MEPs made a formal call on Thursday for the Commission to come up with legislation to improve the supervisory architecture and regulatory framework for financial services in Europe.
Parliament adopted a report, drawn up by Ieke van den Burg (PES, NL) and Daniel D?ianu (ALDE, RO), which is a comprehensive overview of areas that need attention in the light of the current crisis and after seven years of operation of the current “Lamfalussy system” It includes recommendations on the structure for the “Level 3” Committees of national financial regulators (CESR for securities, CEIOPS for pensions and insurance, and CEBS for banking) and on the mechanisms for managing systemic risk.Solid legal basis for supervision
MEPs argue that voluntary arrangements are insufficient to streamline the fragmented structure of European supervisors that need to guarantee the stability of the financial markets and protect the real economy against excessive risks. The Level 3 committees need a legal status commensurate with their duties, and national supervisors should have a commitment to executing the decisions of the committees written into their mandates.
Today MEPs stressed the need to have a structure at EU level that would be legally empowered to break deadlocks and solve conflicts between national and sectoral supervisors. This structure should be an "add on" to the existing network of the light coordination structure of national supervisors in the banking, insurance and securities market. It should contain an independent chair and vice chair, that together with the three chairs of those committees on the coordination of national supervisors (for banking, insurance/pensions and securities) would form a sort of "appeal body" and a coordinating structure that could hugely improve the effectiveness and rapidity of action in crisis situations.
MEPs encourage the Level 3 Committees to work towards better cross-sector and cross-border integration and coordination.
Parliament says that colleges of supervisors dealing with cross-border institutions should become mandatory with a fairly fixed division of competences and a system of qualified majority voting between the supervisors which enables them to make decisions.
The plenary agreed on an indication of what could be the key parameters for qualified majority voting inside the European supervisors committees. Not only the size of the Member State and the financial group's headquarters should count, but also the systemic importance of the activities of that group for a member State where it has branches or subsidiaries
Role of the ECSB and international representation
Micro- and macro-prudential and market supervisors should combine their knowledge of developments in the market. The European System of Central Banks would get a central position to coordinate and to take leadership if necessary.
The division of information and tasks should also be streamlined to improve the voice of the European Union at international level, says the report. The EU should have a clear voice in international bodies including the Financial Stability Forum.
Transparency: securitisation, complex financial products and rating agencies
The report calls for measures to make the securitisation process (the selling on as investment products of loans by those who originate them) more transparent and for credit rating agencies to use appropriate terminology making clear the difference between complex financial products. It says companies should not be able artificially to keep debt vehicles off their balance sheets.
Originators of securitised products should be required to assess and monitor risk and ensure debt-backed securities are transparent enough for investors to be able to understand the risks they are taking on.
More transparency is also required when it comes to the over-the-counter markets, where clearing houses should be encouraged.
MEPs want to see lessons learned from the oversight of auditors to be applied to credit rating agencies, notably when it comes to conflicts of interest.
Deposit guarantee schemes
MEPs urge the Commission to ensure that deposit guarantees are urgently revised to avoid arbitrage between guarantee levels in Member States that may further increase volatility and undermine financial stability instead of increasing security and depositors' confidence. Moreover, the level of refund should be significantly increased and the availability of refunds to retail clients in case of failing financial institutions should be assured within a reasonable timeframe including cross-border situations.
Remuneration disclosed and assessed for risk
Financial institutions should disclose their remuneration policy, notably including the packages offer to directors – and market supervisors should assess whether the remuneration policy encourages extreme risk taking when they examine a company’s risk management.
Procedural information
The report was drawn up under Rule 39 of Parliament’s Rules of Procedure, whereby the EP can use its right formally to request that the Commission draw up legislation on a particular subject (Article 192 of the Treaty). The report was adopted with 565 votes in favour, 74 against and 18 abstentions - easily meeting the requirement for an absolute majority of Parliament to support such legislative requests.