Parliament calls for overhaul of financial supervision

MEPs yesterday (9 October) voted in favour of providing the current system of financial supervision with a stronger legal basis. The issue will also be discussed by the G7 finance ministers at their meeting in Washington today.

565 MEPs voted in favour of the report, with 74 against amid 18 abstentions. The central feature of the report is the demand for a stronger legal basis for the financial supervision system and a more visible role for the European Central Bank (ECB). 

The lack of financial supervision over increasingly complex financial markets is considered to have been a major contributor to the current financial turmoil. 

Solid legal basis

MEPs argued that voluntary arrangements are insufficient to streamline the fragmented structure of European supervisors. They called for a legal status to be granted to the so-called Level Three committee, which coordinates the work of national financial regulators, thus obliging national supervisors to execute its decisions. Its key objective should be to work towards better cross-sector and cross-border integration and coordination.

The Parliament’s report also stressed the need to complement the existing “light coordination structure” of national supervisors with an authority at EU level that could “break deadlocks and solve conflicts” between national and sectoral supervisors. 

Together with the national regulators, the European supervisory body would form a sort of “appeal body” and a coordinating structure which MEPs hope could ensure faster and more effective responses in crisis situations, such as the one the world is currently experiencing. 

Furthermore, MEPs said that a college of supervisors dealing with cross-border institutions should become mandatory. It should work on the basis of a “fairly fixed division of competences” and a system of qualified majority voting between supervisors. 

Role of the ECB 

The report also calls for a stronger role of the ECB to provide the EU with “a clear voice” in international bodies, echoing the call of several member states for a more coherent external representation. 

Disclosure of corporate pay 

In line with what the EU’s finance ministers decided at their meeting earlier this week, MEP also called for more transparent handling of corporate pay, the absence of which would encourage “extreme risk taking” when examining a company’s risk. 

Commission has to react

Following the adoption of the report, the Commission now has to come up with concrete legislative proposals or thoroughly explain why it will not. 

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