UK must lead in EU financial supervision

21 July 2011

As the centre of European financial services the UK must make sure that it takes a leadership role and exerts influence in the activities of the European Supervisory Authorities (ESAs) says a Lords Committee today.

The European financial supervisory framework that came into force in January 2011 has been scrutinised in an update report by the House of Lords EU Sub-committee responsible for Economic and Financial Affairs and International Trade, which maintains a continual watch over EU financial affairs and just today reported on the role of credit rating agencies in the on-going euro area sovereign debt crisis.

While strongly supporting the principle that the day-to-day supervision of financial institutions should take place at a national level, the Committee recognises that in exceptional circumstances it may be necessary for the ESA’s to exercise emergency powers and temporarily overrule national supervisors. As a general rule, these powers should only be available to the ESAs if the Council of Ministers declares an emergency. The Committee notes, however, that the proposed European Regulation on short-selling and certain aspects of credit default swaps should be seen as an exception to this general rule: the Government should review its objections to provisions giving the European Securities and Markets Authority enhanced intervention powers.

It is vital that the UK exert significant influence in the ESAs given London’s status as a finance centre. The Committee is concerned that forthcoming changes to the Financial Services Authority may compromise the leadership role the UK has been able to take up until now. The report asks the Government to set out, in detail, what structures and mechanisms they plan to put in place to guarantee that the UK’s supervisory bodies present a cohesive and unified face within the ESAs.

Commenting on the report, Committee Chairman, Lord Harrison, said:

"There are huge changes being made to financial regulatory frameworks not only at a European level, but globally. We must make sure that the new European framework is implemented effectively, but also that the UK continues to push for further action at a global level. Global cooperation is essential to ensure that risks are minimised, rather than simply relocated.

Given the UK's position as a global centre for financial services, it is vital that the Government ensure that the bodies supervising our financial markets are able to maintain a leadership role within the ESA’s despite proposed changes to the structure of financial supervision in the UK". 

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