"The agreement on supervision is an historic moment for the evolution of financial regulation in Europe," EU Internal Market Commissioner Michel Barnier told MEPs, thanking them for their support.
A large majority of MEPs wanted the EU watchdogs to have stronger powers and a wider regulatory reach than those they received in yesterday's vote.
The three supervisory bodies – for banks, insurers and markets – and a European Systemic Risk Board had their powers watered down as policymakers tried to secure the agreement of more reluctant countries, like Britain (EurActiv 03/12/09).
Belgian Finance Minister Didier Reynders, who has been overseeing the process, was less congratulatory than the commissioner and said the stage was merely set for stricter financial regulation in the future.
Although a new body for market oversight, the European Securities and Markets Authority (ESMA), won the right to oversee credit rating agencies, policymakers will have to await further legislation before it can reach derivatives and the central counter-parties – effectively intermediary banks – that handle derivative contracts.
Commissioner Barnier recently proposed to make trading of derivatives – insurance policies based on the future value of assets like commodities – more transparent and to entrust ESMA with their supervision.
It is unclear whether ESMA's powers will be stretched this far as this proposal will need the backing of MEPs and member states first.
The last word
Much of the debate in creating these watchdogs has focused on whether the EU bodies will supercede the powers of national regulators.
In short, the day-to-day running of banks will rest with the national regulators, whereas the EU body will take over when there is a dispute, an emergency or a breach of EU law.
"The European Supervisory Authorities will be able to address decisions directly to national authorities when they are arbitrating between national authorities involved in a cross-border group, when a national authority is incorrectly applying EU regulations and lastly in an emergency situation declared by the Council," according to a Commission paper.
The paper added that the new bodies will be funded by existing budgets belonging to the committees they are replacing – the Committee of European Banking Supervisors (CEBS), the Committee of European Insurance and Occupational Pensions (CEIOPS) and the Committee of European Securities Regulators (CESR).
In addition, they will at first have over 150 staff and closer to 300 after four years of operation.
The total running cost for the three authorities in 2011 will be €40 million, €2.5 million of which will be funded through industry fees, according to Commission sources.