Future of European Financial Supervision, Towards a European System of Financial Supervisors

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 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