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European Union
MEMO/09/404
Brussels, 23 September 2009
European System of Financial Supervisors (ESFS): Frequently Asked
Questions
(see IP/09/1347 and MEMO/09/405 )
Why are the new European Supervisory Authorities (ESAs) needed?
The report of the de Larosière group 1 identified serious shortcomings
in the existing system of financial supervision in Europe. There is a
single market, and financial institutions operate across borders, but
supervision remains uneven and often uncoordinated. A stronger
financial sector in the EU in the future needs to have convergence
between Member States on technical rules, and a mechanism for ensuring
agreement and co-ordination between national supervisors of the same
cross-border institution or in colleges of supervisors. A rapid and
effective mechanism to ensure consistent application of rules is also
necessary, as is co-ordinated decision making in some areas in
emergency situations. The current advisory financial services
committees are not currently equipped to carry out these functions.
What is the current situation?
The current financial services committees at EU level have advisory
powers and can issue non-binding guidelines and recommendations.
National supervisors of cross-border groups must co-operate within
colleges of supervisors, but if they cannot agree, there is no
mechanism to resolve the issue. Many technical rules are determined at
Member State level, and there is considerable variation between Member
States. Even where rules are harmonised, application can be
inconsistent. This fragmented supervision undermines the single
market, imposes extra costs for financial institutions, and increases
the likelihood of failure of financial institutions with potentially
additional costs for taxpayers.
What will be the powers of the new authorities?
The new authorities build on the existing powers of the current
financial services committees 2 , with a number of additional
technical powers, including the following:
* Developing draft proposals for technical standards - to help to
ensure more consistent rules within the EU, working towards a
common rulebook;
* Facilitating exchange of information and agreement between
national supervisory authorities, and where necessary, settling
any disagreements, including within colleges of supervisors - to
ensure supervisors take a more coordinated approach;
* Contributing to ensuring consistent application of Community rules
- to ensure incorrect or inconsistent application is dealt with
quickly and effectively;
* Exercising direct supervisory powers for credit rating agencies;
* Co-ordination and some decision-making in emergency situations.
How will the new authorities be able to contribute to the creation of
a "common European rulebook" for financial services?
The new authorities will play an important role in working towards a
common rulebook by developing technical standards where necessary, in
the areas defined in legislation, and by drawing up interpretative
guidelines to assist national authorities in taking individual
decisions. The technical standards can only become binding law after
formal endorsement by the Commission.
How will the new authorities be able to arbitrate between national
supervisors which cannot agree, and on what subjects?
By ensuring a more complete exchange of information and views at an
earlier stage, the new authorities will considerably reduce the
likelihood of disagreement. Nevertheless, being in a position to
resolve any remaining disagreements is a key role of the authorities,
to ensure consistent decision making in the EU, and certainty for
firms. In the vast majority of cases, this would take the form of the
authority assisting the national supervisors in coming to an
agreement. But where they cannot agree on a matter. In case of a
persisting disagreement, the European Supervisory Authorities should,
through a decision, be able to settle the matter, taking into account
the views of all supervisors involved.
Why can the new authorities address decisions directly to financial
institutions?
In certain defined situations the authorities will be able to take
decisions directly applicable to financial institutions but only at
the end of a long procedure for the consistent application of
Community law, in order to ensure the effectiveness of that procedure,
and only in cases where there is directly-applicable EU legislation.
Will the ESFS interfere with the system of colleges of supervisors?
No. Colleges of supervisors and the new authorities are complementary
parts of a comprehensive supervisory reform. Colleges of supervisors
will remain at the heart of supervision of cross-border financial
groups in Europe, and are being introduced for all such groups. The
authorities will complement colleges by ensuring that supervisory
standards in the EU are of the highest quality for all institutions
by, for example, helping to develop a common rulebook for financial
services regulation. They will further facilitate colleges by playing
a role in distribution of information, and can participate in colleges
themselves. They will also provide a mechanism for ensuring that
supervisory colleges are consistent for each cross- border group.
Why is it proposed that some specific institutions with Community-wide
reach be supervised at the EU level?
First of all, domestic financial institutions in Europe will continue
to be supervised by national supervisors. Cross-border institutions
will be supervised by colleges of supervisors. Entities with a
Community-wide reach by their very nature are most efficiently
supervised at European level since national supervisors would only
have a partial view of their activity. In the near future this would
only be appropriate for credit rating agencies. The Regulations
creating the authorities do not grant them any direct supervisory
powers over any institutions, they merely open up the possibility for
subsequent legislation to grant supervisory powers for any particular
category of institution.
What powers will the authorities have in emergency situations?
In an emergency situation, the existence of which will be determined
by the Commission, the authorities will have an important
co-ordinating role between national supervisors, and will also be able
to adopt decisions requiring supervisors to take action. An example of
how this power might be used would be to adopt harmonised bans on
short selling on EU securities markets, not unco-ordinated bans in
different Member States, as happened in 2008.
