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EU creates new finance watchdogs

A new European Systemic Risk Council and three new watchdogs covering banking, insurance and securities markets will oversee financial services across the European Union.

The reforms, which were ann-ounced last week and are likely to be voted on by the European Parliament later this month, will not give the new watchdogs direct supervisory powers other than to oversee credit rating agencies.

The new regulators, which will be based in London, Paris and a yet to be determined German city, will be given some additional emergency powers to ban or restrict activities that threaten the stability of the EU’s financial system. Such emergencies will be called by member states rather than the European Parliament or Commission.

Day-to-day supervision of individual companies will remain the responsibility of national regulators but the new bodies will develop EU-wide harmonised rules.

Speaking to Money Marketing, European Union economic and monetary affairs comm-ittee member and Conservative MEP Vicky Ford, who was involved in the discussions, says that important safeguards are in place to ensure that member state regulators retain control.

She says: “There are some very key issues for the UK national government. For example, fiscal safeguard, which says the European authorities cannot make decisions that could impact in a fiscal way on a member state. So, if you have another RBS situation, you could not have the European authority coming in and telling the UK authority and the Government how to act and how much money to put in a bailout.

“It is very important that those authorities apply European law and European-agreed technical standards for firms and it is very important, in my view, that the national regulators remained the front-line relationship supervisor.”

European internal market commissioner Michael Barnier says: “The new framework is a crucial stage in our effort to learn all the lessons from the crises to better protect our economy and our citizens in the future.”

Liberal Democrat chair of the economic and monetary affairs committee Sharon Bowles says: “This is not light-touch regulation. It is comprehensive and intelligent.”

Cicero Consulting associate Tim Gieles says: “In the long term, it will be very interesting to see whether this is the start of permanent financial supervision at European level, eventually perhaps even superseding nat-ional supervisory authorities. I do not think it will go very fast into this direction.

“Supporting evidence of this can be found in the fact that the member states in the council successfully negotiated that the prerogative to declare a state of crisis remained on the national level.”

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