KEY REGIONAL AND INTERNATIONAL BODIES AND FORA FOR THE FINANCIAL MARKETS

THE NEW EUROPEAN SUPERVISORY ARHITECTURE EUROPEAN SYSTEMIC RISK BOARD (ESRB) ESRB is under the aegis of the European Central Bank (ECB). The ESRB will monitor and assess potential threats that arise from macro-economic developments and from developments within the financial system as a whole, and will only have an advisory role. To this end, the ESRB would provide an early warning of system-wide risks that may be building up and, where necessary, issue recommendations for action to deal with these risks. ESAs1 A. European Securities and Markets Authority (ESMA) B. European Insurance and Occupational Pensions Authority (EIOPA) C. European Banking Authority (EBA) The European System of Financial Supervisors should be a network of national and Community supervisory authorities, leaving day-to-day supervision of financial market participant at the national level, and according a central role in the supervision of cross-border groups to colleges of supervisors. Greater harmonisation and the coherent application of rules for financial market participants and markets across the Community should also be achieved. The European Supervisory Authorities should replace the Committee of European Securities Regulators (CESR), the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) AND the Committee of European Banking Supervisors (CEBS) and assume all of the tasks and competences of those committees. The scope of each Authority's action should be clearly defined so that national supervisory authorities and financial market participants can identify the authority competent in their field of activity. Where institutional reasons and the responsibilities assigned in the Treaty so require the Commission should also be part of the network of supervisory activities. The tasks of the ESAs will be to develop common rules, mediate between national authorities when conflicts arise, settle disputes if mediation fails and co-ordinate risk management. The only entities that will be directly supervised by an ESA are credit rating agencies. Financial institutions will continue to be supervised by national authorities, not by the ECB or the ESAs. ESAs boards will be composed of the heads of the 27 national supervisory authorities. And the ESAs will only be able to take legally binding decisions in exceptional circumstances. One of these will be if a member-state is in manifest breach of EU law. Another will be if EU countries agree there is an
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The Court of Justice of the European communities in its judgement of 2 May 2006 in Case C-217/04 (United Kingdom/European Parliament and Council)15 has acknowledged that Article 95 of the Treaty relating to the adoption of measures for the approximation of legislation for the establishment and functioning of the internal market provides an appropriate legal basis for setting up a "Community body responsible for contributing to the implementation of a process of harmonisation", when the tasks conferred on such a body are closely related to the subject-matter of the acts approximating the national legislations. The purpose and tasks of the Authority - assisting competent national supervisory authorities in the consistent interpretation and application of Community rules and contributing to financial stability necessary for financial integration - are closely linked to the objectives of the Community acquis concerning the internal market for financial services. The Authority should therefore be established on the basis of Article 95 of the Treaty.

'emergency'. Even in the latter case, however, the ESAs will not be allowed to impinge on a country's fiscal autonomy: they will not, for example, be able to instruct a country to bail out a bank. The ESAs will only develop a pan-European supervisory culture if they work by consensus rather than confrontation. The main differences between the three proposed Regulations concern the objectives of the Authorities, the scope of action, and the definitions, which are adapted to the specificities of the relevant sector and existing Community legislation. Moreover, the European Council concluded that the ESAs should also have supervisory powers for credit rating agencies. ESMA would be responsible to register credit rating agencies. ESMA would also be empowered to take supervisory measures such as withdrawing the registration or suspending the use for regulatory purposes of credit ratings. Supervisory powers could include the power to request information and to conduct investigations or on-site inspections. The responsibilities and powers of ESMA with regard to credit rating agencies will be defined in an amendment to the Regulation on Credit Rating Agencies. JOINT COMMITTEE OF ESAs Within the proposed structure, cross-sectoral cooperation will be fundamental so as to reflect the relevant market trends and realities. A Joint Committee of European Supervisory Authorities will ensure mutual understanding, cooperation and consistent supervisory approaches between the three new ESAs. A Subcommittee to the Joint Committee shall be established to specifically address cross-sectoral issues, including financial conglomerates, and ensuring a level playing field. While the actual decisions on, for example the Financial Conglomerates Directive, are being taken by the individual ESAs, the Joint Committee should ensure that common decisions are taken by the ESAs in parallel. The framework for EU supervision can only work if the ESRB and ESAs cooperate closely. Indeed, the objective of the reform is to ensure a smoother interaction of supervision at the macro-prudential and microprudential levels. In fulfilling its role as macro-prudential supervisor, the ESRB would need a timely flow of micro-prudential information, while micro prudential supervision by national authorities would benefit from the ESRBs insights on the macro-prudential environment. The Regulations also specify the procedures to be followed by the ESAs to act upon recommendations by the ESRB and how the ESAs should use their powers to ensure timely follow-up to recommendations addressed to one or more national supervisory authorities. INTERNATIONAL ORGANIZATIONS BASEL COMMITTEE ON BANKING SUPERVISION (BCBS) 1. The BCBS members come from Argentina, Australia, Belgium, Brazil, Canada, China, France, Germany, Hong Kong SAR, India, Indonesia, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. Nine 2 of these 26 countries directly represented in the BCBS are EU Member States. Countries are represented by their central bank and also by the authority with formal responsibility for the prudential supervision of banking business where this is not the central bank. The Committee reports to the central bank Governors and Heads of Supervision of its member countries. It seeks their endorsement for its major initiatives. The BCBS formulates broad supervisory standards and guidelines and recommends statements of best practice on banking, in the expectation that individual authorities will take steps to implement them through detailed arrangements - statutory or otherwise - which are best suited to their own national systems. In this way, the BCBS encourages convergence towards common approaches and common standards without attempting detailed harmonisation of member countries' supervisory

