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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. ESA’s1 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 ESA’s 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 ESA’s. ESA’s 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
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.
Spain. Italy. Switzerland. the ESAs will not be allowed to impinge on a country's fiscal autonomy: they will not. which are adapted to the specificities of the relevant sector and existing Community legislation.'emergency'. the United Kingdom and the United States. however. JOINT COMMITTEE OF ESA’s Within the proposed structure. The framework for EU supervision can only work if the ESRB and ESA’s cooperate closely.which are best suited to their own national systems. Sweden. Singapore. for example the Financial Conglomerates Directive. ESMA would be responsible to register credit rating agencies. Korea. INTERNATIONAL ORGANIZATIONS BASEL COMMITTEE ON BANKING SUPERVISION (BCBS) 1. Mexico. Supervisory powers could include the power to request information and to conduct investigations or on-site inspections.statutory or otherwise . Indonesia. The ESA’s will only develop a pan-European supervisory culture if they work by consensus rather than confrontation. In fulfilling its role as macro-prudential supervisor. Turkey. the Joint Committee should ensure that common decisions are taken by the ESAs in parallel. Germany. ESMA would also be empowered to take supervisory measures such as withdrawing the registration or suspending the use for regulatory purposes of credit ratings. The BCBS formulates broad supervisory standards and guidelines and recommends statements of best practice on banking. The BCBS members come from Argentina. 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. China. Australia. Saudi Arabia. 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 objective of the reform is to ensure a smoother interaction of supervision at the macro-prudential and microprudential levels. Belgium. The Regulations also specify the procedures to be followed by the ESA’s to act upon recommendations by the ESRB and how the ESA’s should use their powers to ensure timely follow-up to recommendations addressed to one or more national supervisory authorities. and the United Kingdom 2 . India. be able to instruct a country to bail out a bank. South Africa. in the expectation that individual authorities will take steps to implement them through detailed arrangements . the ESRB would need a timely flow of micro-prudential information. cross-sectoral cooperation will be fundamental so as to reflect the relevant market trends and realities. Italy. Luxembourg. Brazil. France. A Subcommittee to the Joint Committee shall be established to specifically address cross-sectoral issues. Spain. while micro prudential supervision by national authorities would benefit from the ESRB’s insights on the macro-prudential environment. the BCBS encourages convergence towards common approaches and common standards without attempting detailed harmonisation of member countries' supervisory 2. Hong Kong SAR. The Committee reports to the central bank Governors and Heads of Supervision of its member countries. Canada. and ensuring a level playing field. Russia. Even in the latter case. cooperation and consistent supervisory approaches between the three new ESAs. Sweden. The main differences between the three proposed Regulations concern the objectives of the Authorities. Moreover. While the actual decisions on. the scope of action. Luxembourg. Germany. Indeed. France. the Netherlands. It seeks their endorsement for its major initiatives. In this way. and the definitions. are being taken by the individual ESAs. including financial conglomerates. the European Council concluded that the ESAs should also have supervisory powers for credit rating agencies. 2 Belgium. Japan. Netherlands. for example. Nine 2 of these 26 countries directly represented in the BCBS are EU Member States. A Joint Committee of European Supervisory Authorities will ensure mutual understanding.
have legal force. which chaired by Carlos Tavares (CNVM. INTERNATIONAL ORGANIZATION OF SECURITIES COMMISSIONS (IOSCO) 4. namely ministries of finance. • • 7. central banks. Recently. IOSCO’s 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. including central counterparties (CCPs) for over-the-counter derivatives. The Committee does not possess any formal supranational supervisory authority. Members are typically the securities regulator or the main financial regulator from each country. the EC was granted observer status on the steering committee of an IOSCO working group reviewing standards for financial market infrastructures. 5. IOSCO has members from over 100 different countries that regulate more than 90% of the world's securities markets. promote the development of well-regulated insurance markets. The IAIS was established in 1994. IOSCO is an association of organisations that regulate the world’s securities and futures markets. All EU Member States are members of the IAIS. and represents insurance regulators and supervisors of some 190 jurisdictions in nearly 140 countries. 3. fair. It has more than 120 observers. and were never intended to. supervisory and regulatory authorities. but not all of them are on the IAIS’ Executive Committee (ExCo) or on its Technical Committee. The FSB was established to address vulnerabilities and to develop and implement strong regulatory. 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. The following bodies are eligible to be a Member: • national and regional authorities responsible for maintaining financial stability. CESR is not a member of IOSCO. 3 . The EU Commission [EC]. whereas CEIOPS is not a member. and also has an informal dialogue at the Secretariat level with the IAIS. and its conclusions do not. FINANCIAL STABILITY BOARD (FSB) 8. The EC is an affiliate Member of IOSCO. CEBS and the European Central Bank participate in the discussions of the BCBS and its working groups as observers. PT) who is the current CESR Chair. constituting 97% of the world's insurance premiums. and contribute to global financial stability. INTERNATIONAL ASSOCIATION OF INSURANCE SUPERVISORS (IAIS) 6. IOSCO has an European Regional Committee (one of its four regional committees). supervisory and other policies in the interest of financial stability.techniques. safe and stable insurance markets for the benefit and protection of policyholders. The European Commission is a Member of the IAIS. but an observer in Standard Committee 6. 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.
