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11 December 2009

European Council Conclusions 10 – 11 December: the new supervisory framework to be operational during 2010

Government heads welcome the Council's adoption of a general approach to CRD. They believe that remuneration policies within the financial sector will promote sound and effective risk management and contribute to future financial stability.

Financial markets, including supervision:

12. The financial crisis has clearly demonstrated the weaknesses of the current regulatory framework and supervisory arrangements for financial institutions. The European Council welcomes the rapid and determined action taken by the Council which has agreed a fundamentally new structure for financial supervision in Europe. This new structure will be set up to re-establish confidence of consumers and investors in financial markets, to provide greater protection against future bubbles and crises in the economy and to enhance stability and bring oversight into line with the reality of market integration.
13. The European Council welcomes the general approach reached by the Council on a complete package for a new supervisory framework in the European Union. A new European Systemic Risk Board will provide the European Union with a system for monitoring macro-prudential risks and issuing risk warnings and recommendations for remedial action when such risks are significant. The three new supervisory authorities for banks, insurance and securities markets will develop common technical standards, will have a strong co-ordinating role in supervisory colleges, be able to act effectively in case of financial emergencies, and ensure the consistent application of EU law inter alia through binding mediation. The European Council looks forward to negotiations with the European Parliament with a view to a swift adoption, so that the new system can become operational during the course of 2010.
14. The adoption by the Council of a general approach regarding amendments to the Capital Requirements Directive is a further step towards strengthening financial regulation in the light of the financial crisis. It enhances the capital requirements for certain banking activities and introduces clear and binding rules on remuneration consistent with those endorsed by G 20 leaders. Remuneration policies within the financial sector must promote sound and effective risk management and should contribute to preventing future crises in the economy. The European Council is now looking to the European Parliament to swiftly reach a final agreement. The European Council invites the financial sector to immediately implement sound compensation practices and in that respect encourages Member States to promptly consider available short-term options. The European Council welcomes the Commission’s intention to closely monitor the implementation of sound remuneration principles. The European Council also calls for further progress on countering pro-cyclicality in the banking sector and invites the Commission to present further proposals in 2010 taking account of the work underway in the Basel Committee.
15. The European Council emphasises the importance of renewing the economic and social contract between financial institutions and the society they serve and of ensuring that the public benefits in good times and is protected from risk. The European Council encourages the IMF to consider the full range of options including insurance fees, resolution funds, contingent capital arrangements and a global financial transaction levy in its review. In line with the European Council conclusions of October 2009, it calls on the Council and the Commission to identify the key principles which new global arrangements would need to respect.
16. The European Council also stresses the need to accelerate work on the draft Directive on alternative investment fund managers, which should also address the issue of appropriate remuneration policies. It welcomes the Commission's intention to present legislative proposals in 2010 to improve the stability and transparency of derivative markets.

© European Council

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