Documents considered by the Committee on 24 February 2010, including the following recommendations for debate: Pre-accession assistance to the Western Balkan states and Turkey Financial services - European Scrutiny Committee Contents


8 Financial services

(31264)

5413/10

ECB Opinion of 8 January 2010 on three Draft Regulations establishing a European Banking Authority, a European Insurance and Occupational Pensions Authority and a European Securities and Markets Authority

Legal base
Document originated
Deposited in Parliament21 January 2010
DepartmentHM Treasury
Basis of considerationEM of 4 February 2010
Previous Committee ReportNone
To be discussed in CouncilNot known
Committee's assessmentPolitically important
Committee's decisionCleared

Background

8.1 In September 2009 the Commission proposed draft Regulations which would establish three new European Supervisory Authorities — respectively a European Banking Authority, a European Insurance and Occupational Pensions Authority, and a European Securities and Markets Authority. The proposals included significant detail of how the new bodies would operate, be staffed and be funded, and of their powers and roles. The key proposed powers and roles were:

  • rulemaking — the authorities would develop technical standards in all sectors (with current legislation being amended to set out where they can make rules);
  • enforcement — the authorities would have powers to ensure consistent application of Community rules, in a process similar to the current infraction process, except that it would be the authority finding a Member State or supervisor in non-compliance with the law;
  • emergency powers — the authorities would have powers over firms and supervisors in emergency situations;
  • direct supervisory powers — the authorities would have powers to directly supervise cross-border institutions where provided for in Community legislation;
  • settlement of disagreements — the authorities would have powers to mediate in disputes between supervisory authorities, being able to settle disputes and decide on an appropriate outcome;
  • peer review — the authorities would be required to conduct peer review of supervisors and ensure a common supervisory culture;
  • other — the authorities would maintain a database of supervisory information, take part in colleges of supervisors, have an international role and provide information to the European Systemic Risk Board; and
  • safeguard clause — the mediation and emergency powers would be subject to a safeguard clause, whereby a Member State could opt-out of an authority decision if it believed the decision impinged on its fiscal responsibilities, but subject to approval by a qualified majority vote in the Council.

The three authorities would take over the role of the Lamfalussy Level 3 Committees[17] and would have, jointly, a Board of Appeal, to consider appeals against their decisions.

8.2 The proposals were cleared from scrutiny after debate on the Floor of the House on 4 December 2009.[18]

8.3 While the European Central Bank (ECB) has no direct role in the proposed Regulations, they contain provisions affecting the European System of Central Banks (ESCB)'s contribution to the smooth conduct of policies relating to prudential supervision of credit institutions and the stability of the financial system. Moreover the proposals for the supervisory authorities form part of the package of legislation for the EU's institutional framework for supervision and, as such, are closely linked with the proposals for a Regulation on macro-prudential oversight of the financial system and establishing a European Systemic Risk Board and a Council Decision entrusting the ECB with specific tasks concerning the functioning of the board, including provision of the resources for the Board's Secretariat.[19]

The document

8.4 In this document the ECB gives the Council its formal Opinion on the draft legislation to establish the European Supervisory Authorities. It broadly welcomes the proposed institutional framework and recommends 13 amendments to the draft Regulations, suggesting:

