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The European Council took today a number of decisions intended to lead to the creation of a new financial supervisory architecture with the aim of protecting the European financial system from future risks and ensuring that the mistakes of the past can never be repeated.
Building a new order in financial markets
With significant progress has already been achieved, the European Council calls for further progress on the regulation of alternative investment funds, the role and responsibilities of depositaries and on transparency and stability of derivatives markets.
Commission and Member States should accelerate their work on countering the pro-cyclical effects of regulatory standards, e.g. as regards capital requirements and impaired assets, and calls for rapid action on executives' pay and on remunerations in the financial sector.
The European Council supports the creation of a European Systemic Risk Board. The members of the General Council of the ECB will elect the chair of the European Systemic Risk Board.
The European Council also recommends establishing a European System of Financial Supervisors, setting up of supervisory colleges and establishing a European single rule book applicable to all financial institutions in the Single Market.
Decisions taken by the ESAs should not impinge in any way on the fiscal responsibilities of Member States. It agrees that the European System of Financial Supervisors should have binding and proportionate decision-making powers in respect of whether supervisors are meeting their requirements under a single rule book and relevant Community law and in the case of disagreement between the home and host state supervisors, including within colleges of supervisors. ESAs should also have supervisory powers for credit rating agencies.
All actions must be consistent with single-market principles, ensure a level playing field and take into account a credible exit strategy, the European Council states. The Commission is invited to continue to monitor the measures taken in support of the financial sector and to provide further guidance on the return of the banking sector to viability.
The Council's report on the effectiveness of financial support schemes underlines the extent to which state guarantees and recapitalisation operations have been crucial in preventing a meltdown of the financial sector and have played a positive role in protecting the interests of depositors.
The Commission intends to bring forward, by early autumn 2009 at the latest, the legislative proposals to put in place the new framework for EU supervision.
The Commission is also called to make concrete proposals for how the European System of Financial Supervisors could play a strong coordinating role among supervisors in crisis situations, while fully respecting the responsibilities of national authorities.
Key issues of building a new order in financial markets
In particular, the Council focused on the key issue of building a new order in financial markets. The following points were presented:
Ø There is a clear need for a reliable and credible exit strategy.
Ø The Council reports on the effectiveness of financial support schemes and underlines the extent to which state guarantees and recapitalisation operations have been crucial in preventing a meltdown of the financial sector and have played a positive role in protecting the interests of depositors.
Ø Governments must stay alert to possible further measures which may be needed to recapitalise or to clean up balance sheets. The ongoing EU wide stress-testing exercise will help to better assess the financial system's resilience, contribute to enhancing confidence of financial markets and facilitate coordinated policy measures at EU level.
Ø Addressing the failures exposed by the present crisis will contribute to preventing future ones.
Ø The European Council calls for further progress to be made in the regulation of financial markets, notably on the regulation of alternative investment funds, the role and responsibilities of depositaries and on transparency and stability of derivatives markets.
Ø The European Council also calls on the Commission and the
Ø The European Council supports the creation of a European Systemic Risk Board which will monitor and assess potential threats to financial stability and, where necessary, issue risk warnings and recommendations for action and monitor their implementation. The members of the General Council of the ECB will elect the chair of the European Systemic Risk Board.
Ø The European Council also recommends that a European System of Financial Supervisors, comprising three new European Supervisory Authorities, be established aimed at upgrading the quality and consistency of national supervision, strengthening oversight of cross border groups through the setting up of supervisory colleges and establishing a European single rule book applicable to all financial institutions in the Single Market.
Further issues and the way ahead
The Commission intends to bring forward, by early autumn 2009 at the latest, the legislative proposals to put in place the new framework for EU supervision.
The Commission is also called to make concrete proposals for how the European System of Financial Supervisors could play a strong coordinating role among supervisors in crisis situations, while fully respecting the responsibilities of national authorities.
All actions must be consistent with single-market principles, ensure a level playing field and take into account a credible exit strategy, the European Council states. The Commission is invited to continue to monitor the measures taken in support of the financial sector and to provide further guidance on the return of the banking sector to viability.
The Council's report on the effectiveness of financial support schemes underlines the extent to which state guarantees and recapitalisation operations have been crucial in preventing a meltdown of the financial sector and have played a positive role in protecting the interests of depositors.
(NOTE: The key decisions for financial services regulation are in paragraphs 17-23 of the Council Conclusions.)