Brussels Empowers Financial Regulators

Three new supervisory authorities in the areas of banking, insurance and securities look set to gain important powers under proposed legislation to be published by the European Commission this Wednesday (23 September).

Current drafts of the legislation bestow the three authorities, whose job will be to supervise individual financial institutions, with a co-ordinating role in emergency cases such as the shutting down of stock markets or calling a halt to short selling following a terrorist strike.

Final negotiations on the format of Wednesday's publications have yet to be finalised, with commission cabinet heads meeting Sept. 21 before commissioners give their final seal of approval on the texts.

As the legislation currently stands, the authorities will also be mandated to rule on disputes between home and host national supervisors, for instance on the need to recapitalise a cross-border bank.

Voting by board member of the three authorities – made up of national supervisors – on such enforcement and implementation measures will be on a "one-state, one-vote basis," with a simple majority needed to rule in a particular direction.

But member states concerned that such a ruling could force them to use millions of taxpayers' money to bail out a financial institution against their government's will, look set to gain recourse to a "safeguard clause."

Under the clause, an apparent nod to UK concerns voiced in the area before the summer, a member state could ask the decision to be passed on to the council of ministers for a decision by qualified majority voting, although final details in this area have yet to be decided.

Other decisions by the authorities may also be open to appeal.

Once set up, the three authorities will draw up a list of technical standards in their respective areas applicable to all financial institutions in the single market, before passing the list to the commission for final approval.

The aim of this single European rulebook is to remove national differences that have caused compliance difficulties for cross-border companies.

A separate regulation will aim to set up a European Systemic Risk Board, intended to detect risks to the financial system as a whole and to issue early risk warnings when needed.

The board will also be able to issue recommendations and warnings to member states, which must explain any decision not to follow the recommendations.

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