What will the new authorities cost and how will they be financed?
The total costs of the European Supervisory Authorities have been
estimated at about EUR 37 million in the first full year of operations
(2011), reaching just over EUR 68 million after three years (2014),
given increases in activity and staff levels. This is a very small
budget compared with the more than a billion euros incurred by Member
State governments in rescuing banks in difficulty, so if the new
authorities can prevent even a small part of that outlay in future,
they will have paid their way. It is proposed that the share of this
cost for Member States and the Community budget should respectively be
60% and 40%. The shared funding is intended to reflect the
architecture of the ESFS which brings together a European dimension
with a key ongoing role for national supervisors. It also reflects the
fact that the current "financial services committees" are funded
entirely by the Member States.
How will the independence and accountability of the authorities be
ensured?
Firstly, the voting members of the boards of the authorities are under
a legal obligation to consider only EU interests, not national or any
other interests, in their decision-making. The authorities will be
accountable to the Council (representing the Member States) and the
Parliament (representing the Community), not to the Commission. The
Chairpersons of the Boards will be selected on merit after an open
selection procedure and subject to conformation by the European
Parliament. The EU's Court of Auditors and Anti-Fraud Office will have
full competence to inspect the books of the authorities.
How will the new authorities respect the better regulation agenda?
Better regulation principles are fundamental. Before submitting draft
technical standards to the Commission, the authority will use better
regulation tools including open public consultations on technical
standards and analysis of potential related costs and benefits.
Moreover, a balanced stakeholder group for each authority will enable
stakeholders to be consulted on all regulatory matters such as
technical standards or guidelines developed by the authorities. These
stakeholders will include financial institutions, their employees,
investors, and end users including SMEs. In addition, the current
public consultation practices developed by the financial services
committees should continue to be followed.
Is this a Europeanisation of financial supervision in Europe?
No. Day-to-day supervision is best done on national level, close to
the ground, where there are strong local traditions. There will always
be a pivotal role for national supervisors. The proposed system is a
"hub and spoke" type of network of EU and national bodies. The new
authorities will act only where there is clear added value, such as
the development of technical standards which will apply throughout the
EU, and settlement of disagreements between national supervisors on
matters which require co-operation. The areas where the authorities
can act will be strictly defined by Council and Parliament in
co-decision. The Commission's approach is based on common rules
applied at national level but consistence and co-operation ensured by
Community bodies. The European System of Financial Supervisors will be
evaluated after three years. While it is not possible to pre-judge the
outcome of the evaluation, this will be the opportunity to take stock
of how well the ESFS is working and to look at whether further steps
are needed.
What safeguards are in place to protect the fiscal prerogatives of
Member States and national taxpayers' money?
The purpose of the new European supervisory system is precisely to
prevent us getting to the point reached in autumn 2008 where banks had
to be bailed out. The system will save taxpayers' money by helping to
make bank failures less likely in future, through supervision
strengthened by the ESAs, and warnings of the European Systemic Risk
Board which should be acted upon. As an additional safeguard, the
Regulations establishing the new Authorities clearly prohibit them
from taking any decisions which impinge on the fiscal responsibilities
of Member States. In case any Member State considers that its fiscal
responsibilities have been impinged upon, there is a clear and robust
procedure for deciding whether this is genuinely the case, with the
Council taking a decision.
Will the new authorities be dominated by the big Member States?
No, there will be a balance of influence. The boards of the
authorities will vote by qualified majority voting on key issues
developing technical standards and guidelines, as well as budgetary
matters. But one-member-one-vote will apply to enforcement and
implementation matters. This differentiated voting system ensures a
balance of interests between Member States; and between home and host
state supervisors' interests.
Will there be different rules or enforcement standards for small
domestic institutions and for multinationals?
No. The whole point of the new system is to achieve convergence of
rules not divergence. The goal is one set of rules for all financial
institutions in the EU, big or small, domestic or multinational. The
new authorities will contribute to common rules and common application
of rules, and not develop different rules for multinationals. This was
the spirit of the de Larosière proposals which the Commission fully
supports.
Will financial institutions be subject to additional reporting
burdens?
The new structure should not lead to a duplication of reporting
burdens. National supervisory authorities generally have the necessary
information available, and the European Systemic Risk Board and the
European Supervisory Authorities should rely on these data. Only where
in a specific situation the data available from national supervisors
is clearly insufficient for the European Supervisory Authorities to
carry out their tasks, it can be envisaged that they could request
information directly from financial institutions.
1 :
Report of 25 February 2009 on financial supervision by a high-level
group of experts chaired by J. de Larosière.
2 :
The Committee of European Banking Supervisors (CEBS), Committee of
European Insurance and Occupational Pensions Committee (CEIOPS) and
the Committee of European Securities Regulators (CESR), widely known
as the "Lamfalussy level 3 committees".
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