervisors.
The ESAs will also be able to monitor how national supervisors implement their
obligations under EU law. If these obligations are implemented incorrectly,
the ESAs may raise the alarm, issue instructions to the national supervisor
concerned and, if these go unheeded, directly instruct the financial institution
to remedy any breach of EU law.
In addition, the ESAs will have the power to investigate specific types of
financial institution, product or activity, such as naked short selling, to
assess what risks they pose to a financial market. When specific financial legislation
regulates these areas of activity, or in emergency situations, ESAs may temporarily
prohibit or restrict harmful financial activities or products, and may also
ask the European Commission (EC) to introduce legislative acts to prohibit such
activities or products permanently.
The EP negotiators secured the inclusion of a review clause requiring the EC
to report back every three years on, for example, whether the ESAs should be
entrusted with further supervisory powers, notably over financial institutions
with pan-European reach.
Provisions were also inserted to enable the ESRB to communicate rapidly and
clearly. The ESRB will develop a common set of indicators to permit uniform
ratings of the riskiness of specific cross-border financial institutions and
make it easier to identify the types of risks they carry. To improve its visibility
and credibility, the European Central Bank’s President will preside over
the ESRB for the first five years.
The agreement is now scheduled to be approved by the EC on September 7, and
to be put to an EP plenary vote at the second session in September. If the agreement
is approved at both stages, work will begin on completing the various practical
steps necessary to establish the new system by January 2011.
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