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A new EU regulatory structure

There's a conference in Brussels over the last two days looking at moving towards a new supervisory architecture across Europe.   This follows on from the de Larosière report in February and Charlie McCrrevy has announced a variety of changes in EU regulatory structures.

In one speech, Mr. McCreevy reinforces the need for the 5% rule in securitisation:

"On the now famous '5% retention' for securitisation, I'm pleased to see that
the Parliament has resisted the call from industry to do away with what they had
only last year characterised as complete non sense. I am delighted to say that
the retention rule has emerged as something that is not non sense but plain
'common sense'. It is now recognised by G20 as a key measure to strengthen the
financial system."

In a second, he announces two critical changes to supervisory structures:

"In line with the de Larosière recommendations, we will soon present the
details of an enhanced European financial supervisory framework based on two new
pillars:

"The first pillar is the European Systemic Risk Council (ESRC), which has been
discussed this morning. This Council will monitor and assess the risks to the
stability of the financial system as a whole. It would provide early warning of
systemic risks and, where necessary, present recommendations for action to
address these risks.

"The creation of this Council would address one of the fundamental weaknesses
highlighted by this crisis, which is the exposure of the financial system to
interconnected, complex, sectoral and cross-sectoral systemic risks.

"The second pillar is the creation of the European System of Financial
Supervisors (ESFS) consisting of a network of national supervisors working in
tandem with the new European Supervisory Authorities.

"The new European network will be built on shared and mutually reinforcing
responsibilities, combining nationally based supervision of firms with the
centralisation of specific tasks at the European level. The driver behind the
network is to foster harmonised rules as well as coherent supervisory practice
and enforcement."

And in a third speech, Charlie directs fire at the Accounting systems leading up to this crisis:

"The IASCF is now the powerhouse for world accounting and this must be
reflected in its governance structure. Whilst we fully acknowledge the IASCF's
achievements to date in reforming its governance structure, notably the
introduction of the Monitoring Board, there are a number of issues which still
require action:

  • the geographic composition of IASB board members: there should be a greater
    link with the countries that actually apply IFRS;
  • proper due process: the importance of consultations, due process and
    feedback should not be underestimated; and
  • a balanced Board with members with more practical experience and not just
    theoreticians."

I then notice a press release that says that "the Governing Council of the European Central Bank (ECB) has today
decided that the European Investment Bank (EIB) will become an eligible
counterparty in the Eurosystem’s monetary policy operations on 8 July
2009."

Not making too many connections but between TARGET2 and the other ECB controls; central clearing for OTC Derivatives alongside a central code of conduct for pan-European clearing and settlement; a systemic risk council and supervisory group for Europe and more control for CEIOPS, CEBS and CESR; and all the other things happening in Brussels, the bottom-line is:

EXPECT BIG CHANGES TO COME!

About Chris M Skinner

Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here…

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