Brussels, 6th November 2003
Commission package of measures to improve regulation and supervision of banking, insurance and investment funds - frequently asked questions
(see also IP/03/1507 )
What does this package comprise?
The package is made up of seven measures:
The proposal for a Directive is composed of technical adjustments and does not extend the regulatory powers of the Commission in any of these fields.
The first four Decisions will be suspended and will only come into effect if and when the Directive is adopted. This is to avoid duplication with the existing committees and to avoid pre-empting the views of the European Parliament.
Both the Council and Parliament made it clear in the Council of Economics and Finance Ministers in December 2002, and the Van den Burg Resolution of November 2002 respectively that they support the creation of the CEBS and CEIOPS as soon as possible. For this reason, and in view of the urgency of the package as a whole, the Commission saw no benefit in delaying the entry into force of these measures.
A diagram showing the effect of each set of measures is attached in the annex to this MEMO.
Why has it taken you so long to come forward with the package?
The package involves complex institutional and legal issues. Particular challenges have arisen from the prior existence of committees in the banking and insurance areas. Painstaking efforts have been required to graft the new committees onto these existing structures without creating any legal or organisational uncertainty.
Is the Commission pre-empting the Parliament by coming forward with this package now?
The only immediate consequence of the adoption of the package will be the creation of the committees of supervisors, i.e. the Committee of European Banking Supervisors (CEBS) and the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS). Both the Council (in the conclusions of the Council of Finance Ministers of 03/12/02) and EP (in van den Burg Resolution) have called for the new committees. It is crucial to get them up and running as soon as possible.
The Commission has been extremely careful to consult with and avoid pre-empting the European Parliament. In particular, it has deliberately made the Decisions establishing the committees of regulators (i.e. EBC and EIOPC) in their advisory capacity conditional on the agreement of both Parliament and Council on the Directive, which shall create these same committees in their regulatory capacity. Furthermore, the Commission will continue to work closely with the Parliament to ensure that any concerns that it may have are taken into account to the greatest extent possible.
Why move forward now when there has not yet been much experience in securities?
Preliminary experience with corresponding committee structures in the securities field has been very positive. The securities precedent demonstrates that this new model of regulatory process and supervisory cooperation can contribute to better financial rules and their more effective implementation. This positive assessment is reflected in the first report of the independent Inter-institutional Monitoring Committee (IIMG). This approach based on networks of regulators/supervisors now needs to be extended to banking and insurance. This is needed to facilitate the design and adoption of new EU legislation on capital adequacy and insurance solvency.
Why is it so necessary?
The current system is inefficient and ill-adapted to the needs of a truly integrated single EU financial market. The proposed committee structures are the best guarantor of the consistent and rigorous enforcement and implementation of EU financial law. Structured cooperation arrangements between national enforcement authorities will enable them to orchestrate supervisory practices, develop practical arrangements for real-time mutual assistance and undertake effective peer review. The package will create these supervisory committees in banking and insurance with more or less immediate effect.
The proposed committee structures will also allow for greater use of implementing rules similar to those being adopted in the securities sector. This allows for a more rational format for EU financial legislation (1) framework laws (including the definition of the scope and mandates for implementing measures) by Council and Parliament - and (2) definition of more detailed technical measures by the Commission, with the involvement of the new committee structures. This will enable the EU to respond much faster and more flexibly to developments by making it to easier to revise detailed implementing measures if necessary.
Why is it so urgent?
Implementation and enforcement, already pressing concerns, will be all the more important in an EU of twenty five Member States. The new Member States have made great strides in implementing the existing body of EU financial services legislation. Their successful integration into the single financial market will now depend on the effective implementation of these regulatory safeguards from day one of accession. Clear demonstration of their capacity and commitment to enforce EU financial rules will foster confidence in the prudential soundness of their financial institutions and in the transparency and integrity of their financial markets. It will boost the willingness of market participants and investors to do business with new Member State counterparts. Again, the key lies in structured arrangements for mutual supervisory assistance and cooperation. The presence of supervisors from the new Member States in the newly created networks of regulators will facilitate rapid problem detection and swift remedial action where necessary. New Member State supervisors will have the opportunity to observe established best practices and to explain how approaches need to be adapted for their evolving financial systems.
Would this initiative be irrelevant under the new Constitution?
