European Supervision – All Change

Whilst we are on things European, a reminder that the European Commission has adopted legislation that will implement a new supervisory framework for the EU, which will include the disappearance of CESR. As might be imagined, this will also introduce a host of new acronyms.

A European Systemic Risk Board (ESRB) will be established to assess potential risks to financial stability in the EU. If appropriate risks are identified then the ESRB will issue recommendations to the country (or countries) in question on a ‘comply or explain’ basis. The ESRB will liaise closely with the Financial Stability Board (FSB). The latter was established last April with a mandate to promote financial stability and acts to coordinate at an international level the work of national financial authorities and international standard setting bodies.

There will also be established a European System of Financial Supervisors (ESFS) composed of national supervisors and three new European Supervisory Authorities (ESA).

The intention is that ESRB will look at financial systems as a whole (‘macro-prudential supervision’) whilst ESFS will concern itself with the supervision of individual financial institutions (‘micro-prudential supervision’).

The new ESA’s will be created by the transformation of existing Committees. As a result the Committee of European Securities Regulators (CESR) will become the European Securities and Markets Authority (ESMA); the Committee of European Banking Supervisors (CEBS) will become the European Banking Authority (EBA); and the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) will become the European Insurance and Occupational Pensions Authority (EIOPA).

The ESAs, which are likely to come into being from January 2011, will assume all the functions of the existing committees and will also have extra roles including the development of proposals for technical standards and playing a part in ensuring consistent application of technical Community rules.

Further details on the workings of EBA and ESMA can be found via the links.