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Belgium, France, Germany, Italy, Luxembourg, Netherlands, Spain, Sweden, and the United Kingdom

techniques. The Committee does not possess any formal supranational supervisory authority, and its conclusions do not, and were never intended to, have legal force. 3. The EU Commission [EC], CEBS and the European Central Bank participate in the discussions of the BCBS and its working groups as observers.

INTERNATIONAL ORGANIZATION OF SECURITIES COMMISSIONS (IOSCO) 4. IOSCO is an association of organisations that regulate the worlds securities and futures markets. Members are typically the securities regulator or the main financial regulator from each country. IOSCO has members from over 100 different countries that regulate more than 90% of the world's securities markets. IOSCOs role is to assist its members to promote high standards of regulation and act as a forum for national regulators to cooperate with each other and other international organisations. The EC is an affiliate Member of IOSCO. CESR is not a member of IOSCO, but an observer in Standard Committee 6. IOSCO has an European Regional Committee (one of its four regional committees), which chaired by Carlos Tavares (CNVM, PT) who is the current CESR Chair. Recently, the EC was granted observer status on the steering committee of an IOSCO working group reviewing standards for financial market infrastructures, including central counterparties (CCPs) for over-the-counter derivatives.

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INTERNATIONAL ASSOCIATION OF INSURANCE SUPERVISORS (IAIS) 6. The IAIS was established in 1994, and represents insurance regulators and supervisors of some 190 jurisdictions in nearly 140 countries, constituting 97% of the world's insurance premiums. It has more than 120 observers. Its objectives are to: cooperate to contribute to improved supervision of the insurance industry on a domestic as well as on an international level in order to maintain efficient, fair, safe and stable insurance markets for the benefit and protection of policyholders; promote the development of well-regulated insurance markets; and contribute to global financial stability.

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All EU Member States are members of the IAIS, but not all of them are on the IAIS Executive Committee (ExCo) or on its Technical Committee. The European Commission is a Member of the IAIS, whereas CEIOPS is not a member, albeit CEIOPS has been a regular speaker at its Annual conferences and nominates EU representatives from amongst its CEIOPS Members for the ExCo elections by endorsing candidates for the Eastern and Western European regions ExCo, and also has an informal dialogue at the Secretariat level with the IAIS.

FINANCIAL STABILITY BOARD (FSB) 8. The FSB was established to address vulnerabilities and to develop and implement strong regulatory, supervisory and other policies in the interest of financial stability. The following bodies are eligible to be a Member: national and regional authorities responsible for maintaining financial stability, namely ministries of finance, central banks, supervisory and regulatory authorities; 3

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international financial institutions; and international standard setting, regulatory, supervisory and central bank bodies.

Current Members of the FSB include six3 EU Members States, the European Central Bank, and representatives of BIS, IMF, OECD, World Bank and from International Standard-Setters (i.e. BCBS, International Accounting Standards Board (IASB), IAIS and IOSCO). The FSB Plenary reviews periodically the eligibility of members in the light of the FSB objectives. Furthermore, the FSBs Charter stipulates The acceptance of membership by the international financial institutions in the FSB is subject to the approval of their respective governing bodies. The Commission is represented in the FSB. None of the 3L3 Committees are represented on the FSB.

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JOINT FORUM 11. The Joint Forum was established in 1996 under the aegis of the BCBS, IOSCO and the IAIS, to deal with issues common to the banking, securities and insurance sectors, including the regulation of financial conglomerates. The Joint Forum is a group of technical experts and is composed of an equal number of senior bank, insurance and securities supervisors. Eigth4 of the 13 Countries represented in the Joint Forum [Australia, Belgium, Canada, Denmark, France, Germany, Italy, Japan, Netherlands, Spain, Switzerland, United Kingdom and United States] are EU Member States. The EU Commission attends in an observer capacity. None of the 3L3 Committees are represented on the Joint Forum.

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FINANCIAL ACTION TASK FORCE (FATF) 14. The FATF is an inter-governmental body whose purpose is the development and promotion of national and international policies to combat money laundering and terrorist financing. The FATF has 345 members, including the EC and 17 EU and EEA countries. None of the 3L3 Committees are represented on the FATF.

THE ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT (OECD) 15. The OECD brings together the governments of countries committed to democracy and the market economy from around the world to maintain financial stability and assist other countries' economic development inter alia. The OECD provides a setting where governments compare policy experiences, seek answers to common problems, identify good practice, and coordinate domestic and international policies. In particular, the OECD is recognised as a leading body on corporate governance.

France [Bank of France and AMF]; Germany [BuBa and BaFin]; Italy [Bank of Italy and CONSOB]; Netherlands [DnB]; Spain [Bank of Spain]; and United Kingdom [Bank of England and FSA] 4 Belgium, Denmark, France, Germany, Italy, Netherlands, Spain and the United Kingdom
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Austria, Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Netherlands, Luxembourg, Norway, Portugal, Spain, Sweden and the United Kingdom

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196 of its 31 member countries [ Australia, Austria, Belgium, Canada, Chile, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States] are EU Member States. In a Supplementary Protocol to the OECD Convention, the signatory states decided that the European Community shall participate in the work of the Organisation. This participation goes well beyond that of a mere observer, and, in fact, gives the Commission non-voting member status. The Commissioner in charge of Economic and Monetary Affairs attends the economic part of the OECD ministerial meetings. None of the 3L3 Committees are represented on the OECD.

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WORLD TRADE ORGANIZATION (WTO) 18. The WTO is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the worlds trading nations and ratified in their parliaments. The goal is to help producers of goods and services, exporters, and importers conduct their business. It has 153 members (as of July 2008) including the EU Commission. None of the 3L3 Committees are represented on the WTO.

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IMF and the WORLD BANK 20. The European Union is represented in the IMF and the World Bank by its Member States. The European Commission participates as an observer in the IMF's governing bodies (the International Monetary and Financial Committee and the Development Committee). None of the 3L3 Committees are represented on the IMF or the World Bank.

G7/G8 21. The G8 is a global forum created by the world's major industrialised countries (Canada, France, Germany, Italy, Japan, Russia, the United Kingdom and the United States). It meets at least annually for discussion and co-operation. The ECs President is a full G8 member. G8 finance ministers meet early in the year before the G8 summit, and finance ministers and central bank governors of the G7 (i.e. the G8 except Russia) also meet in the margins of the spring and annual meetings of the IMF and World Bank. None of the 3L3 Committees are represented at G7/G8 meetings.

G20 22. The G20 is an informal forum that promotes open and constructive discussion between industrial and emerging-market countries on key issues related to global economic stability. The G20 was created as a response both to the financial crises of the late 1990s and to the growing recognition that key emerging-market countries were not adequately included at the core of global economic discussions and governance forums. The members of the G20 are the finance ministers and central bank governors of 19 countries plus the European Union, which is represented by the rotating Council presidency and the European Central Bank. None of the 3L3 Committees are represented at G7/G8 meetings.

EC REGULATORY DIALOGUES
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Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Luxembourg, Netherlands, Poland, Portugal, Slovak Republic, Spain, Sweden, United Kingdom. Also two Members are from EEA countries, namely Iceland and Norway. Further on 10 May 2010, the OECD invited Estonia, Israel and Slovenia to become members of the OECD, and the necessary formalities are currently underway.

