Lamfalussy Follow-Up: Future Structure of Supervision

1. Lamfalussy Follow-Up: Future Structure of Supervision Ieke Van Den Burg Daniel Daianu IvdB/DD

2. Basic prerequisites for effective regulatory and supervisory arrangements (I) • Improving the EU financial services regulatory framework by developing the capital adequacy framework • Impose capital requirements • Strengthen capital adequacy for extreme situations • Anti-cyclical rules • Improve risk management and reform the framework based solely on mathematical models • Higher capital charges for complex products and derivates • Disclosure of balance off balance-sheet items, SIVs and any liquidity assistance IvdB/DD

3. Basic prerequisites for effective regulatory and supervisory arrangements (II) (II) Improving transparency • Securitisation: transparency, clarity and quarterly availability of data • Complex financial products: properly evaluate and monitor risk • Accounting rules, valuation and pricing to the mutual benefit of all stakeholders • Unregulated markets: increase transparency of OTC markets IvdB/DD

4. Basic prerequisites for effective regulatory and supervisory arrangements (III) (III) Governance measures • Securitisation: originators asses and monitor risk; retain a portion of the debt or mortgage backed securities • Remuneration schemes: balanced incentives, which do not encourage extreme risk taking; prudential supervisors to include in their assessment the influence of remuneration and bonus schemes; disclosure • Corporate liability regimes: penalties for failures to comply with legislation • Rating agencies: address conflict of interest, differentiated products, full transparency in ratings and no turning of sub-investments into investment grade securities IvdB/DD

5. Financial Stability and Systemic Risk Measures (I) • ECB to develop databases and forward looking scenarios and policies • EU supervisors and central banks to provide non public and confidential up to date micro prudential information and data to the ECB • To expand the EU prudential and regulatory framework to reflect all sources of systemic risk • EU crisis prevention, management and resolution arrangements • At the EU level: early prevention mechanisms, facilitate cross-border transfer of funds within a group in extreme situations, etc. • Improve EU rules on winding up and insolvency of financial institutions IvdB/DD

6. Financial Stability and Systemic Risk Measures (II) • Introduce obligatory ex-ante schemes finance by financial institutions and administered independently; level of re-fund significantly increased • Similar measures for insurance guarantees • Set up a risk absorber, activated when financial stability is threatened • Small special tax on financial transactions IvdB/DD

7. Supervision of EU financial institutions and markets EU financial stability oversight Overview Specific structure of mandatory colleges For the 40 – 50 largest institutions Strengthened general supervisory structure 3L3 Agencies EU financial stability oversight body Provides link between micro- and macro prudential data with ECB and ESVB data. Acts as rapid reaction force in case of crises with potentially systemic impact. Represents EU in international financial stability structures (FSF) EU College Coordination and Mediation Committee: Coordinates between and mediates in conflicts within the mandatory colleges. Presidium of European supervision: Coordination of the 3L3 agencies,. C1 C40 CESR-agency CEBS-agency CEIOPS- agency C2 C50 Colleges of cooperating national supervisors: carry out supervision of the 40 - 50 largest cross border financial groups operating in the EU. Supervisory agencies: ensure level playing field and supervisory convergence/uniformity in implementation/enforcement of EU rules. Issue guidelines/recommendations on supervisory practices. Continue to work as advisory L3 bodies in Lamfalussy structure. IvdB/DD

8. 3.1 Colleges of supervisorsmandatory for the 40 – 50 largest EU cross border groups • Composition: National supervisors (home and host); decision by QMV • Task: Carry out supervision of the 40 - 50 cross border financial groups /conglomerates operating in the EU. Focus on systemic risks. • Chair and secretariat: Hosted by and primarily staffed by lead supervisor in MS with HQ. IvdB/DD

9. 3.2 EU College Coordination and Mediation Committee • Scope: mandatory supervision colleges of the 40 – 50 largest cross border groups • Composition: 1 independent president plus 2 – 4 part time vice-presidents appointed by Cion for a 5 year term – after consultation of EP and Council • Task: coordinate between the mandatory colleges for the large cross border groups; mediate/decide in conflicts between national supervisors within the colleges. Organise complaint, appeal and redress procedures. • Secretariat financed through EU budget and/or system of contribution. IvdB/DD

10. 3.3a 3 supervisory agencies(CESR, CEIOPS, CEBS) • Composition of each: 1 independent president + 1 – 5 parttime vice-presidents – for 5 year term, appointed by Cion after consultation Council and EP; secretariats financed through EU budget and/or system of contribution • Annual workplan, approved by Cion, Council and EP • Decide by QMV. • Tasks: L3 advisory tasks consituned plus: Ensure level playing field and supervisory convergence in implementation/enforcement of EU rules. • Issue guidelines/recommendations on supervisory practices. Set common reporting formats, • Represent EU internationally in sector organisations (e.g. IOSCO). IvdB/DD

11. 3.3b European supervision Presidium • Composition: 5 persons: 1 independent president, the chair of the CCMC and the 3 chairmen of the 3L3 agencies. All appointed by Cion for a 5 year term – after consultation of EP and Council. • Tasks: Coordinate between the sector agencies, provide for common data and statistics, and cooperate with the European System of Central Banks and the ECB for the purpose of coordination of financial stability issues (through the EU financial stability oversight body) • Secretariat financed through EU budget and/or system of contribution. IvdB/DD

12. 3.4 EU financial stability oversight bodytogether with ECB and ESCB • Composition: The chairs of the 3 supervisory committees, the chair of the presidium, the chair of the CCMC, a bank president of the European System of Central Banks (all EU central banks), a bank president from within the Eurosystem and the (Vice)President of the ECB charged with prudential supervision; The ECB (VP) could chair, while the vice-chair could be the chair of the EU presidium for the EU system of supervisory convergence • Task: link micro and macro prudential data with ECB and ESCB data, provide early warning signals about systemic risk/threat to financial stability, act as rapid reaction force in case of a threat to financial stability, represent the EU in international bodies of supervisors like FSF • Secretariat staffed by the ECB. IvdB/DD