  • an amendment to make clear that decisions adopted by the supervisory authorities in the context of emergency situations are without prejudice to the competence of ESCB central banks to provide emergency liquidity assistance to individual financial institutions;
  • a new recital referring to the duty of the supervisory authorities to cooperate with the ECB and national central banks of the ESCB and the need for appropriate gateways for sharing information;
  • an additional task for the supervisory authorities — to cooperate closely with the ECB and, where appropriate, central banks of the ESCB, as well as to provide any relevant information necessary for the fulfilment of their tasks;
  • inclusion of the ECB in the list of authorities entitled to formulate requests to the Commission to adopt Decisions determining the existence of an emergency situation and the list of authorities to be consulted before the adoption of such Decisions;
  • adding a requirement for the supervisory authorities to notify the ECB of any potential emergency situations without delay;
  • an amendment to include the ECB as an observer in meetings of the Joint Committee of European Supervisory Authorities and the sub-committee on financial conglomerates;
  • an amendment to ensure that the European Systemic Risk Board and ESCB are not prevented from being involved in the exchange of prudential information;
  • an amendment to provide for the supervisory authorities, the European Systemic Risk Board and the ECB to provide an opinion to the Commission ahead of it publishing its general reports;
  • an amendment to ensure that central banks benefit from an independent right of participation in the Board of Supervisors of the European Banking Authority as non-voting members;
  • an amendment to allow non-voting representatives of Member States' central banks with substantial involvement in the field of banking supervision to participate in confidential discussions relating to individual financial institutions;
  • adding a recital to the proposed European Securities and Market Authority Regulation, providing that the existing cooperation between the Committee of European Securities Regulators and central banks continues between the authority and central banks in matters of common interest;
  • an amendment to the proposed European Securities and Market Authority Regulation to ensure that any tasks conferred upon the authority should take account of the existing competences of the ECB and central banks of the ESCB in the field of clearing and settlement; and
  • an amendment to the proposed European Securities and Market Authority and European Insurance and Occupational Pensions Authority Regulations to include the ECB as a non-voting member on the Board of Supervisors.

The Government's view

8.5 The Financial Services Secretary to the Treasury (Lord Myners) reminds us that the Government supports establishment of three new European Supervisory Authorities, saying that they will improve the quality and consistency of regulation and supervision in the EU. The Minister then comments seriatim on each of the ECB's suggestions, saying that the Government:

  • is generally supportive of the amendment proposed in relation to emergency situations, but does not believe that the supervisory authorities will undermine the competences of national central banks. It therefore does not see this as an essential amendment;
  • agrees with the principle that the supervisory authorities should not be prevented from sharing information, but would want to look very closely at any requirements for them to do so;
  • does not agree with the inclusion of a requirement for the supervisory authorities to share information with the ECB — there are provisions in the proposed legislation to ensure that the European Systemic Risk Board receives the information it requires to fulfil its tasks and its Secretariat, provided by the ECB, will therefore receive such information to enable it to support the work of the board. However, the Secretariat should be independent from the ECB. The Financial Services Authority routinely shares information with the Bank of England — where appropriate, the Bank can choose whether to share this information with the ECB. The Government believes that this is the correct channel for such information sharing, and that it is not necessary to require that the ECB or national central banks should receive information directly from the supervisory authorities;
  • does not believe that an amendment to include the ECB in the list of bodies to be consulted about emergency situations is necessary — central banks, including the ECB, are to be represented on the European Systemic Risk Board, which is included in this list of authorities, and there is no need for the ECB to be consulted separately in the determination of an emergency situation;
  • does not believe that adding a requirement for the supervisory authorities to notify the ECB of any potential emergency situations without delay is necessary — central banks, including the ECB, are to be represented on the European Systemic Risk Board and it is the right body to interface with the supervisory authorities on issues of EU-wide financial stability;
  • does not support an amendment to include the ECB as an observer in meetings of the Joint Committee of European Supervisory Authorities and the sub-committee on financial conglomerates — the Joint Committee exists to encourage cooperation between the supervisory authorities. It may be right to establish other cooperation arrangements, however the Government believes that the board is the appropriate body to attend these meetings, not the ECB. Other central banks are not to be represented here;
  • agrees it is sensible for the supervisory authorities to be able to share information with central banks and the European Systemic Risk Board as they see appropriate, subject to confidentiality requirements and so could support clarification with an amendment to ensure that the European Systemic Risk Board and ESCB are not prevented from being involved in the exchange of prudential information;
  • would support an amendment requiring the European Systemic Risk Board and supervisory authorities to submit an opinion to the Commission but does not support a similar provision for the ECB — while it would be right for the ECB to have a role in reviewing the board (a similar review clause is contained in the Council agreed text on the draft Regulation to set up the board), the role of the supervisory authorities is different. The ECB does not have a role in supervision policy and, in particular, is excluded in the Treaty on the Functioning of the European Union (TFEU) from having any such role for insurers;
  • does not think an amendment to ensure that central banks benefit from an independent right of participation in the Board of Supervisors of the European Banking Authority as non-voting members is necessary — the Government supports the Council text for the Regulation for this authority, which provides for a representative from a Member State's central bank to accompany the representative from the competent authority responsible for the supervision of credit institutions as an observer, where this authority is not a central bank, for common representatives in cases where more than one authority is competent for the supervision and, where the item to be discussed does not fall within the competence of this authority, a representative from the relevant national authority to attend as an observer;
  • in relation to the amendment to allow non-voting representatives of central banks with substantial involvement in the field of banking supervision to participate in confidential discussions relating to individual financial institutions, notes that central banks with a substantial involvement are already to be represented in the European Banking Authority where they are supervisors and does not think that it is appropriate for central banks to participate in meetings of the European Securities and Market Authority and the European Insurance and Occupational Pensions Authority;
  • could support a recital in the proposed European Securities and Market Authority Regulation, providing that the existing cooperation between the Committee of European Securities Regulators and central banks continues between authority and central banks in matters of common interest if it was amended to include national supervisors, to reflect more clearly their role in addition to central banks and the authority;
  • would support an amendment to the proposed European Securities and Market Authority Regulation to ensure that any tasks conferred upon authority should take account of the existing competences of the ECB and central banks of the ESCB in the field of clearing and settlement, if national supervisors were also added, to recognise their role in addition to central banks; and
  • believes it is right for the ECB to participate only in the European Banking Authority and therefore supports the Council position against an amendment to the European Securities and Market Authority and the European Insurance and Occupational Pensions Authority Regulations to include the ECB as a non-voting member on the Board of Supervisors.

