Identifier
Created
Classification
Origin
09BRUSSELS1393
2009-10-16 14:47:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
USEU Brussels
Cable title:
EU Financial Supervisory Reform
how-toVZCZCXRO7837 PP RUEHIK DE RUEHBS #1393/01 2891447 ZNR UUUUU ZZH P 161447Z OCT 09 FM USEU BRUSSELS TO RUEHC/SECSTATE WASHDC PRIORITY RHEHNSC/NSC WASHDC PRIORITY INFO RUCNMEM/EU MEMBER STATES COLLECTIVE RUCNMEU/EU INTEREST COLLECTIVE RUEHBJ/AMEMBASSY BEIJING RUEHBR/AMEMBASSY BRASILIA RUEHMO/AMEMBASSY MOSCOW RUEHNE/AMEMBASSY NEW DELHI RUEHOT/AMEMBASSY OTTAWA RUEHSA/AMEMBASSY PRETORIA RUEHKO/AMEMBASSY TOKYO
UNCLAS SECTION 01 OF 03 BRUSSELS 001393
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E.O. 12958: N/A
TAGS: EFIN ECON ETRD EIND EINV EUN
SUBJECT: EU Financial Supervisory Reform
BRUSSELS 00001393 001.6 OF 003
UNCLAS SECTION 01 OF 03 BRUSSELS 001393
SENSITIVE
SIPDIS
NOT FOR INTERNET DISTRIBUTION
E.O. 12958: N/A
TAGS: EFIN ECON ETRD EIND EINV EUN
SUBJECT: EU Financial Supervisory Reform
BRUSSELS 00001393 001.6 OF 003
1. (U) SUMMARY: On September 23, the European Commission (EC)
proposed new legislation to reform the European system of financial
supervision at both macro and micro prudential levels. The
proposals build on the Commission's May 2009 Communication and
follow closely the Conclusions of the June ECOFIN Council, making it
likely that they will move forward quickly. The EC proposes the
creation of: --a European Systemic Risk Board (ESRB) to monitor
and assess potential threats to financial stability, issuing risk
warnings and, if necessary, recommendations for action; and
--a European System of Financial Supervisors (ESFS),
consisting of a network of national financial supervisors working in
tandem with three new European Supervisory Authorities (ESAs)
endowed with certain limited binding powers, to upgrade the quality
and consistency of national supervision.
European Systemic Risk Board (ESRB):
--------------
2. (U) The ESRB's main decision-making body will be the General
Board, composed of the Governors of the national Central Banks of
the EU, the President and the Vice-President of the European Central
Bank (ECB),a Member of the European Commission and the Chairpersons
of the three European Supervisory Authorities. National supervisorsd in the unanimous endorsement "y the
EU 27 Leaders at the June European Council. This, and the fact that
the new body will have no legal personality or binding powers, will
make approval relatively easy. Possible limited disagreement could
arise over the mechanisms to collect the micro-prudential
information from the ESFS that will be crucial to the ESRB's ability
to identify risks.
European System of Financial Supervisors (ESFS):
-------------- ---
5. (U) The ESFS will function as a network of supervisors. It will
be composed of the national supervisors of each Member State (who
will maintain responsibility for day-to-day supervision of
individual firms),the European Supervisory Authorities, and the
European Commission (EC). A Joint Committee of European Supervisory
Authorities will seek to ensure cooperation and consistent
supervisory approaches between the three new ESAs, and will help
deal with cross-sectoral issues (e.g. financial conglomerates). The
new ESAs will be:
--the European Banking Authority (EBA);
--the European Insurance and Occupational Pensions Authority
(EIOPA); and
--the European Securities and Markets Authority (ESMA).