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In 2002 the EC entered into an EU-U.S. informal Financial Markets Regulatory Dialogue 7 with the U.S. financial regulators. Neither of CESR, CEIOPS, and CEBS is a formal party. CESR and CEIOPS have established relationships with various U.S institutions and bodies. CESR has regular contacts with the SEC and the CFTC, as well as ad hoc relationships with the U.S. Congress (Senate Banking Committee, House of Representatives Capital Markets and Insurance Sub-committee). CEBS has a regulatory dialogue with the U.S. since 2005 (which was started by the Commission in 2002) and yearly initiatives with NAIC (meetings, speaking at their Conference etc). CEBS has established a direct dialogue with the U.S. House of Representatives Financial Services Committee, the NY Fed and the IMF, in particular in regard to CEBS work in relation to stress testing. The EC also has a separate regulatory dialogue 8 with Japan, China, India and Russia in relation to Financial Services Regulation. CESR and CEIOPS have been a party to the EC China dialogue in the past.

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Key non EU Countries for the ESAs to develop relations Potential candidates of the EU 26. At present, there are three candidate countries which have applied for EU membership and are not yet members: 31. Croatia who applied for EU membership on 21 February 2003; The Former Yugoslav Republic of Macedonia who applied for EU membership on 22 March 2004; and Turkey who applied for EU membership on 14 April 1987.

The EU launched accession negotiations with Croatia and Turkey at the General Affairs Council in Luxembourg on 3 October 2005. In December 2006, negotiations with Turkey were partly suspended, owing to conflicts on the extension of its Customs Agreement with the EU to Cyprus. In December 2005, the European Council granted the former Yugoslav Republic of Macedonia the status of a candidate country. However, the start of accession negotiations will depend on further progress by the country in complying with the accession criteria. All the other Western Balkan states are potential candidate countries. The Directorate-General Enlargement of the EC operates TAIEX, a Technical Assistance and Information Exchange instrument, which offers various services to such potential countries. In January 2010, CEBS organised and hosted a conference Strengthening macro and microprudential supervision in EU candidates and potential candidates which was part of the Eurosystem technical cooperation programme. CEBS has also hosted joint training with the Basel Committee.

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ECs European Neighbourhood Policy (ENP)

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http://ec.europa.eu/internal_market/finances/docs/general/eu-us-dialogue-report-state-of-play_en.pdf http://ec.europa.eu/internal_market/ext-dimension/dialogues/index_en.htm

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The ENP was first outlined in a Commission Communication on Wider Europe in March 2003, sets out in concrete terms how the EU proposes to work more closely with the EU's immediate neighbours by land or sea Algeria, Armenia, Azerbaijan, Belarus, Egypt, Georgia, Israel, Jordan, Lebanon, Libya, Moldova, Morocco, the Palestinian Authority, Syria, Tunisia and Ukraine. Although Russia is also a neighbour, EU-Russia relations are covered by a separate strategic partnership. The ECs DG ECFIN contributes to the ENP by monitoring and analysing economic and financial developments in the ENP countries, and leading the EU-ENP countries in regular economic dialogues.

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Switzerland 37. CEIOPS has an MoU with the Swiss supervisory authority (FINMA). Furthermore, FINMA is also invited as an observer to CEIOPS Insurance Groups Supervision Working Group. CESR has regular meetings with FINMA, but has not granted it observer status.

Multilateral Development Banks (MDBs) 38. 39. The European Investment Bank and the European Union are shareholders of the European Bank for Reconstruction and Development (EBRD). For all other MDBs the EU is not formally represented in most of the regional development banks (the African Development Bank, Asian Development Bank and Inter-American Development Bank), although their membership includes some EU countries. At one juncture it was mooted that the ESAs [under a proposal for Art. 6(3)] might supervise EUwide entities that are not subject to supervision of national entities, i.e. European Investment Bank. GOING FORWARD 40. The Members of the ESAs would continue the international relations established by the 3L3 Committee Members which depend on specific supervisory needs. For instance, bilateral cooperation with non-EEA supervisors is focused on the supervision of cross-border entities and multilateral contacts aim at discussing more general or broader matters such as standard setting or education. One key aim of the ESAs international activities will be to develop their relationships with non-EEA supervisors in order to establish a long lasting international supervisory network. This is needed because the ESAs effective or potential role in direct supervisory activities, their already current intensive work on equivalence, the future activities through colleges, and the sustained efforts to ensure a level playing field in the area of regulation and supervision..

