The report calls for a new European Systemic Risk Council on macro-prudential risks in the EU. CEBS, CEIOPS and CESR should be transformed into European Authorities and equipped with new competences. A detailed plan should be provided by end 2009.
The high level expert group on EU financial supervision presented its report to President Barroso and to the Commission.
“Financial regulation and supervision have been too weak or have provided the wrong incentives”, the Chairman of the Group Jacques de Larosière stated in its opening remarks of the report. “In essence, we have two alternatives: the first ‘chacun pour soi’ beggar-thy-neighbour solutions; or the second - enhanced, pragmatic, sensible European cooperation for the benefit of all to preserve an open world economy”.
A significant financial reform is necessary and urgent at global level, Commission President Barroso said. “The report confirms that a European system of Financial Supervision is indispensable”.
The Commission will give a first preliminary assessment and response to the main conclusions of the report on 4 March.
“In advance of broader proposals on supervision later in the year, the Commission intends to present detailed concrete proposals during April on private equity, hedge funds and immediately after that on remuneration schemes”, Barroso announced.
The Group made some 31 recommendations to strengthen European supervisory arrangements covering all financial sectors.
The report calls for a European System of Supervision and Crisis Management, supports an extended role for the ECB in macro-prudential oversight, and calls for colleges of supervisors for all major cross-border institutions.
The new European Systemic Risk Council (ESRC) should be a decentralised network composed of the members of the General Council of the ECB, the chairpersons of CEBS, CEIOPS and CESR as well as one representative of the European Commission. Its role will be to gather information on all macro-prudential risks in the EU.
CEBS, CEIOPS and CESR should be transformed into European Authorities to coordinate the application of supervisory standards and guarantee strong cooperation between the national supervisors. These authorities, building the new European System of Financial Supervision, should be equipped with new competences to promote binding agreements between national supervisors, supervisory standards, and technical decisions. They will also oversee and coordinate the colleges of supervisors.
The Group proposes a concrete timeline for preparing a European System of Financial Supervision.
In the first stage (2009-2010), national supervisory authorities should be strengthened with a view to upgrading the quality of supervision in the EU. Also, the EU should develop a more harmonised set of financial regulations, supervisory powers and sanctioning regimes.
In a second stage (2011-2012) the EU should establish an integrated European System of Financial Supervision. The level 3 Committees should be transformed into three European Authorities with additional competencies - a European Banking Authority, a European Insurance Authority and a European Securities Authority.
A detailed implementation plan for the 2 stages should be provided by end 2009 prepared by a group of high-level representatives of the Finance Ministries, the European Parliament, the Level 3 Committees, and the ECB.
The recommendations also propose changes to key-aspects of the present regulatory framework, such as Basel II, Solvency II, Credit Rating Agencies and the mark-to-market principle.
The Group furthermore recommends extending appropriate regulation, in a proportionate manner, to all firms or entities conducting financial activities of a potentially systemic nature. Appropriate capital requirements on banks should be introduced owning or operating a hedge fund or being otherwise engaged in significant proprietary trading and to closely monitor them.
Concerning securitised products and derivatives markets, the Group recommends simplifying and standardising over-the-counter derivatives.
However, the report does not call for fully harmonized rules. “Harmonisation is not an end in itself”, Mr de Larosière noted underlining that national approaches can be beneficial to the interested countries.
Also, competent authorities must have sufficient supervisory powers to ensure the compliance of financial institutions with the applicable rules, the report states. Member States and the European Parliament should avoid in the future legislation that permits inconsistent transposition and application.
The report also makes recommendations for regulatory consistency on a global scale calling for more cooperation among supervisors world wide.
Introductory remarks of Mr Baroso
© European Commission
Hover over the blue highlighted
text to view the acronym meaning
over these icons for more information
No Comments for this Article