6. (U) The main decision-making body of each ESA will be its Board
of Supervisors responsible for the adoption of the draft technical
standards, opinions, recommendations, and decisions. The Board will
be composed of the Chair (independent and non-voting),the heads of
the relevant national supervisors, and non-voting representatives of
the Commission, the ESRB as well as the other ESAs. Decisions by
BRUSSELS 00001393 002.8 OF 003
1. (U) SUMMARY: On September 23, the European Commission (EC)
proposed new legislation to reform the European system of financial
supervision at both macro and micro prudential levels. The
proposals build on the Commission's May 2009 Communication and
follow closely the Conclusions of the June ECOFIN Council, making it
likely that they will move forward quickly. The EC proposes the
creation of: --a European Systemic Risk Board (ESRB) to monitor
and assess potential threats to financial stability, issuing risk
warnings and, if necessary, recommendations for action; and
--a European System of Financial Supervisors (ESFS),
consisting of a network of national financial supervisors working in
tandem with three new European Supervisory Authorities (ESAs)
endowed with certain limited binding powers, to upgrade the quality
and consistency of national supervision.
European Systemic Risk Board (ESRB):
--------------
2. (U) The ESRB's main decision-making body will be the General
Board, composed of the Governors of the national Central Banks of
the EU, the President and the Vice-President of the European Central
Bank (ECB),a Member of the European Commission and the Chairpersons
of the three European Supervisory Authorities. National supervisors
will also be part of the Board, but without voting rights. A
nine-person Steering Committee will direct ESRB operations. It will
be composed of the ESRB Chair (likely to be the ECB President) and
Vice-Chair (a Governor of one of the 27 Central Banks, likely from
the Bank of England),the ESA Chairs, a member of the European
Commission, the President of the Economic and Financial Committee
(EFC) and two additional members of the central banks (euro and
non-euro).
the Board will be taken by simple majority, except for the setting
of draft technical standards and guidelines, where qualified
majority voting will be used.
7. (U) The ESFS will have four primary tasks:
i. Develop technical standards;
To establish a single EU rule book, the Authorities will develop
draft technical standards in areas to be specified in the relevant
sectoral legislation. The draft technical standards will be adopted
by the Authority via qualified majority of the members of the Boards
of Supervisors, and subsequently endorsed by the EC.
ii. Ensure the consistent application of Community rules;
The ESAs will be empowered to investigate behavior by national
supervisory authorities considered to be diverging from existing
Community legislation, recommend corrective action, refer the non
complying authority to the EC and, as a last resort, adopt a
decision addressed directly to financial institutions.
iii. Action in emergency situations;
In crisis situations, the ESAs will coordinate national supervisory
responses, and will have the power to require national supervisors
to jointly take specific actions (e.g. short-selling restrictions,
suspension of trading, etc.).
iv. Settlement of disagreements between national supervisory
authorities;
In cases where conciliation between disagreeing supervisors proves
unsatisfactory, the ESAs will have the power to settle disagreements
by imposing binding decisions. The ESAs binding decision-making
powers should be proportionate, and should not impinge on the fiscal
responsibilities of Member States.
8. (U) Other tasks will include promoting the efficient functioning
of Colleges of Supervisors: fostering a common supervisory culture:
delegation of tasks and responsibilities and peer reviews;
performing assessment of market developments; and ensuring an
international and advisory role, as well as collecting information
and interfacing with the ESRB. The European Securities and Markets
Authority will also be given authority to register and supervise
Credit Rating Agencies.
9. (U) These are far-reaching proposals and have created
controversy. In the discussions leading up to the publication of
the Commission's proposals, the two biggest hurdles have been
balancing the interests of Euro-area Central Banks (represented by
the ECB) and non Euro-area Central Banks in the ESRB and endowing
the ESAs with binding decision-making powers. The first issue has
been resolved by reserving the Vice-chairmanship of the ESRB for a
non Euro-area Central Bank. It is widely assumed that the
Vice-chairmanship will go to BoE Governor Mervyn King. The second
issue has been overcome, at least temporarily, with an agreement on
a "safeguard clause", limiting the ESAs binding decision-making
powers to issues that do not interfere with the fiscal prerogatives
BRUSSELS 00001393 003.10 OF 003
1. (U) SUMMARY: On September 23, the European Commission (EC)
proposed new legislation to reform the European system of financial
supervision at both macro and micro prudential levels. The
proposals build on the Commission's May 2009 Communication and
follow closely the Conclusions of the June ECOFIN Council, making it
likely that they will move forward quickly. The EC proposes the
creation of: --a European Systemic Risk Board (ESRB) to monitor
and assess potential threats to financial stability, issuing risk
warnings and, if necessary, recommendations for action; and
--a European System of Financial Supervisors (ESFS),
consisting of a network of national financial supervisors working in
tandem with three new European Supervisory Authorities (ESAs)
endowed with certain limited binding powers, to upgrade the quality
and consistency of national supervision.
European Systemic Risk Board (ESRB):
--------------
2. (U) The ESRB's main decision-making body will be the General
Board, composed of the Governors of the national Central Banks of
the EU, the President and the Vice-President of the European Central
Bank (ECB),a Member of the European Commission and the Chairpersons
of the three European Supervisory Authorities. National supervisors
will also be part of the Board, but without voting rights. A
nine-person Steering Committee will direct ESRB operations. It will
be composed of the ESRB Chair (likely to be the ECB President) and
Vice-Chair (a Governor of one of the 27 Central Banks, likely from
the Bank of England),the ESA Chairs, a member of the European
Commission, the President of the Economic and Financial Committee
(EFC) and two additional members of the central banks (euro and
non-euro).
of the Member States.
10. (U) In order for the ESAs to successfully exercise their binding
powers, the Commission will need to amend all the relevant sectoral
directives (e.g. MiFID, UCITS, CRD, CRA, Solvency II),specifying
the ESAs competences over the substance of financial services
regulation and supervision. It is expected that some Member States
will try to use this process to limit the reach of the ESAs new
powers.
Outlook:
--------------
11. (U) On October 14, the Member States' Permanent Representatives
(COREPER) reached a tentative agreement on the ESRB package (the
Regulation establishing the ESRB and the Decision concerning its
functioning). The text, which is still not publicly available,
introduces a few changes to the EC's proposal:
--Issuing Recommendations will require a higher number of votes than
to issue Warnings; and
--The composition of the Steering Committee has been modified by
raising the number of CB's from 2 to 5 (likely 3 Euro-area and 2 non
Euro-area).
12. (U) The ESRB legislation is moving quickly and may receive a
sign-off by Member States in Council by end-2009. The ESFS
legislation, however, is more controversial and may not receive the
Council's agreement before year-end. Both legislations need the
European Parliament's assent to become effective, and the Parliament
has already made it known that it will be physically unable to
complete the procedure before early 2010, at the earliest.
MURRAY
SENSITIVE
SIPDIS
NOT FOR INTERNET DISTRIBUTION
E.O. 12958: N/A
TAGS: EFIN ECON ETRD EIND EINV EUN
SUBJECT: EU Financial Supervisory Reform
BRUSSELS 00001393 001.6 OF 003
1. (U) SUMMARY: On September 23, the European Commission (EC)
proposed new legislation to reform the European system of financial
supervision at both macro and micro prudential levels. The
proposals build on the Commission's May 2009 Communication and
follow closely the Conclusions of the June ECOFIN Council, making it
likely that they will move forward quickly. The EC proposes the
creation of: --a European Systemic Risk Board (ESRB) to monitor
and assess potential threats to financial stability, issuing risk
warnings and, if necessary, recommendations for action; and
--a European System of Financial Supervisors (ESFS),
consisting of a network of national financial supervisors working in
tandem with three new European Supervisory Authorities (ESAs)
endowed with certain limited binding powers, to upgrade the quality
and consistency of national supervision.
European Systemic Risk Board (ESRB):
--------------
2. (U) The ESRB's main decision-making body will be the General
Board, composed of the Governors of the national Central Banks of
the EU, the President and the Vice-President of the European Central
Bank (ECB),a Member of the European Commission and the Chairpersons
of the three European Supervisory Authorities. National supervisorsd in the unanimous endorsement "y the
EU 27 Leaders at the June European Council. This, and the fact that
the new body will have no legal personality or binding powers, will
make approval relatively easy. Possible limited disagreement could
arise over the mechanisms to collect the micro-prudential
information from the ESFS that will be crucial to the ESRB's ability
to identify risks.
European System of Financial Supervisors (ESFS):
-------------- ---
5. (U) The ESFS will function as a network of supervisors. It will
be composed of the national supervisors of each Member State (who
will maintain responsibility for day-to-day supervision of
individual firms),the European Supervisory Authorities, and the
European Commission (EC). A Joint Committee of European Supervisory
Authorities will seek to ensure cooperation and consistent
supervisory approaches between the three new ESAs, and will help
deal with cross-sectoral issues (e.g. financial conglomerates). The
new ESAs will be:
--the European Banking Authority (EBA);
--the European Insurance and Occupational Pensions Authority
(EIOPA); and
--the European Securities and Markets Authority (ESMA).
6. (U) The main decision-making body of each ESA will be its Board
of Supervisors responsible for the adoption of the draft technical
standards, opinions, recommendations, and decisions. The Board will
be composed of the Chair (independent and non-voting),the heads of
the relevant national supervisors, and non-voting representatives of
the Commission, the ESRB as well as the other ESAs. Decisions by
BRUSSELS 00001393 002.8 OF 003
1. (U) SUMMARY: On September 23, the European Commission (EC)
proposed new legislation to reform the European system of financial
supervision at both macro and micro prudential levels. The
proposals build on the Commission's May 2009 Communication and
follow closely the Conclusions of the June ECOFIN Council, making it
likely that they will move forward quickly. The EC proposes the
creation of: --a European Systemic Risk Board (ESRB) to monitor
and assess potential threats to financial stability, issuing risk
warnings and, if necessary, recommendations for action; and
--a European System of Financial Supervisors (ESFS),
consisting of a network of national financial supervisors working in
tandem with three new European Supervisory Authorities (ESAs)
endowed with certain limited binding powers, to upgrade the quality
and consistency of national supervision.
European Systemic Risk Board (ESRB):
--------------
2. (U) The ESRB's main decision-making body will be the General
Board, composed of the Governors of the national Central Banks of
the EU, the President and the Vice-President of the European Central
Bank (ECB),a Member of the European Commission and the Chairpersons
of the three European Supervisory Authorities. National supervisors
will also be part of the Board, but without voting rights. A
nine-person Steering Committee will direct ESRB operations. It will
be composed of the ESRB Chair (likely to be the ECB President) and
Vice-Chair (a Governor of one of the 27 Central Banks, likely from
the Bank of England),the ESA Chairs, a member of the European
Commission, the President of the Economic and Financial Committee
(EFC) and two additional members of the central banks (euro and
non-euro).
the Board will be taken by simple majority, except for the setting
of draft technical standards and guidelines, where qualified
majority voting will be used.
7. (U) The ESFS will have four primary tasks:
i. Develop technical standards;
To establish a single EU rule book, the Authorities will develop
draft technical standards in areas to be specified in the relevant
sectoral legislation. The draft technical standards will be adopted
by the Authority via qualified majority of the members of the Boards
of Supervisors, and subsequently endorsed by the EC.
ii. Ensure the consistent application of Community rules;
The ESAs will be empowered to investigate behavior by national
supervisory authorities considered to be diverging from existing
Community legislation, recommend corrective action, refer the non
complying authority to the EC and, as a last resort, adopt a
decision addressed directly to financial institutions.
iii. Action in emergency situations;
In crisis situations, the ESAs will coordinate national supervisory
responses, and will have the power to require national supervisors
to jointly take specific actions (e.g. short-selling restrictions,
suspension of trading, etc.).
iv. Settlement of disagreements between national supervisory
authorities;
In cases where conciliation between disagreeing supervisors proves
unsatisfactory, the ESAs will have the power to settle disagreements
by imposing binding decisions. The ESAs binding decision-making
powers should be proportionate, and should not impinge on the fiscal
responsibilities of Member States.
