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03 December 2009

2 December ECOFIN Council agrees new financial supervisory structure – 3 new watchdogs for European financial markets

The deal paves the way for 3 new watchdogs to supervise the financial system in all EU countries. They won’t be able to decide on future bailouts resulting from a future crisis.

EU finance ministers met in Brussels on Wednesday for the last ECOFIN meeting of the Swedish Presidency and reached important agreements regarding a new financial supervisory structure, a reverse charge for CO2 emission trading and the implementation of fiscal exit strategies.

‘Today’s Council agreement on financial supervision is truly groundbreaking. It represents a crucial step towards helping to prevent future crises and shows Europe’s commitment to rebuilding the financial supervisory infrastructure,’ said Swedish Finance Minister  Anders Borg.
 ‘I hope and trust that it will be possible to reach an agreement with Parliament in the first reading of this legislative proposal, in view of the need to get the new structure up and running in the course of the coming year,’ stated Mats Odell, Swedish Minister for Financial Markets and Local Government. 
The Council agreed on a general approach to draft regulations aimed at establishing three new authorities for the supervision of financial services in the EU, namely:
– a European Banking Authority;
– a European Insurance and Occupational Pensions Authority; and
– a European Securities and Markets Authority.
It asked the presidency to start negotiations with the European Parliament with a view to enabling adoption of the texts at first reading.
The draft regulations are part of a package of proposals to reform the EU framework for the supervision of banking, insurance and securities markets in the wake of the global financial crisis.
Negotiations with the Parliament on the macro-financial aspects of the package are already underway. At its meeting on 20 October, the Council reached agreement on a draft regulation aimed at establishing a European Systemic Risk Board (ESRB) to monitor potential threats to the stability of the financial system.
The three European supervisory authorities (ESAs) will be part of a European System of Financial Supervisors, working in tandem with a network of member state supervisors. Together, they constitute the micro-financial aspects of the reform package. Entry into force will only be possible once all of the texts have been adopted; the aim is for the new framework to be put into place during the course of 2010.
In June, the European Council supported the creation of both the ESRB and the European System of Financial Supervisors, calling for:
– an upgrading of the quality and consistency of national supervision;
– a strengthening of the oversight of cross-border financial groups through the setting
   up of supervisory colleges; and
– the establishment of a single rule book applicable to all financial institutions in the EU.
The three ESAs are due to replace three existing EU committees of supervisors (CEBS, CEIOPS and CESR1) and will have legal personality under EU law. They will comprise high-level representatives of all of national supervisory authorities under a permanent chairmanship. The national authorities will remain responsible for day-to-day supervision of individual firms, and a steering committee will be set up to ensure cooperation and to coordinate the sharing of information between the ESAs and the ESRB.
According to the Council's general approach, the ESAs would be responsible for:
– ensuring that a single set of harmonised rules and consistent supervisory practices are applied by national supervisors;
– ensuring a common supervisory culture and consistent supervisory practices;
– collecting micro-prudential information;
– ensuring consistent application of EU rules, in cases such as the manifest breach of EU law or ESA standards and disagreement between national supervisors or within a college of using full supervisory powers at European level with regard to credit rating agencies;
– ensuring a coordinated response in crisis situations.
On account of the liabilities that may be involved for the member states, the Council's general approach provides that decisions taken by the ESAs would not impinge in any way on the fiscal responsibilities of the member states. Any binding decision taken by the ESAs would be subject to review by the EU courts.

Documents associated with this article

ECOFIN council conclusions 2 Dec.pdf

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