The European Commission (EC) has adopted a Communication on Financial Supervision in Europe, which 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 EC also invites all interested parties to submit their reactions on the communication before 15 July.
EC 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 Member States 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.”
The financial supervision package proposed in this communication involves two key elements:
- An 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.
- An 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.
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