At an informal meeting in Prague today, EU Finance Ministers and Central Bank Governors reached agreement on key principles for the reform of financial market supervision.
The meeting was chaired by Czech Finance Minister Miroslav Kalousek.
On the second day of the informal ECOFIN meeting, the Finance Ministers and Central Bank Governors discussed the reform of the structure used to supervise the financial market in the EU.
Since July 2007, the European and global economies have faced a financial crisis exposing weaknesses in financial market regulation and supervision. Last autumn, a High Level Group was formed under the leadership of Jacques de Larosière to examine the causes of the financial crisis and, on the basis of the weaknesses identified, propose improvements to the European system of financial market supervision. Its recommendations were subsequently endorsed by the European Commission in its Communication of 4 March.
In its report, the de Larosière Group suggested the establishment of a new body to be responsible for the supervision of macro-financial stability: the European Systemic Risk Council (ESRC). The ESRC should collect and analyse macro-financial information and issue risk warnings and recommendations. According to the report, micro-prudential supervision (the supervision of individual institutions operating in the financial market) should largely remain within the remit of national supervisory authorities responsible for the banking, capital market and insurance sectors. This would be complemented by a European System of Financial Supervision (ESFS), granting more powers to the Lamfalussy Level 3 Committees (the CEBS, CESR and CEIOPS) and transforming them into new European bodies. The report anticipates that this system will be set up in two stages, the first of which should take place in 2009–2010 and the second in 2011–2012.
At the beginning of the informal meeting of Ministers and Central Bank Governors, Mr. de Larosière set out the main conclusions and recommendations of his financial supervision report. He was followed by Commissioner Charlie McCreevy i, Commissioner Joaquín Almunia and President of the European Central Bank Jean-Claude Trichet i. Kerstin af Jochnick, Eddy Wymeersch and Thomas Steffen, the chairpersons of the European supervisory committees, also addressed the meeting.
The participants then discussed the proposed institutional changes. They agreed that, in order to strengthen confidence in the financial markets and prevent future crises, financial market supervision will have to be reformed at EU level. In this respect, attention should focus not only on improving the quality and intensity of supervision, but also on the way this supervision is institutionally structured in the EU.
The Ministers and Governors singled out the excessive focus on the supervision of individual financial market institutions and the related neglect of systemic risks as shortcomings of the current system. The early warning mechanism was also found to be wanting. The Ministers and Governors concluded that supervision of macro-financial stability needs to be strengthened at EU level, and therefore they supported the creation of a new body, the European Systemic Risk Council (ESRC). An important role in the ESRC should be played by central banks, which will work closely with individual supervisory entities. According to the Ministers and Governors, if the system is to function correctly, there must be a proper flow of information between national supervisors and the ESRC, along with efficiently configured architecture to respond to risk detection and take appropriate action.
As regards reforming the supervision of financial market institutions, the Ministers and Governors reaffirmed the need to harmonise the European supervisory framework, because financial stability could again find itself in jeopardy at some stage in the future if no uniform approach is taken by EU Member States to supervision, the enforcement of existing rules and the imposition of sanctions. Accordingly, the participants agreed on the need to approximate the powers of the supervisory bodies and strengthen their independence, while ensuring convergence of rules, standards and sanctioning powers between the Member States as suggested in the de Larosière report. The Member States also agreed on the general necessity to strengthen and transform the Lamfalussy Level 3 Committees into new bodies with a specific legal framework. The possible number of these bodies and their specific powers was discussed extensively.
The Ministers and Governors called on the Council’s relevant committees (the Economic and Financial Committee and the Financial Services Committee) to further discuss the proposals and try to find a common compromise. The Finance Ministers also agreed on a further round of discussions on the reform of the supervision structure in the EU at the June ECOFIN meeting, where they will prepare a paper on this subject for the June European Council.
-Radka Kohutová, Spokeswoman of the Ministry of Finance
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-Statement by the informal Ecofin_4 April Prague (pdf, 43 kB)