(Oct. 16, 2009) The serious financial crisis that has affected many European Union (EU) Member States provided the European Commission with the impetus to take drastic steps to deal with the issue of lack of adequate supervision over EU fiscal matters. This shortcoming was identified early during the crisis and was attributed to the existing fragmentation of the supervision system along national lines, despite the progress in integration that the EU has made in the financial sector.
Therefore, on September 23, 2009, the European Commission introduced a number of legislative initiatives designed to improve and strengthen the supervision of the financial sector within the EU. The first measure provides for the establishment of three new supervisory authorities, in the areas of banking, insurance, and securities: a) the European Banking Authority (EBA); b) the European Insurance and Occupational Pensions Authority (EIOPA): and c) the European Securities and Markets Authority (ESMA). These “European Supervisory Authorities” will replace the existing three committees in their respective fields. (New Legislative Proposals to Strengthen Financial Supervision in Europe, European Commission, Economic and Financial Affairs website, Sept. 23, 2009, available at http://ec.europa.eu/economy_finance/thematic_articles/article15861_en.ht
While the basic responsibility of the three proposed authorities will be the oversight of the financial institutions, they are also going to be in charge of coordinating their actions during economic crises or after a terrorist attack by closing down stock markets or taking other protective measures. Another important assigned task is to settle disputes among national supervisors. (Id.)
In addition, the Commission proposed the establishment of the first EU-wide system of supervision, through the creation of the following two initiatives:
- the European Systemic Risk Board (ESRB) and
- the European System of Financial Supervisions (ESFS).
The ESRB is an entirely new body with no legal personality. It will be composed of top officials of the European Central Bank, national central banks, national supervisors, and European Supervisory Authorities. Its primary mission will be to monitor and evaluate risks to the stability of the entire financial system (“macro-prudential supervision”). It will also have the authority to issue recommendations and warnings to EU Members, their national supervisors, and the European Supervisory Authorities. (Id.)
The ESFS will be composed of the national financial supervisors acting in collaboration with the European Supervisory Authorities. The ESRB will also participate in the functions of the ESFS. Its mandate is to focus on the oversight of individual financial institutions (“micro-prudential supervision”). It will also have the authority to issue recommendations and warnings to EU Member States. (Press Release, Commission Adopts Legislative Proposals to Strengthen Financial Supervisors in Europe (Sept. 23, 2009), available at http://europa.eu/rapid/pressReleasesAction.do?reference=IP/09/1347&f
As Charlie McCreevy, the Internal Market and Services Commissioner, commented, the new system, once established sometime in 2010, will “remedy shortcomings in European financial supervision and will help prevent future financial crises.” (Id.)