Q+A-How will EU watchdogs change policing of banks?
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Saturday September 04, 2010 09:01:16 PM GMT
BRUSSELS, Sept 3 (Reuters) - European Union diplomats and lawmakers have agreed to set up new pan-EU financial regulators by the start of next year in an effort to impose tighter controls on the financial industry.
WHAT IS BEING SET UP?
Three agencies will be established to keep tabs on banks, markets and insurers next January.
A European Banking Authority will be based in London. Paris will be home to the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority will be in Frankfurt.
The EU will also establish a European Systemic Risk Board, an agency of the European Central Bank that will keep watch for threats to the economy such as property price bubbles or soaring country debts.
HOW MUCH POWER WILL THEY HAVE?
To begin with, the power of the new financial sheriffs will be restricted.
In some circumstances, they will be allowed to overrule a national regulator such as Germany's Bafin or Britain's Financial Services Authority.
They would, for example, have the final say in a tug-of-war between countries, such as that between Belgium and the Netherlands over the future of banking and insurance group Fortis, which was split up during the crisis.
But countries will be allowed to challenge any order if it would force them to spend money, a veto that the European Parliament attempted to overturn because of concerns it would give states an easy get-out.
The bodies are, however, likely to gather more powers as Brussels rolls out its reform of financial services. One official described them as a "skeleton", saying: "The flesh will come with the various legislative proposals."
The European executive has, for example, proposed letting the markets authority impose short-selling bans.
WHEN CAN THEY TAKE ACTION?
As it stands, the new agencies can step in if EU rules are being broken or they can order national supervisors to take action in an emergency.
They can even hand down instructions to regulators as to how they should be treating individual banks. They will also have the final say in disputes between national agencies grappling with problems at an international bank.
The markets authority will be able to temporarily ban products or trading it considers risky.
Officials and parliamentarians are hopeful that their scope to act will be widened when further financial laws are written.
DO THE NEW AGENCIES HAVE POLITICAL SUPPORT?
Setting up the new authorities has been one of the most contested elements of the EU's shake-up of financial services. During the crisis, coordination among national regulators was largely disbanded as capitals scrambled to protect their banks and savers. Nonetheless Germany and Britain were reluctant to surrender powers to the agencies.
The new authorities will stay dependant on EU countries as they are in large part funded and managed by the bloc's national regulators.
The threat of a political veto on their rulings will likely discourage them from intervening in the regulation of banks in London or Frankfurt.
The stability board is in an even weaker position as it has no legal powers. Instead it will rely on "naming and shaming" to discourage behaviour that could lead to another economic crash.
It will have a ranking of warnings, graded by colour according to urgency. But one source familiar with the group recently said the board would be reluctant to publicise concerns over risks it sees for fear that this could rattle investors.
A warning to a country whose borrowing is dangerously high or whose property market is overheating, for example, will mostly take place behind closed doors.
IS THIS THE START OF AN EU-STYLE SECURITIES AND EXCHANGE COMMISSION?
Experts in European policy have called the setting up of the new authorities a historic development, but their power and influence is likely to fall some way short of the U.S. Securities and Exchange Commission.
Their biggest handicap is lack of resources, a reflection of the reluctance in many European capitals to surrender authority.
Each of the agencies to monitor banks, insurers and markets will employ about 70 people. This headcount will grow to roughly 100 over three years but remains a tiny fraction of the 3,500-strong Financial Services Authority in London.
They new authorities will be dominated by national supervisors, who have a say in their rulings and will provide roughly 60 percent of their funding.
Although the influence of the new bodies will limited, they do have an unprecedented legal mandate and the discretion to overrule a country regulator.
Many politicians in the European Parliament will continue to push for an extension of the new authorities' powers but they may struggle, making it hard for the new regulators to make their voice heard.
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