ECB González-Páramo: speech on regulatory and supervisory reform in Europe
22 January 2010
Although much has been achieved to improve the European regulatory and supervisory framework, a lot still remains to be done. Europe should play a leading role in these developments and needs to make further progress to create a supervisory and regulatory framework.
He highlighted the following areas in which substantial work has been achieved to design and implement reforms at European Level:
· Three key areas of reform: credit rating agencies, hedge funds and compensation practices.
As regards credit rating agencies, a new EU regulation subjecting such agencies to mandatory registration and oversight in order to increase transparency and reduce conflicts of interest in the rating process has already entered into force in December 2009.
With regard to hedge funds, the European Commission has proposed a Directive on alternative investment fund managers. This proposal, which is currently under debate, provides that alternative investment fund managers should be subject to authorisation and harmonised regulatory standards, including minimum capital as well as disclosure requirements
On compensation practices, the European Commission was among the first to incorporate in a Directive proposal the Principles developed by the Financial Stability Board (FSB) for sound compensation practices, with a projected implementation date of end-2010. In this context, the EU was leading the international agenda in developing further guidance to align compensation practices with long-term value creation and discourage excessive risk-taking in the short-term. To recall, the G20 leaders in Pittsburgh in September endorsed the FSB implementation standards that aim to defer bonus payments, disallow guaranteed bonuses, and introduce a claw-back clause.
· Recent proposals on how to strengthen the prudential framework.
The risk coverage of capital requirements will be further strengthened for the counterparty risk related to derivatives, repos and securities financing activities, and incentives will be increased to move OTC derivative exposures to central counterparties and exchanges.
A leverage ratio will be introduced as a supplementary measure to the Basel II risk control framework to curb excessive balance sheet growth and to safeguard against model risk and measurement error.
Capital buffers and forward-looking provisioning will be introduced to mitigate the inherent procyclical nature of financial activities.
· Macro-prudential supervision in the euro area: The European Systemic Risk Board.
Macro-prudential oversight will be the key task of the European Systemic Risk Board (ESRB), which is built on the proposals of the High Level Group chaired by Jacques de Larosière. The European Commission’s legislative proposals for the establishment and functioning of the ESRB have received the support by the ECOFIN and the EU Council. The European Parliament is currently considering the proposals in its turn. Let me also mention that the ECB/Eurosystem expressed its stance in the opinion adopted on 26 October. 2009 It welcomed the broad agreement reached by ECOFIN on the draft legal texts regarding the establishment of the ESRB and the involvement of the ECB in supporting the ESRB. As stated in its Opinion, the ECB has decided that it stands ready to provide the analytical, statistical, administrative and logistical support to the ESRB, including the Secretariat of the ESRB.
He concluded by saying that “although much has been achieved to improve the European regulatory and supervisory framework, a lot still remains to be done. This is no time for complacency. We still need to make further progress to create a supervisory and regulatory framework, both micro and macro-prudential, in which a strong and competitive financial system can enjoy sustainable growth. Europe should play a leading role in these developments.”
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