IP/09/836

Brussels, 27 May 2009

Financial services: Commission proposes stronger financial supervision in Europe

(see MEMO/09/251)

The European Commission has adopted a Communication on Financial Supervision in Europe. The Communication proposes a set of ambitious reforms to the current architecture of financial services committees, with the creation of a new European Systemic Risk Council (ESRC) and European System of Financial Supervisors (ESFS), composed of new European Supervisory Authorities.Legislation to embody these proposals will follow in the autumn. The Commission also invites all interested parties to submit their reactions on the Communication before 15 July.

Commission President José Manuel Barroso said: "Better supervision of cross-border financial markets is crucial for ethical and economic reasons. That is why I asked Jacques de Larosière and his group to produce their report. The Commission is making proposals today to help restore confidence, guard against future crises and protect growth and jobs. The new system will help the EU and its MemberStates to tackle both problems with cross-border firms and the build up of overall systemic risk. I am very pleased with the general support Member States gave the de Larosière report at the Spring European Council. I now urge EU leaders at the June European Council to endorse the concrete, timetabled steps we are setting out today. I would like the new architecture up and running during 2010."

Internal Market and Services Commissioner Charlie McCreevy said "Financial supervision in Europe has not kept track with market integration. The crisis has shown that the current system is not sufficiently responsive and not appropriate for a single financial services market. This new system will combine the expertise of all those responsible for safeguarding financial stability, with strong European bodies to coordinate their work. With this initiative, the Commission is responding to the weaknesses identified during the crisis as well as to the G20 call to take action to build a stronger, more globally consistent, regulatory and supervisory system for financial services."

Economic and Monetary Affairs Commissioner Joaquín Almunia said: "The financial sector was one of the main drivers of growth since the creation of the single market in the early 90s, but it also nearly brought the economy to a halt at the turn of the year. The reforms proposed today would create a new European body, the European Systemic Risk Council, charged with assessing potential threats to financial stability that might arise from macro-economic developments and from developments within the financial system as a whole. Byproviding analysis, issuing early warnings of system-wide risks and, where necessary, recommendations to deal with these risks, the new body would for the first time equip the EU with a pan-European macro-prudential supervision system".
The financial supervision package proposed in this Communication involves two key elements.

  • a European Systemic Risk Council (ESRC) which should monitor and assess risks to the stability of the financial system as a whole ("macro-prudential supervision"). The ESRC will provide early warning of systemic risks that may be building up and, where necessary, recommendations for action to deal with these risks. The creation of the ESRC would address one of the fundamental weaknesses highlighted by this crisis, which is the exposure of the financial system to interconnected, complex, sectoral and cross-sectoral systemic risks.
  • a European System of Financial Supervisors (ESFS)for the supervision of individual financial institutions ("micro-prudential supervision"), consisting of a robust network of national financial supervisors working in tandem with new European Supervisory Authorities, created by the transformation of existing Committees for the banking securities and insurance and occupational pensions sectors. The ESFS is to be built on shared and mutually-reinforcing responsibilities, combining nationally-based supervision of firms with specific tasks at the European level. It aims to foster harmonised rules and coherent supervisory practice and enforcement. This network should be based on the principles of partnership, flexibility and subsidiarity and should aim to enhance trust between national supervisors by ensuring, inter alia, that host supervisors have an appropriate say in setting financial stability and investor protection policies so that cross-border risks can be addressed more effectively.

The implementation of the arrangements described above will have to be monitored, and their effectiveness carefully assessed. A full-review should take place no later than three years after the entry into force of both pillars of the European financial supervisory framework proposed in this Communication (and no later than 2013). The outcome of this review will determine whether additional steps are needed to strengthen the ESRC and the ESFS.

The Commission welcomes reactions from all stakeholders to the proposals contained in the Communication. All contributions should be sent before 15 July through the following webform:

Background

Currently there are three financial services committees for micro-financial supervision (supervision of individual financial institutions) at EU level, with advisory powers only: the Committee of European Banking Supervisors (CEBS), Committee of European Insurance and Occupational Pensions Committee (CEIOPS) and the Committee of European Securities Regulators (CESR), also often known as the "Lamfalussy level 3 Committees". However, there is no single body in Europe responsible for supervision of systemic risks (macro-financial supervision).

The de Larosière group on financial supervision in Europe, mandated by President Barroso, issued its report on 25 February 2009. It proposed that an enhanced European financial supervisory framework should be based on the two pillars of the ESFS and the ESRC. As announced in the Commission Communication to the Spring European Council, "Driving European Recovery" of 4 March[1], the Commission endorsed the de Larosière proposals as the basis for proceeding, and committed itself to presenting a financial supervision Communication before the end of May. Legislative proposals will follow in the autumn.

Prior to the completion of this Communication, a public consultation of interested parties was carried out by the Commission. Over 115 replies were received, the great majority of them broadly supportive of the proposals in the de Larosière report. Moreover, a high-level Conference on supervision was held on 7 May 2009. This Communication is accompanied by an Impact Assessment.

More information is available at:

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[1]COM(2009) 114 final. The Communication can be accessed on: