Financial Regulatory Forum

New EU finance watchdogs seen muzzled on companies

November 18, 2009

By Jonathan Gould
FRANKFURT, Nov 18 (Reuters) – Three new pan European Union financial watchdogs being set up next year are expected to have limited powers when it comes to individual markets and companies, officials said.

What are now three committees of European national supervisors covering banks, insurance companies and securities markets will be transformed next year into three full-fledged EU authorities, each with enhanced power and staffing.

While the extent of that power has yet to be finalised, officials at the Euro Finance Week conference here said the three would concentrate on setting the ground rules for regulating their markets, not intervening at company level.

“There will be new powers in terms of enforcement,” said Gabriel Bernardino, chairman of insurance supervisor body CEIOPS, whose staff will rise to 90 as an authority from 16 now.

“But this is a tricky area of enforcement, individual institutions. We don’t know what the political level will decide,” Bernardino told Reuters.

“National supervisors will continue with day-to-day supervision because they know better the players, the consumers and the markets,” he said.

There would also be no supervision at European level because of the fear of fiscal consequences, said Eddy Wymeersch, chairman of the EU securities supervisor group CESR.

EU leaders have agreed that the three authorities will not be allowed to take binding decisions that would impinge on national coffers, such as forcing a bank bailout, for example.

A draft EU law proposes to give the three new supervisory authorities powers to draw up and enforce a single rulebook so that all banks, insurers and markets are supervised in the same way. Ultimately, an authority could force a member state to change the way it applies an EU rule.

The existing supervisory committees have no binding powers and typically operate through consensus.

DOUBTS PERSIST
Despite such assurances, doubts about the ultimate power-sharing arrangements between the EU bodies and national supervisors such as the Financial Services Authority in Britain or Bafin in Germany persist in many quarters.

EU leaders have given their finance ministers a deadline of Dec. 2 to strike a deal on the new supervisory structure. The European Parliament has joint say on the reform with EU states.

Britain’s Financial Services Minister, Paul Myners, has said the new authorities should be barred from directly intervening in day-to-day supervision of a national bank, insurer or market.

That view also drew backing from Rolf-Peter Hoenen, president of the association of German insurance companies, GDV.

“We don’t think it is a good idea if European supervisors have direct access to German companies,” Hoenen said.

“The national supervisor has to have the last word for the simple reason that supervision is part of sovereign powers.”

A UK parliamentary report this week also demanded Britain prepare to veto supervision reform unless there are tougher national safeguards.

However, the architect of Europe’s financial supervision reforms, Jacques de Larosiere, warned policymakers not to weaken proposals that were already far from revolutionary.

“If we start tinkering with that very modest move towards the beginning of a system of supervision in Europe then we are back to square one,” he told a Euro Finance Week panel.

The plans will set up a European Systemic Risk Board, most probably chaired by the European Central Bank and comprising EU national central bank chiefs, a representative from the European Commission and each of the three new EU financial watchdogs.

The board will monitor the bloc’s overall financial system for potentially destabilising risks like an asset bubble and recommend actions to EU finance ministers.

ECB President, Jean-Claude Trichet, said on Wednesday such recommendations should focus on financial regulation and supervision, not on individual institutions.

A recommendation could include the use of loan-to-value ratios, Trichet said.

While regulators and bankers said the board was a big step in the right direction, insurers worried their one representative on a board of 33 might simply be out-gunned by those with little understanding of how insurance works.

“The recommendations of the stability board might possibly be made too much from the perspective of banks,” GDV’s Hoenen said.

That view was echoed by Sharon Bowles, chair of the European Parliament’s powerful Economic and Monetary Committee.

“Our European Systemic Risk Board will be a little light on experience and even a little lighter on voting power from non-bank regulators,” Bowles said.

(Additional reporting by Eva Kuehnen and Krista Hughes in Frankfurt and Huw Jones in London; Editing by Hans Peters)
((Reporting by Jonathan Gould; Reuters Messaging: jonathan.gould.reuters.com@reuters.net; +49 69 7565 1242))

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