Goldschmidt: Response to Commission’s Communication on Financial Services Policy
19 June 2009
Paul Goldschmidt says that moving immediately to a system of a “Single Eurozone Supervisor” would make it possible to address some of the current problems with greater flexibility.
Paul Goldschmidt responded to the EC communication on financial services supervision saying that by moving immediately to a system of a “Single Eurozone Supervisor”, it would be possible to address with greater flexibility some of the current problems. At the same time, the ground would be laid for a long term smooth transition to a “Single EU Supervisor” model as new Member States join EMU.
The new supervisory framework assigns to Central Banks a major role in addition to their current responsibilities. While recognizing their unquestioned competence and their institutional role and responsibility concerning monetary and financial stability, their dominance of the ESRC raises the following questions:
- A first potential “weakness” resulting from the composition of the ESRC is that all its Members are “ex-officio”, i.e. they are appointed on the basis of criteria that are not necessarily directly related to the specific role they need to play as Members of the ESRC.
- Consideration should be given to modifying the composition of the ESRC so that it can benefit from competencies found outside of the existing monetary/regulatory institutional establishment to achieve a better balance in points of view represented.
- The potential for conflicts of interests developing within Central Banks. This results from the lack of uniformity of the existing regulatory architecture among Member States. Indeed, in some countries Central Banks perform the role of “supervisory authority” for the banking sector.
- Another difficulty: as presently envisaged (one man one vote/simple majority), the voting power of the 16 Central Banks Member of the Eurozone plus the vote of the Chairperson and Vice-President of the ECB gives at all times an implicit “permanent” majority (18/33) to representatives of the EMU. The proposed system provides EMU Members with the opportunity to “vote” recommendations affecting monetary policy of non Eurozone Members forcing them to “comply or explain”. This creates an “imbedded” bias that will be more than likely prove difficult to accept by the non EMU Member minority.
- A further area which might raise opposition, particularly on behalf of non EMU Members, is the proposal that the ECB perform the function of aggregating information collected by the three Supervisory Authorities forming the EFSF, for transmission to the ESRC.
Concerning the European System of Financial Supervisors (ESFS) which consists of ensuring a common supervisory culture and consistent supervisory practices, Mr Goldschmidt believes that these aims can only be achieved if supervision is organised formally as a “profession” and that access is subject to minimum common standards of qualification.
These aspects, omitted in the Consultation, deserve to be addressed more fully because there is widespread recognition that failures in the existing supervisory system contributed to the financial crisis. These were due, in part, to “nationalistic” responses by Regulators as well as to the great differences in the training and professional competencies of Supervisors.
He recommends a two pronged approach:
a) The “International Institute of Chartered Supervisors”
As is the case regarding other professions, which exercise special responsibilities in sensitive areas, supervision should be organised on a formal basis under the aegis of the “G 20” through the establishment of a dedicated Organisation
Such an institution could be an essential building bloc in restoring public trust in the independence, professionalism and integrity of supervisory authorities.
b) An International Training program.
A “Public/Private partnership should be developed between Public Authorities - the Institute referred too here above – Academia – and relevant private sector Professions to design a post graduate curricula covering the various aspects of “Financial Supervision” including ethical, legal, technical and governance issues. The program would be open to holders of university degrees in subjects such as law, economics, accounting etc. as well as to active supervisors with a minimum of practical experience.