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SOME KEY PRINCIPLES OF INTERNATIONAL CO-OPERATION: 42. 43. 44. Supervisory focus: discussions with third country supervisors should aim at identifying the supervisory challenges to engage the relevant parties into a discussion; Reciprocity: co-operation should be dialogue-based, aiming at a satisfactory exchange of information where both parties benefit from the discussion; Long term perspective: discussions should envisage long term supervisory issues, allowing the parties to identify critical issues in their respective markets which may require current and future cooperation (e.g. exchange of information, crisis management, financial stability); 7

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Efficiency and consistency: international co-operation can take many forms and each has its own merits. Yearly/biannual high level dialogues can be supplemented by technical meetings, bilateral discussions or teleconferences on particular topics. International co-operation should not be seen as a goal in itself but needs to be clearly integrated in the ESAs work streams and supervisors habits. In doing so, care needs to be taken in that the ESAs position throughout these dialogues in being represented consistently. Network building: the development of international relations between the ESAs members and third country supervisors should foster the creation of an international supervisory network which supervisors can rely on for obtaining relevant information and, for instance, enhancing harmonised supervision of cross-border groups.

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MEMBERSHIP OF GLOBAL FORA 47. The ESAs should seek greater representation in global fora. In particular, given their role in drafting binding technical standards in many areas, they should seek direct membership and take measures to increase their visibility. It is proposed that as a priority that: (a) EBA should maintain its observer status in the BCBS but should engage the BCBS secretariat to assess the potential for the EBA to play a role in relevant working sub groups, given EBAs proposed role in EU banking standard setting; (b) ESMA should seek Membership of IOSCO given ESMAs proposed role in EU securities markets standard setting; and (c) EIOPA should seek Membership of the IAIS given EIOPAs proposed role in EU insurance standard setting. Furthermore, for these global fora, the Chair of the respective ESA should seek to be the representative. Due weight should thereby given to the sometimes delicate balance of representation among the current members in these fora. 49. With respect to cross-sectoral topics, the Joint Committee of the ESAs could seek observership on: (a) the FSB; (b) the Joint Forum; and (c) the FATF. Furthermore for these global fora, the Chair of the Joint Committee should seek to be the representative of the FSB and the Chair of the Joint Committees Sub Committee on anti money laundering could seek to be the representative on the FATF. Further the ESAs should engage the FSB, JC and FATF secretariat to assess the potential for the ESAs to play a role in relevant working sub groups of these global committees. 50. However, it should be recognised that just whilst the ESAs may seek membership of such fora, the individual fora may have their own criteria for membership, and any offering of such membership may be dependent on the existing members. Therefore, if any of these fora, refuse the respective ESAs request for membership, then the ESA/JC should accompany the EC to the meeting of such bodies.

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Whenever the ESA attends such global fora, its contacts should be made in close coordination and consistency with the approval of the Members of the Board of Supervisors of the respective ESA(s). In order to increase visibility of the ESAs in international fora and the efficiency of their involvement in international organisations, the following additional measures are being suggested: (a) regular reporting on international developments and projects by internationally active ESA Members at the Members Meetings. Based on this information, important subjects of discussion in international fora can be identified and where possible, a common view should be agreed on; (b) regular presentations by ESA Members at these fora on past ESA work or commonly agreed positions; and (c) more active exchange of information between Secretariat of each ESA and the for a on current and future projects in order to identify priorities for their respective work plans.

CONTACTS WITH THIRD COUNTRIES 53. The Boards of Supervisors of the ESAs may mandate their respective Chairs to make operational contacts with third country authorities. However, such contacts should not in any way cut across national or EU political institutions responsibilities. Accordingly it is proposed that as a priority in the first instance, the ESAs establish contacts with: (a) the respective financial market in the third country to the EU; (b) those Countries who are potential candidates to the EU; (c) those Countries who are geographically close/border the EU as appropriate; (d) supervisory and regulatory authorities from those third Countries which the (former) Level 3 committees had established a relationship. 55. Further the ESAs could consider opening their supervisory sectoral and cross-sectoral training programmes to supervisors of Third Countries supervisory and regulatory authorities, targeting their prioritised third country contacts first, having met their training commitments to their own EU Members too.

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Party to ECs regulatory dialogue with Third countries 50. The ESAs should seek to become a formal party to the ECs EU-U.S. Financial Markets Regulatory Dialogue, and also be invited to participate in the ECs other regulatory dialogues with China, Japan, Russia, India and Brazil too.

Regulatory dialogues with Third countries and Equivalence assessments: 51. Should an ESA participate in preparing equivalence decisions (for example. providing advice to the EC), the timeline and procedural requests of the Commission/BoS decision as well as the European legal framework shall prevail over any international standards, rules, and joint agreements.

The technical assessment work will be undertaken by qualified staff from ESA Members and ESA staff.