No. Most aspects (including the committees of supervisors, CEIOPS and CEBS) will continue as foreseen even if the draft European Treaty was adopted in the form published by the European Convention. In any case, it may well be a few years before the new Constitution enters into effect.
Why is there no reference to the location of the Committees?
The new committees of supervisors and their secretariats will be independent of the Commission (which will participate as an observer). Decisions regarding resources, working methods and location will fall to their members. The issue of location is therefore a matter for the committees to decide.
What is the political backdrop to these decisions?
The Commission adopted an Action Plan for Financial Services (see IP/99/327) that identified a series of measures required to construct a single European financial market. At the Lisbon European Council in March 2000, and at the Stockholm European Council in March 2001, the European Heads of State or Government called for full implementation of the Action Plan by 2005.
Despite these measures, it has become increasingly clear, initially in the securities sector but subsequently for the other financial service sectors, that the financial services committee structure itself has and will increasingly come under pressure, especially when it will have to deal with new demands being placed on it.
This first became clear in the securities sector. In response, in July 2000 the Council set up a Committee of Wise Men on the Regulation of European Securities Markets to develop proposals for making the regulatory process for EU securities legislation more flexible, effective and transparent. In the light of their recommendations, the Committee of European Securities Regulators (CESR) was established on 6 June 2001 by a Commission Decision to offer technical advice to the Commission. A European Securities Committee (ESC) was established on the same day in an advisory capacity by another Commission Decision. The European Parliament and Council Directive 2003/6/EC on Market Abuse of 28 January 2003 (see IP/02/1789) provides for the ESC to act in a regulatory capacity to assist the Commission in adopting implementing measures.
In response to the pressures mentioned above, in April 2002 the Council called for a review of how best to make improvements to the financial services committee architecture. On the basis of this review, on 3 December 2002, the Council invited the Commission to extend the committee structure applied in the securities sector to banking, insurance and UCITS (see MEMO/02/280). In particular, the Council invited the Commission to establish “as quickly as possible” new committees in each sector, by Commission Decisions
Separately on 21 November 2002, the European Parliament adopted an own-initiative report on prudential supervision in the European Union. In its Resolution, it endorsed the emphasis on convergence not only in rules but also in implementation and supervisory practices. It welcomed the institutionalisation of a regular dialogue between supervisors at European level through the creation of CESR and hoped that such an extension would indeed lead to more coherent implementation and enforcement of prudential legislation within the EU. Nevertheless, in another Resolution B5-0578/2002 on financial regulation, supervision and stability, the European Parliament questioned the urgency of restructuring the committee architecture.
How can such a complex package simplify the financial services structure?
The package is complex because committees created by Council Directives already exist, and because of institutional and legal precedents. The overall effect, though, will be to simplify and improve decision-making and implementation.
Are you creating new powers for the EBC and EIOPC?
No. The Directive and Decisions are technical and create no new powers.
Why can't the existing committees continue?
There was a need to amend the insurance committees anyway to also cover reinsurance and occupational pensions. EBC and EIOPC will have different membership from BAC and IC as supervisors will no longer be members. Furthermore, the EBC will be chaired by the Commission (whereas a Member State chairs the BAC).
Diagram showing how the new package works
Overview: combined effect of new package
Securities (including UCITS)
|Banking||Insurance & Occupational Pensions|
|Regulators||ESC (European Securities Committee) in advisory & regulatory capacity||EBC (European Banking Committee) in advisory & regulatory capacity||EIOPC (European Insurance & Occupational Pensions Committee) in advisory & regulatory capacity|
|Supervisors||CESR (Committee of European Securities Regulators) in advisory capacity||CEBS (Committee of European Banking Supervisors) in advisory capacity||CEIOPS (Committee of European Insurance & Occupational Pensions Supervisors) in advisory capacity|
i) Two Commission Decisions establishing new committees of supervisors;
|CEBS in advisory capacity||CEIOPS in advisory capacity|
ii) EP and Council Amending Directive
|ESC in regulatory capacity||EBC in regulatory capacity||EIOPC in regulatory capacity|
iii) Two Commission Decisions establishing new committees in advisory capacity;
|EBC in advisory capacity||EIOPC in advisory capacity|
iv) Two Commission Decisions amending ESC and CESR Decisions to include UCITS
|ESC in advisory capacity|
|Supervisors||CESR in advisory capacity|