24 June 2014

Reuters: EU to consider financial industry tax to fund watchdogs

The European Commission has been reviewing the three watchdogs it launched in 2011 to make supervision of banks, markets and insurers more consistent across its 28 member countries. The European Securities and Markets Authority (ESMA), the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA) currently receive 60 % of their funding from national supervisors and 40 % from the central EU budget. "Given EU and national budgetary constraints, the Commission considers that a revision of the existing funding model should therefore be envisaged, ideally abolishing EU and national contributions," a draft European Commission report said.

Staffing and budgets of the three watchdogs are modest compared with regulators in the larger member states, such as Britain's Financial Conduct Authority whose annual budget is 452 million pounds ($768.8 million). The EBA's budget for 2014 is only 33.6 million euros ($45.7 million). The welter of EU rules approved to tighten supervision after the financial crisis, such as for derivatives, and bank and insurance capital, means the watchdogs will be taking on more responsibilities and will need extra staff and money.

The report did not give any indication of how much the tax on banks and insurers might be, but any levy would likely be applied in direct proportion to how much supervision an institution requires. Euro zone banks will also have to foot the bill for the European Central Bank's new supervisory arm. Banks under its watch will each be asked to contribute up to 15 million euros annually to help cover costs that are set to hit 260 billion euros next year. Member states could welcome the shift to industry-funded watchdogs - a common system of financing supervision.

It said potential new areas include enforcing accounting rules, supervising the "shadow banking" sector, settlement houses, market benchmarks, and clearing houses, a step Britain is likely to oppose as it seeks to draw a line on more powers being centralised at the EU level. Governance of the watchdogs could be improved further to make decision making faster in the interests of the EU as a whole, the report said, in a nod to British concerns to safeguard the bloc's single market.

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