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Stronger oversight of EU financial markets
Economic and monetary affairs - 10-05-2010 - 16:31
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The key points

   * Vote on hedge fund managers 17 May
   * Expected in plenary June-July

Euro coin in front of the headquarters of the ECB

Vote on alternative investment fund managers postponed ©BELGA/AFP/THOMAS LOHNES

Since the economic crash and subsequent global crisis there have been
calls for closer monitoring of the financial system and better EU
coordination. On Monday it was the turn of the Parliament's Economic
Committee to have its say on the proposals for a European Systemic
Risk Board and a European System of Financial Supervisors. Stricter
controls over hedge funds and other "alternative investment funds"
will be voted on 17 May.

The aim is to prevent future crises and protect investors without
throttling the market. The EP has long sought better supervision of
markets and in 2009 the European Commission came up with proposals to
improve oversight mechanisms within an EU-wide system of supervisors.

If the EP and Council agree, the measures will lead to greater EU
oversight and closer coordination with national supervisory
authorities over: the economy, systemically important institutions and
alternative investment vehicles like hedge funds.

The main supervisory instruments are:

The European Systemic Risk Board (ESRB) will monitor the financial
system. It will give early warning of impending instability due to the
build up of systemic risks and propose solutions.

The ESRB will issue recommendations and warnings to EU countries and
to the European Supervisory Authorities (ESFS), which must comply or
explain why they have not done so. The EP will also receive the
warnings to ensure implementation and will supervise the ESRB's work

It will be made up of the heads of the European Central Bank, the 27
EU central banks, the European Supervisory Authorities and national
supervisors. It will be based in Frankfurt under the auspices of the
ECB

3 supervisory authorities

A European System of Financial Supervisors (ESFS) will be set up to
supervise individual (but unnamed) financial institutions important
enough to pose a widespread threat if they encounter problems.

Alongside national supervisory authorities three EU supervisory
authorities will be set up:

   *

     the European Banking Authority (EBA) will supervise banks
   *

     the European Insurance and Occupational Pensions Authority
(EIOPA) will supervise insurance companies
   *

     the European Securities and Markets Authority (ESMA) will
supervise financial markets and credit rating agencies


The ESFS will also help harmonise standards and regulations EU-wide,
the final objective being a "common rule book" for EU regulators. The
steering committee will be made up of the "highest-level
representatives from national supervisory authorities" plus a
representative from each of the EU authorities.

Alternative Investment Fund Managers

The measures have excited a lot of discussion and MEPs have tabled
3000 amendments including the setting up of specific funds to help
systemically important banks in case of trouble, the ability of the
authorities to impose solutions on national regulators in the case of
conflict, the right of the authorities to temporarily ban certain
financial products and to take over direct supervision of specific
institutions if necessary.

Possibly the most contentious proposal is on Alternative Investment
Fund Managers (AIFM), including hedge funds, private equity funds and
real estate funds. They will have to register in their member state,
prove they have competent managers and structure, submit to audits and
meet minimum capital requirements. The vote on AIFM was postponed.

http://www.europarl.europa.eu/news/public/story_page/042-74270-127-05-19-907-20100507STO74256-2010-07-05-2010/default_en.htm