In early September, the European Commission (EC) came to a decision which brought about that the Council of Finance Ministers of the European Union initiated the establishment of several all-European financial regulators. This is meant to control and moderate all of the following: systemic risks, the banking sector, pensions and insurance and the securities markets. The voting of the European Parliament took place in late Sept 2010. The decision was positive â a go-ahead to 3 new large European Supervisory Authorities, or ESAs, in the near future.
The recent financial crisis pushed the E.U. to present a thorough enhancement of the financial supervisory system in order to facilitate supranational supervising. The EC, the Member States and the European Parliament have given the green light to a basic make-up of the regulators, approved in turn by E.U. Ministers of Finance. Finance Ministers have also endorsed a change of instructions related to member countries' budgets. These currently permit the EC to disapprove the 3-year financial budgets of E.U. states, except they don't specify pentalties for going beyond the 3% cap on the budget deficit.
The pan-European setup of financial control will be composed of the following organizations:
- the European Systemic Risk Board (ESRB)
- the European Banking Authority (EBA)
- the European Insurance and Occupational Pensions Authority,
- and the European Securities and Markets Authority.
ESRB will be responsible for global risks which the resistance of the financial system taken together, while the other parties will be in charge of risks in every individual country market. Unlike the common method, the headquarters of these brand new EU institutions will be established in various states: the bank regulator will exist in London, UK, the securities market regulator will be based in Paris, and the pensions and insurance supervisor in Frankfurt, which can be traced to the in-place necessary infrastructure at each of those spots.
The ultimate set of powers of the bodies has not been established and should be settled within the next three years as other financial reforms will be progressing within the EU. For now, we can predict that the supranational supervisors will have the power to make decisions which will directly concern distinct financial institutions in case there are variances between national entities, in instances of the absence of particular regulations, and in an "emergency situation" occurring in one E.U. country. Also, supranational supervisors have the ability to temporarily cease or dampen the damaging effects of financial products and services which have already been duly regulated by specific financial law code. Their power also applies if there's a case of emergency.
Since the European Parliament (EP) voting ended in an approval, the regulatory arrangement is going to be initiated very early in 2011.