Future of European Financial Supervision, Towards a European System of Financial Supervisors
mr. drs. T.M.C. Arons*
1. Introduction
The 2008 financial crisis made clear the shortcomings in the European structure of financial supervision. In the current system of financial supervision the financial supervisor of the home Member State is in principle the only authority entitled to supervise financial institutions even in case the institution operates across borders. If the home financial supervisor does not effectively supervise the financial institution, this failure could affect clients and creditors in other Member States. The bankruptcy
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of Icelandic banks was felt by accountholders in the United Kingdom and the Netherlands. The shortcomings in the Icelandic Deposit Guarantee scheme1 threatened to expose these depositors to losses on their savings that should have been covered by that scheme. In the end, the UK and the Dutch government guaranteed these deposits under the applicable deposit-guarantee scheme. However, the problems arising in the execution of the agreement concluded between the UK, Dutch and Icelandic government to recover the UK and Dutch taxpayers’ money from Iceland show the enormous consequences of failure in local supervision. Despite their significant relevance in the current crisis, in this article I will not address these problems in micro-prudential supervision of banks. This article focuses on the mechanism to ensure consistent application by the different national supervisors of the harmonised set of conduct of business rules, in particular, the rules laid down in the Prospectus Directive 20032 and the Transparency Directive 2004.3
In order to solve the shortcomings in the European structure of financial supervision, the European Commission proposed to create a European System of Financial Supervisors (ESFS) consisting of national supervisors and three new supranational European Supervisory Authorities. A Supervisory Authority for the banking sector4, one for the insurance and pensions sector5 and a supranational European Supervisory Authority to ensure compliance by financial institutions with conduct of business rules and the orderly functioning of the securities market.6 The national financial supervisors remain the principal supervisory authorities. However, the supranational authorities will get decisive authority in case of emergency or continued non-agreement between national supervisors. In these cases the supranational authorities will have the authority to address directly financial institutions that do not comply with the European financial services and financial supervision legislation.
In this article I will analyse in paragraph 2 the current structure of financial supervision. In paragraph 3 I will discuss the de Larosière-report on the financial crisis and the present shortcomings in European financial supervision will be dealt with. Paragraph 4 provides a brief overview of the reaction of the European Commission to this report. In paragraph 5 I will describe the proposals of the European Commission. Paragraph 6 discusses the proposed future powers of the European Securities and Markets Authority to ensure compliance with the European rules on the prospectus and financial reporting. In paragraph 7 the proposed amendments of the European Parliament Committee on Economic and Monetary Affairs will be discussed. In paragraph 8 some concluding remarks are provided.
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