EU Financial Supervisory Structure
Financial supervision in the EU looks at macro- and micro-prudential supervision at Community level.
Below is an overview of the supervisory institutions and their responsibilities:
European Systemic Risk Board (ESRB)
The ESRB's objectives are:
- developing a European macro-prudential perspective, to address problems of fragmented individual risk analysis at national level;
- enhancing the effectiveness of early warning mechanisms by improving the interaction of macro- and micro-prudential analysis; and
- allowing risk assessments to be translated into action by the relevant authorities.
The ESRB does not have any powers to impose measures on Member States or national authorities. It can issue risk warnings and may recommend specific actions (which may, or may not, be made public). Those to whom the warnings are addressed may take action or may not, in which case their reasons must be explained.
In its work, the ESRB closely cooperates with the Financial Stability Board and International Monetary Fund, which carry similar responsibilities at the international level.
European Supervisory Authorities (ESAs)
ESAs assume certain responsibilities for micro-prudential supervision at EU level. They work alongside national supervisors of individual Member States which continue to enjoy their existing powers.
ESAs were established, in 2011, through reforming the Committees (i.e. CEBS, CEIOPS and CESR) into the European Banking Authority (EBA), European Insurance and Occupational Pensions Authority (EIOPA), and European Securities and Markets Authority (ESMA).
The powers of the Authorities include the following:
- to collect relevant information on the performance of the industry and undertake investigation into activities of financial institutions to determine the level of risk they pose;
- to contribute to consistent and coherent operations of EU supervisory colleges;
- to initiate and conduct stress tests at the EU level;
- to ban or restrict financial products which may weaken the EU economic stability. ESAs may also request the Commission to consider a legislative initiative with a view of a permanent ban of such products or activities; and
- to issue binding decisions directly to financial institutions in the following cases:
(i) the institution is in breach of, or fails to apply, the EU law;
(ii) there is a disagreement between supervisors; or
(iii) an emergency situation has been declared. Currently, only Member States can declare an emergency situation; however, the Parliament is ‘formally empowered’ to request an individual European government to do so.
The European Commission adopted a package of proposals designed to strengthen the European system of financial supervision in September 2017. The proposals aim to improve the mandates, governance and funding of the three ESAs and the functioning of the ESRB to ensure stronger and more integrated financial supervision across the EU. The suggested reforms are now going through the EU legislative process.