and representatives of BIS. the European Central Bank. supervisory and central bank bodies. 12. 13. to deal with issues common to the banking. and international standard setting. Finland. Italy. Current Members of the FSB include six3 EU Members States. France. identify good practice. JOINT FORUM 11.e. BCBS. including the EC and 17 EU and EEA countries. the FSB’s Charter stipulates “The acceptance of membership by the international financial institutions in the FSB is subject to the approval of their respective governing bodies”. and United Kingdom [Bank of England and FSA] 4 Belgium. 10. Germany [BuBa and BaFin]. Italy [Bank of Italy and CONSOB]. Spain. Norway. Spain and the United Kingdom 5 Austria. seek answers to common problems. IMF. France. The Joint Forum was established in 1996 under the aegis of the BCBS.• • 9. Netherlands. None of the 3L3 Committees are represented on the Joint Forum. The FATF has 345 members. World Bank and from International Standard-Setters (i. Spain. International Accounting Standards Board (IASB). Iceland. None of the 3L3 Committees are represented on the FSB. Eigth4 of the 13 Countries represented in the Joint Forum [Australia. Denmark. 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 OECD provides a setting where governments compare policy experiences. Germany. IOSCO and the IAIS. Belgium. The Commission is represented in the FSB. insurance and securities supervisors. including the regulation of financial conglomerates. international financial institutions. France. Netherlands. Netherlands. None of the 3L3 Committees are represented on the FATF. Italy. In particular. Netherlands [DnB]. Furthermore. Luxembourg. Portugal. IAIS and IOSCO). THE ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT (OECD) 15. Ireland. Spain [Bank of Spain]. Denmark. Germany. Greece. 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. 3 France [Bank of France and AMF]. Canada. regulatory. The Joint Forum is a group of technical experts and is composed of an equal number of senior bank. Germany. Sweden and the United Kingdom 4 . Belgium. the OECD is recognised as a leading body on corporate governance. Japan. United Kingdom and United States] are EU Member States. OECD. Switzerland. Denmark. Italy. and coordinate domestic and international policies. The FSB Plenary reviews periodically the eligibility of members in the light of the FSB objectives. The EU Commission attends in an observer capacity. securities and insurance sectors. FINANCIAL ACTION TASK FORCE (FATF) 14.
Germany. At its heart are the WTO agreements. the United Kingdom and the United States). Greece. None of the 3L3 Committees are represented at G7/G8 meetings. Portugal. Greece. G8 finance ministers meet early in the year before the G8 summit. United Kingdom. The members of the G20 are the finance ministers and central bank governors of 19 countries plus the European Union. 19. which is represented by the rotating Council presidency and the European Central Bank. Ireland. United States] are EU Member States. Poland. 5 . The European Commission participates as an observer in the IMF's governing bodies (the International Monetary and Financial Committee and the Development Committee). WORLD TRADE ORGANIZATION (WTO) 18. Portugal. None of the 3L3 Committees are represented on the IMF or the World Bank. Ireland. Israel and Slovenia to become members of the OECD. EC REGULATORY DIALOGUES 6 Austria. the G8 except Russia) also meet in the margins of the spring and annual meetings of the IMF and World Bank. and the necessary formalities are currently underway. France. It has 153 members (as of July 2008) including the EU Commission. G20 22. Japan. Sweden. 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 Commissioner in charge of Economic and Monetary Affairs attends the economic part of the OECD ministerial meetings. Also two Members are from EEA countries. United Kingdom. and finance ministers and central bank governors of the G7 (i. Czech Republic. Belgium. Spain. Belgium. Germany. and.e. Germany. Spain. Mexico. IMF and the WORLD BANK 20. Canada. Finland. None of the 3L3 Committees are represented on the WTO. Denmark. Further on 10 May 2010. New Zealand. The European Union is represented in the IMF and the World Bank by its Member States. France. namely Iceland and Norway. Poland. Norway. 17. Austria. Luxembourg. None of the 3L3 Committees are represented at G7/G8 meetings. gives the Commission non-voting member status. Hungary. The goal is to help producers of goods and services. Japan. It meets at least annually for discussion and co-operation.16. Italy. negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. the signatory states decided that the European Community “shall participate in the work” of the Organisation. the Netherlands. Finland. Czech Republic. Turkey. The G8 is a global forum created by the world's major industrialised countries (Canada. in fact. The WTO is the only global international organization dealing with the rules of trade between nations. This participation goes well beyond that of a mere observer. Netherlands. None of the 3L3 Committees are represented on the OECD. Luxembourg. Slovak Republic. Denmark. Italy. and importers conduct their business. Hungary. In a Supplementary Protocol to the OECD Convention. Russia. G7/G8 21. Italy. Slovak Republic. Sweden. 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 OECD invited Estonia. 196 of its 31 member countries [ Australia. France. Iceland. exporters. Switzerland. Chile. Korea. The EC’s President is a full G8 member.