8. (U) Other tasks will include promoting the efficient functioning
of Colleges of Supervisors: fostering a common supervisory culture:
delegation of tasks and responsibilities and peer reviews;
performing assessment of market developments; and ensuring an
international and advisory role, as well as collecting information
and interfacing with the ESRB. The European Securities and Markets
Authority will also be given authority to register and supervise
Credit Rating Agencies.
9. (U) These are far-reaching proposals and have created
controversy. In the discussions leading up to the publication of
the Commission's proposals, the two biggest hurdles have been
balancing the interests of Euro-area Central Banks (represented by
the ECB) and non Euro-area Central Banks in the ESRB and endowing
the ESAs with binding decision-making powers. The first issue has
been resolved by reserving the Vice-chairmanship of the ESRB for a
non Euro-area Central Bank. It is widely assumed that the
Vice-chairmanship will go to BoE Governor Mervyn King. The second
issue has been overcome, at least temporarily, with an agreement on
a "safeguard clause", limiting the ESAs binding decision-making
powers to issues that do not interfere with the fiscal prerogatives
BRUSSELS 00001393 003.10 OF 003
1. (U) SUMMARY: On September 23, the European Commission (EC)
proposed new legislation to reform the European system of financial
supervision at both macro and micro prudential levels. The
proposals build on the Commission's May 2009 Communication and
follow closely the Conclusions of the June ECOFIN Council, making it
likely that they will move forward quickly. The EC proposes the
creation of: --a European Systemic Risk Board (ESRB) to monitor
and assess potential threats to financial stability, issuing risk
warnings and, if necessary, recommendations for action; and
--a European System of Financial Supervisors (ESFS),
consisting of a network of national financial supervisors working in
tandem with three new European Supervisory Authorities (ESAs)
endowed with certain limited binding powers, to upgrade the quality
and consistency of national supervision.
European Systemic Risk Board (ESRB):
--------------
2. (U) The ESRB's main decision-making body will be the General
Board, composed of the Governors of the national Central Banks of
the EU, the President and the Vice-President of the European Central
Bank (ECB),a Member of the European Commission and the Chairpersons
of the three European Supervisory Authorities. National supervisors
will also be part of the Board, but without voting rights. A
nine-person Steering Committee will direct ESRB operations. It will
be composed of the ESRB Chair (likely to be the ECB President) and
Vice-Chair (a Governor of one of the 27 Central Banks, likely from
the Bank of England),the ESA Chairs, a member of the European
Commission, the President of the Economic and Financial Committee
(EFC) and two additional members of the central banks (euro and
non-euro).
of the Member States.
10. (U) In order for the ESAs to successfully exercise their binding
powers, the Commission will need to amend all the relevant sectoral
directives (e.g. MiFID, UCITS, CRD, CRA, Solvency II),specifying
the ESAs competences over the substance of financial services
regulation and supervision. It is expected that some Member States
will try to use this process to limit the reach of the ESAs new
powers.
Outlook:
--------------
11. (U) On October 14, the Member States' Permanent Representatives
(COREPER) reached a tentative agreement on the ESRB package (the
Regulation establishing the ESRB and the Decision concerning its
functioning). The text, which is still not publicly available,
introduces a few changes to the EC's proposal:
--Issuing Recommendations will require a higher number of votes than
to issue Warnings; and
--The composition of the Steering Committee has been modified by
raising the number of CB's from 2 to 5 (likely 3 Euro-area and 2 non
Euro-area).
12. (U) The ESRB legislation is moving quickly and may receive a
sign-off by Member States in Council by end-2009. The ESFS
legislation, however, is more controversial and may not receive the
Council's agreement before year-end. Both legislations need the
European Parliament's assent to become effective, and the Parliament
has already made it known that it will be physically unable to
complete the procedure before early 2010, at the earliest.
MURRAY