Conclusion

8.6 Whilst clearing the document, we draw this additional information about the proposals for the European Supervisory Authorities to the attention of the House.


17   The Lamfalussy processes are a four-level approach to regulation of the European financial services industry. At the first level the European Parliament and Council adopt legislation, setting framework principles and the Commission's implementing powers, on the basis of Commission proposals on which it is advised by sector-specific committees of high-level representatives of Members States chaired by the Commission. At the second level sector- specific committees of national regulators prepare and advise on implementing measures to be adopted by the Commission. At this level the committees of high-level representatives perform a "comitology" role (comitology procedures regulate exercise by the Commission of implementing powers conferred on it by the Council and the European Parliament and are essentially intended for detailed measures to implement Community legislation) of voting on the Commission's implementing measures before their adoption. At the third level the committees of national regulators work on strengthening co-ordination of regulation, for instance by establishing common interpretations of legislation and peer group review of regulatory practice. At the fourth level the Commission strengthens compliance with and enforcement of EU rules.  Back

18   (30952) 13652/09 (30953) 13653/09 (30954) 13654/09: see HC 19-xxviii (2008-09), chapter 6 (21 October 2009), HC 19-xxx (2008-09), chapter 2 (4 November 2009) HC 5-i (2009-10), chapter 2 (19 November 2009) and HC Deb, 1 December 2009, cols 989-1030. Back

19   (30950)-(30951) 13645/09 13648/09: see HC 19-xxviii (2008-09), chapter 6 (21 October 2009), HC 19-xxx (2008-09), chapter 2 (4 November 2009) and HC 5-i (2009-10), chapter 2 (19 November 2009) and HC Deb, 1 December 2009, cols. 989-1026 and (31177) 15615/09: see HC 5-iv (2009-10), chapter 6 (15 December 2009) and HC 5-vii (2009-10), chapter 11 (20 January 2010). Back


 
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