In December 2005.S institutions and bodies. CEBS has established a direct dialogue with the U. CESR and CEIOPS have been a party to the EC China dialogue in the past.23.S.eu/internal_market/ext-dimension/dialogues/index_en.S. negotiations with Turkey were partly suspended. CEBS has a regulatory dialogue with the U.S. owing to conflicts on the extension of its Customs Agreement with the EU to Cyprus. as well as ad hoc relationships with the U. the start of accession negotiations will depend on further progress by the country in complying with the accession criteria. and CEBS is a formal party.pdf http://ec. In 2002 the EC entered into an EU-U. China. The Directorate-General Enlargement of the EC operates TAIEX. 25. there are three candidate countries which have applied for EU membership and are not yet members: • • • 31. In January 2010. All the other Western Balkan states are potential candidate countries. Congress (Senate Banking Committee. 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. in particular in regard to CEBS work in relation to stress testing. 24.europa. India and Russia in relation to Financial Services Regulation. speaking at their Conference etc). House of Representatives’ Financial Services Committee. since 2005 (which was started by the Commission in 2002) and yearly initiatives with NAIC (meetings.htm 6 . The EU launched accession negotiations with Croatia and Turkey at the General Affairs Council in Luxembourg on 3 October 2005. EC’s European Neighbourhood Policy (ENP) 7 8 http://ec. 33. financial regulators.S. However. House of Representatives Capital Markets and Insurance Sub-committee). CESR and CEIOPS have established relationships with various U. CEIOPS. The Former Yugoslav Republic of Macedonia – who applied for EU membership on 22 March 2004. Neither of CESR. The EC also has a separate regulatory dialogue 8 with Japan. In December 2006. At present. the NY Fed and the IMF. and Turkey – who applied for EU membership on 14 April 1987.S. the European Council granted the former Yugoslav Republic of Macedonia the status of a candidate country. Croatia – who applied for EU membership on 21 February 2003. 32. Key non EU Countries for the ESAs to develop relations Potential candidates of the EU 26.eu/internal_market/finances/docs/general/eu-us-dialogue-report-state-of-play_en. CESR has regular contacts with the SEC and the CFTC. a Technical Assistance and Information Exchange instrument. which offers various services to such potential countries. informal Financial Markets Regulatory Dialogue 7 with the U.europa.
FINMA is also invited as an observer to CEIOPS’ Insurance Groups Supervision Working Group. Israel. GOING FORWARD 40. European Investment Bank. 6(3)] might supervise EUwide entities that are not subject to supervision of national entities. Jordan. CESR has regular meetings with FINMA. although their membership includes some EU countries. Georgia. For instance. SOME KEY PRINCIPLES OF INTERNATIONAL CO-OPERATION: 42. 7 . The Members of the ESAs would continue the international relations established by the 3L3 Committee Members which depend on specific supervisory needs. Belarus. aiming at a satisfactory exchange of information where both parties benefit from the discussion. Although Russia is also a neighbour.g. Furthermore. 44. Moldova. the Palestinian Authority. 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. Reciprocity: co-operation should be dialogue-based. Lebanon. Switzerland 37. The EC’s DG ECFIN contributes to the ENP by monitoring and analysing economic and financial developments in the ENP countries. Asian Development Bank and Inter-American Development Bank). but has not granted it observer status. The ENP was first outlined in a Commission Communication on ‘Wider Europe’ in March 2003. 35. and leading the EU-ENP countries in regular economic dialogues. For all other MDBs the EU is not formally represented in most of the regional development banks (the African Development Bank. EU-Russia relations are covered by a separate strategic partnership. their already current intensive work on equivalence. Supervisory focus: discussions with third country supervisors should aim at identifying the supervisory challenges to engage the relevant parties into a discussion. Morocco. exchange of information. Egypt. CEIOPS has an MoU with the Swiss supervisory authority (FINMA). i. Libya. 39. Armenia. At one juncture it was mooted that the ESAs [under a proposal for Art. sets out in concrete terms how the EU proposes to work more closely with the EU's immediate neighbours by land or sea – Algeria. 43. Long term perspective: discussions should envisage long term supervisory issues.. crisis management. Syria. The European Investment Bank and the European Union are shareholders of the European Bank for Reconstruction and Development (EBRD). This is needed because the ESA’s effective or potential role in direct supervisory activities.34. 36.e. Multilateral Development Banks (MDBs) 38. Tunisia and Ukraine. the future activities through colleges. 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. Azerbaijan. financial stability). allowing the parties to identify critical issues in their respective markets which may require current and future cooperation (e. and the sustained efforts to ensure a level playing field in the area of regulation and supervision. 41.
