Omnibus III

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Omnibus III: EU Council confirms its position on strengthening the supervisory framework for European financial institutions

19 February 2019

Regulatory News Alert

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Context and background

The European System of Financial Supervision (ESFS) was introduced in 2010 and became operational on 1 January 2011. It is a multi-layered system of micro- and macro-prudential authorities, which includes the European Systemic Risk Board (ESRB), the three European Supervisory Authorities (ESAs) and the national supervisors.

The ESFS aims at ensuring consistent and coherent financial supervision within the EU. However, the financial crisis proved that simple coordination of financial supervision via the ESFS was not sufficient to prevent fragmentation of the European financial market.

Against this background, a comprehensive package reviewing the ESFS was adopted by the Commission on 20 September 2017.

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Review of the ESFS

In order to ensure a stronger and more integrated financial supervision across the EU, the Commission proposed to improve the mandates, governance and funding of the ESAs and the functioning of the ESRB.

In addition, on 12 September 2018, the Commission introduced a proposal on strengthening the Union framework for prudential and anti-money laundering supervision. Objective of this proposal is to amend a series of regulations and directives aiming to concentrate on anti-money laundering powers related to the financial sector into the European Banking Authority (EBA).

The EU Presidency has proposed to prioritize the provisions relating to the anti-money laundering and terrorist financing activities. For this reason, in December 2018, EU ambassadors approved a partial mandate for negotiations on the anti-money laundering component of the ESFS package, while the negotiations on the rest of the review of the ESFS continue at both technical and political level, as a matter of priority.

Enhanced supervisory convergence and new centralizing powers for ESAs

In its mandate, among others, the Council suggests to introduce improvements to the existing system for supervisory convergence in order to improve the efficiency, coherence and overall transparency of the process. The Council position introduces new tools, for example the elaboration of a strategic supervisory plan at EU level, while reinforcing existing mechanisms such as peer reviews or consultation of the stakeholders groups.

The reform also reviews the powers of each of the three ESAs. The Council therefore recommends giving ESMA direct supervisory powers over critical benchmarks as well as services offering consolidated trading data covering trade in equity and non-equity instruments in the EU, the so-called "consolidated tape providers". In addition, the Council proposes that the exchange of information and cooperation between national authorities be strengthened, and that the ESAs should take better account of cross-border activities.

Finally, the reform aims at improving the functioning of the European Systemic Risk Board (ESRB) with target amendments. In its position, the Council seeks to clarify the role and competences of the ESRB in order to minimize potential risks of conflict of interests between the ECB's different responsibilities in the fields of monetary policy, micro-prudential supervision (as the SSM) and macro-prudential supervision (as the ESRB).

Next steps

Following the Council's confirmation of the general approach, both co-legislators are now in a position to start trilogue negotiations on the basis of the complete ESFS mandate, with a view to reaching an agreement at first reading. The first trilogue is scheduled to take place on 14 February.

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Contacts

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Partner - IM Advisory & Consulting
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