EU reaches deal on cross-border financial supervisors

2nd September 2010, Comments 0 comments

Europe took a big step closer on Thursday to its goal of creating cross-border financial supervisors, reaching a "crucial milestone" in efforts to reform a sector blamed for the global recession.

EU states, the European Commission and European lawmakers reached a deal in principle to establish three agencies that will oversee banks, insurers and the markets, European Internal Market Commissioner Michel Barnier said.

The agreement also creates a European Systemic Risk Board which would look out for threats to the region's economy following months of negotiations.

"We have reached a crucial milestone," Barnier said. "We have reached a political consensus on the creation of a European financial supervisory framework."

The deal must be approved by EU finance ministers meeting in Brussels on Tuesday and the European parliament sometime this month. The EU hopes to launch the new agencies in January.

Europe is lagging behind the United States in efforts to regulate the financial sector as President Barack Obama signed into law in July the most sweeping reform of Wall Street since the 1930s.

Negotiations between EU states and lawmakers resumed this week after they had stalled in July as the two sides locked horns over how much power to give to the new agencies.

European states reached their own compromise in late 2009 despite reluctance from Britain to grant too much authority to the new agencies.

"The fact is that we did not see the crisis coming. We did not have the monitoring tools to detect the risk which was accumulating across the system. And when the crisis hit, we did not have effective tools to act," Barnier said.

The new bodies will give Europe "the control tower and the radar screens needed to identify risks, the tools to better control financial players and the means to act quickly, in a coordinated way, in a timely fashion," he said.

Oversight of the financial sector is in the hands of national supervisors.

Britain, home to one of the world's biggest financial centres in London, has insisted that decisions of the pan-European agencies should never interfere with a state's fiscal sovereignty.

London fought to limit the ability of the European agencies to intervene in a crisis by obtaining the right to appeal their decisions. European lawmakers believed this mechanism would weaken the supervisors but a compromise was reached on Thursday that would prevent any "abuse" of the safeguard, negotiators said.

Britain, which is not a member of the euro single currency area, was also reluctant to make the president of the European Central Bank the head of the systemic risk board.

But negotiators agreed to make the ECB chief, Jean-Claude Trichet, head of the board for five years, although the next appointment would be up for discussion.

A British government spokesperson welcomed the deal, saying it was "a very good outcome for the UK, fully reflecting the priorities secured by" finance minister George Osborne.

The negotiators for the parliament's Socialist bloc, Udo Bullmann, Peter Skinner and Antolin Sanchez Presedo, said European leaders must now move forward on plans to regulate risky financial instruments.

"By designing this new architecture, the EU has made a huge step forward in avoiding any new financial crisis," they said in a joint statement.

"Nevertheless, more needs to be done. We expect European leaders to show the same level of ambition in securing a deal to regulate hedge funds and private equity as well as the markets for derivatives," they said.

© 2010 AFP

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