the Chair of the Joint Committee should seek to be the representative of the FSB and the Chair of the Joint Committee’s Sub Committee on anti money laundering could seek to be the representative on the FATF. Therefore. 8 . then the ESA/JC should accompany the EC to the meeting of such bodies. 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. 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. bilateral discussions or teleconferences on particular topics. (b) ESMA should seek Membership of IOSCO given ESMA’s proposed role in EU securities markets standard setting. for instance. and (c) EIOPA should seek Membership of the IAIS given EIOPA’s proposed role in EU insurance standard setting. 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. and (c) the FATF. Due weight should thereby given to the sometimes delicate balance of representation among the current members in these fora. and any offering of such membership may be dependent on the existing members. given their role in drafting binding technical standards in many areas. 48. However. JC and FATF secretariat to assess the potential for the ESAs to play a role in relevant working sub groups of these global committees. MEMBERSHIP OF GLOBAL FORA 47. it should be recognised that just whilst the ESAs may seek membership of such fora. refuse the respective ESAs request for membership. The ESAs should seek greater representation in global fora. 49. if any of these fora. care needs to be taken in that the ESAs’ position throughout these dialogues in being represented consistently. With respect to cross-sectoral topics. given EBA’s proposed role in EU banking standard setting. the Joint Committee of the ESAs could seek observership on: (a) the FSB. Furthermore. (b) the Joint Forum. In particular. Yearly/biannual high level dialogues can be supplemented by technical meetings. for these global fora. the individual fora may have their own criteria for membership. enhancing harmonised supervision of cross-border groups. Furthermore for these global fora. the Chair of the respective ESA should seek to be the representative. 46.45. 50. In doing so. they should seek direct membership and take measures to increase their visibility. Further the ESAs should engage the FSB. Efficiency and consistency: international co-operation can take many forms and each has its own merits.
The ESAs should seek to become a formal party to the EC’s EU-U. The Boards of Supervisors of the ESAs may mandate their respective Chairs to make operational contacts with third country authorities. CONTACTS WITH THIRD COUNTRIES 53. (b) regular presentations by ESA Members at these fora on past ESA work or commonly agreed positions. Financial Markets Regulatory Dialogue. India and Brazil too. Regulatory dialogues with Third countries and Equivalence assessments: 51. Should an ESA participate in preparing equivalence decisions (for example. 52.51. Japan. The technical assessment work will be undertaken by qualified staff from ESA Members and ESA staff. (b) those Countries who are potential candidates to the EU.S. providing advice to the EC). Whenever the ESA attends such global fora. 55. 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. 54. Party to EC’s regulatory dialogue with Third countries 50. Russia. 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). the timeline and procedural requests of the Commission/BoS decision as well as the European legal framework shall prevail over any international standards. having met their training commitments to their own EU Members too. important subjects of discussion in international fora can be identified and where possible. Based on this information. In order to increase visibility of the ESAs in international fora and the efficiency of their involvement in international organisations. 9 . such contacts should not in any way cut across national or EU political institutions’ responsibilities. targeting their prioritised third country contacts first. (c) those Countries who are geographically close/border the EU as appropriate. Accordingly it is proposed that as a priority in the first instance. and joint agreements. the ESAs establish contacts with: (a) the respective financial market in the third country to the EU. the following additional measures are being suggested: (a) regular reporting on international developments and projects by internationally active ESA Members at the Members’ Meetings. a common view should be agreed on. rules. However. (d) supervisory and regulatory authorities from those third Countries which the (former) Level 3 committees had established a relationship. Further the ESAs could consider opening their supervisory sectoral and cross-sectoral training programmes to supervisors of Third Countries’ supervisory and regulatory authorities. and also be invited to participate in the EC’s other regulatory dialogues with China.
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