The European Parliament has opted for a wholesale overhaul of the EU's legislation to supervise financial services. In the firing line are banks, insurance companies and all manner of financial malpractice. Dealing with important side issues such as ratings agencies count among the targets.
This radical support for wide-ranging reform of financial market supervision cleared through the European Parliament plenary session in Brussels last month with a spectacular 565 votes to 74. Parliament is demanding that the Commission comes back with its legislative proposal by 30 November.
On the crucial supervisory aspect for financial services, the lawmakers are seeking a proposal for a regulation as soon as the end of this year. A regulation, as opposed to a directive, does not have to be transposed into national legislation. Parliament wishes to stiffen the structure for the three existing committees of national financial regulators - the Committee of the European Securities Regulators (CESR), the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) and the Committee of European Banking Supervisors (CEBS).
The recommendation for this "light co-ordination structure of national supervisors" includes a call for better "supervisory architecture" to facilitate better cross-border integration. Legal power is needed to solve conflicts between national, and sector supervisors.
Such powerful EU legislation would be going in the direction of setting up a European version of the US's Securities and Exchange Commission (SEC), which has federal powers "to protect investors and promote financial efficiency".
With the first drafts of the EU parliamentary report dating back to mid June, when the true ferocity of the current storm was not yet evident, it glances on one touchy subject after another. The wording, from Dutch lawmaker Ieke van den Burg and her Romanian co-rapporteur Daniel Daianu, puts on the menu, if not on the plate, inadequate risk management, irresponsible lending, excessive leverage and weak due diligence.
It touches on compensation schemes that, it says, should not reward excessive risk-taking. Credit rating agencies get in over "misconceptions of the meaning of rating". More generally, the European Central Bank and the European system of central banks are asked to set up systems to give "early warning" of upcoming threats to financial stability.
Unrelenting hand-wringing was evident during the debate leading up to the vote. Unsurprisingly, members came up with several "I told you so" expressions over the banking crisis. There were naked airings of distress and frustration. MEPs heaped up blame for perceived culprits, such as the European Council of Ministers, seen as supine as the crisis developed.
In particular, they pointed the finger at internal market commissioner Charlie McCreevy. Commission president José Manuel Barroso was also rapped for lax control of McCreevy.
Firebrand MEP Pervenche Berès, head of ECON, led the attack. "Mr Barroso," she said. "Where have you hidden the internal market commissioner? Where was he [McCreevy] in July 2007 when his services were warning us of the forthcoming disasters in European banks?"
If this put McCreevy on the ropes, he quickly took another body blow from the other side of the political fence. German MEP Werner Langen described the Irishman as "playing dead man walking for the last four years. Dublin and London are ‘remotely controlling' this commissioner". Langen urged Barroso to pass McCreevy's portfolio to Joaquin Almunia, currently commissioner for economic and monetary affairs.
Where was McCreevy during his role as punch bag? Not in the debating chamber, to be sure. Most likely he was listening in from next door. As the debate ended, the former Irish finance minister emerged into the parliament's adjacent "Mickey Mouse" bar (named after the vivid colours of its upholstery).
The MEPs' call for the Commission to produce draft legislation is unusual. Normally, the Commission proposes legislation. But the lawmakers have this opportunity, if they achieve an absolute majority in their vote.
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