De Larosiere did, however, call for a European System of Financial Supervisors to take over from the existing European regulatory committees.
This would be a decentralised structure with three co-ordinating bodies for banking, insurance and securities. But national regulators could continue to oversee individual institutions.
The report also called for the registration of hedge fund managers with improved transparency on strategies and leverage worldwide, as well as tighter definitions and supervision of investment funds.
Additionally De Larosiere recommended a European Systemic Risk Council to look at macro-prudential issues and devise an effective risk warning system.
In a meeting in Berlin the Sunday before the report was published, European heads of state agreed a series of measure that appeared to go much further than De Larosiere. The meeting was chaired by German Chancellor Angela Merkel and included EU heads of government, such as Gordon Brown, finance ministers, European Commission representatives and central bankers.
They agreed on developing an overarching EU regulatory plan that would apply to “all financial markets, products and participants”, including hedge funds and other private pools of capital that may pose a systemic risk.
City law firm CMS Cameron McKenna financial services partner Simon Morris says that in Europe, the system of national regulators operating under EU single market legislation does not work.
He says: “De Larosiere proposed new European authorities to warn of risk and to become involved in the regulation of individual financial institutions. The big issue now is how much power will pass to Europe and what residual role will be left for national authorities such as FSA.
“UK bank and insurer trade bodies have cautiously welcomed Larosiere. Letting European bodies take over prudential regulation has its supporters, but the idea that an all-sector European prudential regulator would be matched by an equivalent body for conduct of business and market regulation will be much more difficult to sell.”
Beachcroft Regulatory Consulting managing director Richard Hobbs goes one step past an EU regulator and says regulation needs to operate on a global level.
He says: “The institutions in question and the problems we’re seeing do not exist at an EU level, they exist on a global level. We need international cooperation, strong international connectivity and strong international communication.
“We should be moving towards global regulation, which would bring about earlier effective intervention.”
Whatever the outcome, much of the power wielded by national regulators, including the FSA, to control big ticket issues in internal markets looks set to be handed over. To who, however, remains the million dollar question for now.