EU parliament welcomes financial supervision deal

MEPs have reacted positively to an "agreement in principle" between the Brussels-based assembly and EU member states on a package of measures aimed at supervising Europe's financial markets.

The deal, described by EU financial services commissioner Michel Barnier as a "crucial milestone" in the "creation of a European financial supervisory framework" came after a breakthrough in negotiations on Thursday.

The agreement will see the establishment of three new EU-wide financial watchdogs and a systematic risk board (ESRB), which will in its first five years be chaired by the European Central Bank president Jean-Claude Trichet.

MEPs had pressed for the three new financial watchdogs to have substantial powers, but national capitals, particularly London and Berlin, had been reluctant to cede too much authority to the new agencies.

The deal appeared to allay member states' concerns that their national regulatory bodies will be undermined, as the new watchdogs are expected to have only limited direct supervisory powers.

European supervision

However parliament's authorities insisted that the agreement would allow the new European supervisory authorities (ESAs) to "impose decisions directly on financial institutions, such as banks" if national supervisors fail to act on breaches of EU law.

According to the assembly, the deal "gives the ESAs a strong role within the current setup of colleges of national supervisors".

"This will enable them to guide national supervisors to ensure tighter supervision of cross-border financial institutions," a parliament statement said.

Notably, in the event of disagreements between national supervisors, the ESAs will be able to "impose legally-binding mediation and, if no agreement can be reached within the relevant college of supervisors, to impose supervisory decisions on the financial institution concerned".

The financial watchdogs will also have the authority to intervene as mediators at their own discretion, rather than at the request of national supervisors.

"The ESAs will also be able to monitor how national supervisors implement their obligations under EU law," the statement added.

"If these obligations are implemented incorrectly, the ESAs may raise the alarm, issue instructions to the national supervisor concerned and, if these go unheeded, directly instruct the financial institution to remedy any breach of EU law."

The new watchdogs will also have the power to investigate financial institutions', "toxic" products, and financial activity such as naked short selling, to assess what, if any, risks they could pose to financial markets.

"When specific financial legislation regulates these areas of activity, or in emergency situations, ESAs may temporarily prohibit or restrict harmful financial activities or products, and may also ask the [European] commission to introduce legislative acts to prohibit such activities or products permanently."

Parliament's negotiating team, consisting of the coordinators of the four main political groups (Jean-Paul Gauzès, Udo Bullmann, Sven Giegold and Sylvie Goulard) said the new authorities needed substantial supervisory powers to ensure effective and equal oversight throughout the EU.

The statement was aimed at countering the refusal by member states to accept a binding reference to direct ESA supervision over EU-wide entities such as credit rating agencies and trade depositories.

It said, "The coordinators of the main political groups insist that the authorities shall exert appropriate supervisory powers over entities with EU-wide reach.

"This shall include market infrastructure, such as trade depositories and central counter parties."

"In the common market shared European infrastructures have to be subject to European supervision."

Additional powers

The four MEPs added that the deal also "foresees that through future legislation, additional supervisory powers shall be conferred on the European supervisory authorities".

EPP deputy José Manuel Garcia-Margallo a vice-chair of parliament's economic and monetary affairs committee said, "I think we have reached an ambitious deal that will protect citizens' interests; it's a big step for Europe."

Udo Bullmann and his negotiating colleagues in the S&D group, Peter Skinner and Antolin Sanchez, also said they were "satisfied" with the deal.

"The negotiations were long and tough but we managed to improve the commission's original proposals on a number of key points," they said.

"As the new watchdog over all sectors of financial markets, the ESRB will have the power to assess systemic risks. The European supervisory bodies will have a leading role in supervisory colleges for cross-border financial institutions."

The Socialist deputies said the agreement was a step forward in avoiding future financial crisis, but more work still needed to be done.

"We expect European leaders to show the same level of ambition in securing a deal to regulate hedge funds and private equity as well as the markets for derivatives," they said.

European systemic risk board

The ALDE group's chief negotiator Sylvie Goulard said MEPs had "fought hard for the systemic risk board to be chaired by the president of the European central bank".

This, she said, would ensure there was a "European personality who will bring independence and moral authority to the position as well as a clear identification of responsibility to citizens".

"The decision making bodies will include independent specialists, academics and SME representatives from a wide range of backgrounds that will also raise the profile of the institution," she added.

Greens/EFA group chief negotiator Sven Giegold said Thursday's deal was "long-overdue", but was a step in the right direction in "strengthening the regulation of Europe's financial markets".

"The ultimate goal must be to prevent a return to the financial chaos of the past few years but clearly more regulatory reform will be needed to guarantee this," said Giegold.

"The Greens are happy that the supervisory authorities will be more important than originally foreseen. At the insistence of the parliament, these authorities will now have real teeth."

"Importantly, with the risks of speculation on financial markets ever present, a Green proposal to ensure the authorities can suspend trading risky products in certain cases was accepted."

However the 'agreement in principle' still has to be cleared by EU finance ministers when they meet next Tuesday in Brussels.

MEPs will also have to confirm the deal during the Strasbourg plenary session towards the end of the month.