20 November 2007

Commission presents review of the Lamfalussy process

The Commission published a Communication on the Review of the Lamfalussy Process. Although the process has broadly met its overall objectives, there is a growing consensus that some important changes are required in order to make it more efficient. In particular, the functioning of the Level 3 Committees must be improved to enhance supervisory convergence and cooperation.

"Some improvements are necessary to encourage deeper cooperation and convergence between national supervisory authorities”, Commissioner McCreevy said, noting that ad-hoc institutional renaissance or radical revolution will not work.

The Communication took note of some unnecessary blockages on important supervisory issues have despite the Level 3 Committees' efforts to put in place the tools necessary to achieve the objective of deeper cooperation and convergence. The Commission therefore proposes that European institutions should express their political expectations as regards the main results

The Communication also notes that the Commission decisions setting up the Level 3 Committees do not sufficiently reflect their importance in an increasingly integrated European financial market.

Options under discussion to modify the current legal framework include:

- modification of the Commission decisions constituting the three Level 3 Committees to align their functions for reasons of inter-sectoral convergence and consistency; and

- modification of the relevant Level 1 directives to significantly strengthen cooperation requirements and to enhance the supervisory competences of the three Level 3 Committees.

The Communication notes that cross-border group supervision and convergence in the EU supervisory system would be significantly enhanced by the existence of colleges of supervisors to facilitate cooperation between supervisory authorities involved in the oversight of specific cross border firms.

An optimal functioning of Colleges of supervisors requires legal underpinning in EU Directives and a number of adjustments to the present approach. Clear internal decision making procedures are needed for cases where no agreement is found. A requirement for all participants to comply with the College’s decisions should also be secured. The Level 3

Committees should develop a set of common standards for the operation of the Colleges, the responsibilities of its "leading" supervisor and associated "host" supervisors.

However, the Commission considers that at this stage more ambitious institutional changes such as granting of independent rule making powers in Level 3 is not feasible given, inter alia, the lack of agreement among Member States and other stakeholders. This is in particular due to the complexity of the issues at stake in the financial sector.

The current legal basis of the Committees provided by Commission Decisions might need to be reviewed in order to better reflect the Level 3 Committees' tasks and functions. Also, their internal decision-making procedures should be improved and should, subject to possible safeguards, allow for qualified-majority voting on all decisions.

The Communication is published in the context of a general assessment of the Lamfalussy process, which will be discussed by the ECOFIN Council on 4 December 2007.

Press release

Provisional version of Commission Communication

© Graham Bishop