The European Commission wants a quick deal on financial supervision reform, but MEPs may not give them what they want.
Since Jacques de Larosière published his recommendations in February to upgrade European-level financial supervision, both the European Commission and successive presidencies of the Council of Ministers have hastened to turn his ideas into law.
The Commission, which had asked de Larosière and his team of ‘wise men’ to prepare a report on the matter, was well aware that enthusiasm among governments for surrendering more supervisory responsibilities to the EU would dwindle as the sense of crisis receded. Whereas de Larosière had proposed that his reforms should be phased in over three years, the Commission called for a complete roll-out by 2010, an idea endorsed by EU leaders at the European Council in June. The Commission put forward five detailed legislative proposals in September.
Taking over the Council presidency in July, Sweden made agreement on the supervisory package one of the priorities of its presidency. In October it secured a provisional deal between governments to create a European Systemic Risk Board (ESRB), which would monitor risks to the EU economy as a whole.
The Swedish government is hoping to secure agreement at a meeting of EU finance ministers on 2 December on the other main element of the de Larosière reforms: the creation of three micro-prudential authorities with binding powers – the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA). The leaders of the national governments would then approve the whole package of supervisory reforms at their summit on 10-11 December.
Although MEPs have co-legislative powers for almost the entire regulatory package, little has so far been heard from the European Parliament. Because of the elections in June, it was only this month that the Parliament’s economic and monetary affairs committee appointed the MEPs who will lead work on responding to the Commission’s proposals.
The Commission is urging the Parliament to proceed swiftly, so that its 2010 deadline can be met. At a meeting last week (11 November), the lead MEPs agreed that the Parliament should aim to adopt the supervisory package at its plenary session in June, a relatively rapid timetable for a first reading. The provisional plan is for votes to be held in committee in April, allowing around eight weeks for negotiations with national governments.
The MEPs are adamant, however, that swift progress will not come at the expense of proper scrutiny. They say that whatever is agreed by national leaders at their summit in December, the reforms will remain very much a work in progress, and the Commission’s timetable will still hang in the balance.
José Manuel García-Margallo, a Spanish centre-right MEP and the Parliament’s lead on the EBA, said that the assembly will want to examine carefully provisions in the legislation that would grant new powers to the Commission. He will hold a public hearing on the EBA proposal on 1-2 December.
The legislative proposals for the EBA, EIOPA and ESMA would allow the Commission to order national supervisors to comply with decisions taken at EU level. A national supervisor could be stripped of some of its responsibilities if it refused to comply. García-Margallo has asked the Parliament’s legal service to analyse whether this is compatible with EU primary law. The legal service of the Council of Ministers has said that the Commission’s proposal must be amended to ensure compatibility.
“The conservative part of this Parliament, and most of the industry, would not like the Commission to be able to act on its own initiative,” García-Margallo said.
The draft legislation would also give the Commission responsibility for declaring when there is a crisis situation, in which case the three micro-prudential authorities would be given enhanced powers.
Peter Skinner, a UK centre-left MEP who is leading work on EIOPA, said that the responsibility for declaring a crisis situation should possibly be given to the ESRB, the systemic risk board, rather than the Commission. “There is a question mark as to who should be doing these kinds of things,” he said.
He said that the issue of what binding powers should be wielded at European level would be “very important” for MEPs. “We expect quite a fierce discussion,” he said.
Skinner said that one of his priorities will be to ensure that EIOPA is properly consulted by the ESRB. EIOPA should be “vigorous and central to discussions,” he said. Skinner said that it was too early to say whether this would require amending the Commission’s proposal. He added that another of his priorities will be to hold discussions with authorities outside the EU so that there is a “consistent, level playing-field” in supervisory arrangements for the insurance sector. “This is one of my personal ambitions – to make sure it looks outwards from the EU,” he said.
German Green MEP Sven Giegold, the Parliament’s lead MEP on ESMA, said he was “not convinced” that creating three micro-prudential authorities was the best way to proceed. He said that a single authority would have advantages because large financial institutions tend to be active in the insurance and securities markets as well as in banking. He also said that there was probably a need for a “European pot of money” that the authorities could use to prop up institutions in crisis.
Giegold said that the Parliament faced a “potential conflict” with the Council over how the three authorities should be funded. Some governments want them to be financed through national contributions, rather than through the EU budget. “It is a question of influence,” he said.
Irrespective of the Commission’s desire for a quick deal, a major political and logistical exercise is starting in the Parliament. The financial services industry is readying itself for a protracted lobbying campaign.
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