Ministers adopt new EU financial services legislation rulebook

EU finance ministers have agreed on a review of the so-called Lamfalussy process, which governs EU procedures for legislation applicable to banks and insurance companies, but rejected plans for a supranational financial market supervisor at European level.

EU finance ministers meeting on Tuesday (4 December) agreed to improve the overall functioning of the Lamfalussy process for financial services legislation in the EU, which they viewed as “positive” so far.

Discussions focused on level III of the procedure, which deals with the role of national supervisors in order to intensify convergence and cooperation. Ministers agreed to limit so-called “goldplating”, whereby additional provisions other than those necessary for the transposition of EU directives are added to the legislation at national level.

The Council also mandated a number of further examinations. The Commission is for example asked to clarify the role and strengthen the working of these committees by April next year.

However, a plan to introduce a single EU regulator for financial markets was rejected. An Italian proposal to establish a European financial supervisor was rejected by the UK and Germany, which host Europe’s largest banks.

Ministers also discussed the proposed Solvency II Directive, which is to revise the current solvency regime for the insurance industry, but no agreement was found there. However, German Finance Minister Peer Steinbrück said that important steps had been made at the meeting. He underlined that Solvency II was “the most important project for the EU in the area of financial services”.

Portuguese Finance Minister Fernando Teixeira dos Santos who chaired the meeting said: "The Lamfalussy process has played an important role in improving the efficiency and quality both of EU financial services legislation and its implementation." Looking at the question of the future of supervision, he recommended a "step-by-step-progression" as the best way forward.

The UK Treasury stated that it "supports a series of practical measures to increase the efficiency and effectiveness of the supervisory process, but opposes wholesale reform."

Italian Finance Minister Tommaso Padoa-Schioppa (enlarging on his views expressed in a letter to colleagues prior to the last EcoFin Council) said that it was now "high time" to take the original Lamfallusy process to its logical conclusion and establish a single rulebook on financial supervision, applicable to all financial institutions operating in the single market.

German Finance Minister Peer Steinbrück underlined that the Council had agreed on the "necessary and possible", but in the light of the initiative taken by Padoa-Schioppa and recent market turmoil, he added that further steps should be considered. Steinbrück said that improved coordination and convergence of national supervisory authorities should especially be tackled. However, he was sceptical about proposals to give level III committees a legal status.

The European Banking Federation (EBF) stated that it welcomed the Council conclusions, but stressed that "further success now depends on the process's capacity to deliver consistent and convergent implementation and application of adopted EU legislation". The EBF especially called for a reduction of "goldplating" and underlined that the choice of legal instruments should be decided on a case-by-case basis.

The Lamfalussy process has been in place for five years now, establishing a specific EU approach for drafting and updating legislation in the financial services area. Under this procedure, legislation is dealt with at four levels:

  • At the first level, the Parliament and Council adopt framework legislation; 
  • at the second level, sector-specific committees and regulators advise on technical details; 
  • at the third level, national regulators work on coordination; and; 
  • the fourth level deals with enforcement of legislation.

The procedure aims to achieve greater flexibility in the legislative process and faster adaption to technological change and market developments in the financial services sector.

  • April 2008: Further steps concerning EU-wide financial supervision are to be discussed at the informal EcoFin Council to take place under Slovenian Presidency.

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