Large cross-border financial institutions will be supervised by a new European authority acting through national regulators, according to draft reports from the European Parliament which establish a single rulebook for financial supervision in the EU.
MEPs today (10 February) presented a total of four draft reports which beefed up the EU's proposed new powers on financial supervision and which bore very little resemblance to proposals drafted by national finance ministers in December.
Subject to talks with the member states and further amendments, the complete package, which establishes four new bodies with oversight in different parts of the financial sector, should come into force by 2012.
MEP Manuel Garcia-Magallo y Marfil, the author of the report on the European Banking Authority, announced the most controversial part of the new package, revealing that cross-border banks would have to follow orders from Brussels.
It is unclear exactly which institutions fall into this category, but the Spanish MEP said the definition of large complex financial institutions will depend on discussions with the Bank of International Settlements and the American Financial Stability Board.
This proposal is unlikely to curry favour with the EU's member states, which have previously worried that the new rulebook will impinge on their own national fiscal sovereignty.
Previously UK Chancellor of the Exchequer Alistair Darling put his foot down and demanded that the package preserve national governments' independence to take decisions on domestic fiscal affairs.
In December, the bloc's finance ministers agreed to write an appeals mechanism into the draft law.
Ministers agreed a compromise called a "triple-lock" safeguard whereby a member state can appeal a decision made by the new authorities or try to clinch a majority vote to overturn a decision. If all else fails, governments can take their case to the European Court of Justice.
Asked whether the Parliament's draft proposal would preserve such safeguards, MEPs said no, they would not.
This gulf of interpretation between the Council and the Parliament on a highly contentious matter, national fiscal independence, will likely spur further rows in summits to come.
This is not the only matter where MEPs and member states do not see eye to eye.
In addition to the decision on large banks, MEPs want the European authorities to have a mandate to go directly to banks when the national supervisor fails to correct their risk-taking.
The British government, which was previously very upset about this part of the package, is unlikely to agree to such an "infringement of powers," say diplomats in Brussels.
MEP Sylvie Goulard, who drafted the report on the European Systemic Risk Board (ESRB), the overarching authority of the four new bodies, also proposed changes to the governance of the board.
Previously, the Commission's proposal on the ESRB, which emerged in April 2009, would take staff from the European Central Bank (ECB) to man the supervisor's general and steering committees.
Goulard's report insists on hiring staff from various sectors, like academics or experts with experience in small and medium enterprise.
"I personally had serious doubts about the composition of the ESRB and welcome Ms. Goulard's proposals, which address my concerns on a lack of independence and conflict of interest between supervisors and the ECB," MEP Manfred Balz told members of the press.