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EU Endorses Systemic Risk Board as Part of Regulatory Reform

By Jim Hamilton

While Congress debates the Obama?s Administration?s proposal that the Fed be the systemic risk regulator, the European Union Council has endorsed the creation of a European Systemic Risk Board to 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 European Central Bank will elect the
chair of the Systemic Risk Board The creation of the Board would address one of the fundamental weaknesses highlighted by the financial crisis, which is the exposure of the financial system to interconnected, complex, and cross-sectoral systemic risks

The Council also endorsed the European Commission?s proposal to create a European System of Financial Supervisors for individual financial institutions, consisting of a network of national financial regulators working in tandem with new European Supervisory Authorities, created by the transformation of existing Committees for the banking, securities, and insurance sectors. The ESFS is to be built on shared and mutually-reinforcing responsibilities, combining nationally-based regulation of firms with specific tasks at the European level.

Recognizing the potential or contingent liabilities that may be involved for Member States, the European Council stresses that decisions taken by the European Supervisory Authorities should not impinge in any way on the fiscal responsibilities of Member States.

The ESFS will foster harmonized rules and coherent regulatory practice and enforcement. This network should be based on the principles of partnership and flexibility and aim to enhance trust between national regulators by ensuring that host regulators have an appropriate say in setting financial stability and investor protection policies so that cross-border risks can be addressed more effectively.

The Commission envisions that the European Central Bank will have a prominent role on the Risk Council. Also the governors of the central banks of the members will be on the Council, as well as national financial regulators.

Full post as published by Jim Hamilton's World of Securities Regulation on June 19, 2009 (boomark / email).