EU super-regulators from 2011

Super-regulators the EU supervisory authorities (ESAs) and the European Systemic Risk Board (ESRB) should be up and running by January 2011, overpowering national regulators such as the UK’s Financial Services Authority (FSA).

The European Commission said they would have “tough new powers to settle disputes among national financial supervisors and to ban risky financial products and activities”.

“If national supervisors fail to act, then the authorities may also impose decisions directly on financial institutions to remedy breaches of EU law,” it said.

ESA powers

The ESAs will “guide national supervisors to ensure tighter supervision of cross-border financial institutions”. They can also impose legally-binding mediation and, if that fails, can enforce supervisory decisions.

ESAs will be able to intervene at their own discretion, not at the request of one of the national supervisors.

The ESAs will also monitor how national supervisors implement EU law. “ESAs may raise the alarm, issue instructions to the national supervisor concerned and, if these go unheeded, directly instruct the financial institution to remedy any breach of EU law”, the EU said.

ESAs will have the power to investigate specific types of financial institution, financial product or financial activity and may temporarily ban or restrict them. They may also ask the Commission to introduce laws to ban such activities or products permanently.

Powers may grow

The EC must report to MEPs every three years on whether it should integrate the supervision of banking, securities, pensions, and insurance and whether the ESAs should be given more powers to directly regulate EU-wide firms.

ESRB

The ESRB will develop uniform ratings of the riskiness of specific cross-border financial institutions, using colour-coded grades to reflect different risk levels.

The EC said a broad range of skills and experience, including academics, will be represented on its Advisory Scientific Committee and to improve visibility and credibility, the ECB President will preside over the ESRB for the first five years.