29 June 2005

EFR Report on lead supervisor model and future of financial supervision in the EU

The European Financial Services Round Table (EFR) published its third report on the concept of lead supervision, stressing that the European prudential supervisory framework, despite encouraging discussions on prudential supervisory structures, remains highly fragmented and overregulated and has to be made more efficient and more effective.

The EFR describes how the future structure for financial supervision in the EU could function and would be conducive to fostering economic growth through more cross-border integration of EU financial markets.

The EFR proposes that the lead supervisor would be fully empowered to conduct the entire prudential supervision over all operations of a financial institution within the EU, i.e. not only of branches in other EU member states, but also of fully owned subsidiaries in other EU member states. It is stressed that the interests of supervisors should be taken adequately into account by a “college of supervisors”.

To avoid competitive distortions, the lead supervisor concept must be applied by all member states by creating a legislative basis, common most probably an EU regulation.

With regard to deposit insurance / insurance guarantee schemes the EFR would strongly recommend that the Commission presents a model to which the existing system should gradually converge over a specified time period. The structure of lender-of-last-resort operations should mirror that of the lead supervisor concept, i.e the national central bank corresponding to the nationality of the lead supervisor would be the responsible lender of last resort and would ultimately take the decision on whether to activate the function or not.

Fortis CEO Jean-Paul Votron commented: “For internationally active groups, supervisory responsibilities no longer coincide with, nor are they suited to the reality of those groups. The institutional set-up of financial supervision in Europe currently is a patchwork of different and sometimes inconsistent regimes where responsibilities and procedures can be unclear.”

The report concludes that the lead supervisor a near-term arrangement would be an important step towards a more efficient and effective prudential supervisory structure in the EU. However, as financial markets and the structure of financial institutions will continue to evolve, the lead supervisor concept may not necessarily be the optimal structure for financial supervision in the EU in the medium-term to long-term.

Press release
Report

© EFR - European Financial Services Round Table