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European plan aims to give risk warning

The European Commission is planning to create three pan-European bodies, including a new European systemic risk board, to detect risks across the financial system as a whole.

Last week, the EC published draft legislation that would allow it to create the ESRB to monitor and assess risks and provide early warning of systemic risks, with recommendations of action where necessary.

It also plans to set up a European system of financial supervisors, composed of national supervisors, as well as three new European supervisory authorities for the banking, securities and insurance and occupational pension sectors.

The EC says it is aiming to sustainably reinforce financial stability, ensure basic technical rules are applied and enforced consistently and identify risks in the system at an early stage. It wants to have the power to act in emergency situations and resolve disagreements among supervisors.

EC president José Manuel Barroso says: “Financial markets are European and global, not only national. Their supervision must also be European and global.

“We are proposing a new European supervisory system, with the political backing of the member states and based on the de Larosière report. Our aim is to protect European taxpayers from a repeat of the dark days of autumn 2008, when governments had to pour billions of euros into the banks. This European system can also inspire a global one.”

City law firm CMS Cameron McKenna partner Paul Edmondson says handing increased power to European authorities will only work if there is a transparent process for policymaking.

He says: “Currently, European regulation involves too much fudge and compromise and not enough transparent consultation with objective market failure, impact and cost-benefit analysis. Unless there is major change on this front, giving more power to Europe will be a disaster.”

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