The European Union’s trio of new financial watchdogs should have more powers over banks, insurers and markets to ensure national regulators apply EU rules, the bloc’s executive body said on Friday in a review that may raise hackles in Britain.
The European Commission’s review looked at the three European Supervisory Authorities (ESAs) set up in 2011 to improve oversight of the 28-country bloc’s markets and banks after the 2007-09 financial crisis uncovered failings.
The London-based European Banking Authority (EBA), the European Securities and Markets Authority (ESMA) in Paris, and Frankfurt-based European Insurance and Occupational Pensions Authority (EIOPA) have performed well during their first three years but need stronger powers to assert themselves, the review found.
“In particular, the ESAs should give a higher profile to issues related to consumer/investor protection, and strengthen the focus on supervisory convergence,” the European Commission said in a statement.
Consumer protection has traditionally been left to national supervisors in the EU but this is now changing with ESMA being given powers to ban harmful products directly.
Britain wants a new “settlement” with the EU to curb and reverse the shift of powers, particularly over finance, from national to EU level ahead of a possible in/out referendum on UK membership in 2017.
The review recommends medium-term actions that would need changes in the law.
The authority and role of chairmen of the ESAs could be strengthened to take “swift decisions in the interest of the EU as a whole”, meaning making it harder for a national regulator to shield one of its banks or insurers from an EU rule.
The authorities could also be given “direct access to data” so they would not have to rely on national regulators if they wanted to scrutinize a bank or market in more detail.
Their remit could be extended to enforcing accounting rules, checking on how banks calculate their capital buffers and directly supervising clearing houses, all steps that would dilute the powers of national watchdogs.
Currently, the ESAs are 60 percent funded by national governments with the rest from the EU’s budget, and the review said both sources should be abolished and that fees or levies on banks, insurers and markets would need to be analyzed.
The review added that any fees or levies would be proportionate, meaning tailored to the size of a firm.
The Commission also wants to see the authorities flex their “binding mediation powers” to order a national watchdog to comply with EU rules, a step none has wanted to take so far given the political sensitivities it would raise.
There could also be a need for more radical structural changes such as locating all the authorities in one place.
EU states and the European Parliament will now decide how to take forward the recommendations.
Incoming European Commission President Jean-Claude Juncker has said a “capital markets union” is one of his top themes, raising further concerns in Britain that Brussels will seek to centralize more power at the expense of London.
The European Systemic Risk Board (ESRB) was also launched in 2011 and is based at the European Central Bank in Frankfurt to act like a helicopter hovering above the financial system to spot broader risks such as destabilizing asset bubbles.
Jacques de Larosiere, the former IMF chief and key architect of the EU watchdogs, said last year that the ESRB was difficult to stir and get into action – one of its recommendations was made after a problem had already been solved.
“Europe needs a sailor at the top of the mast who looks at possible systemic dangers,” de Larosiere told a hearing.
The review said the ESRB had done important analysis of risks but needed streamlining and a more “proactive communication strategy”. Further studies would be conducted to enhance the watchdog’s “visibility and autonomy”.
The ESRB is chaired by ECB President Mario Draghi and the review said a new managing director role could strengthen the board’s own identity.
(Editing by Mark Potter)