EU Commission
EU Commission Communications on European Financial Supervision and Board Governance
In March 2009, as a result of the financial crisis, the EU Commission committed to provide proposals for the reform of financial supervision across Europe. Proposals were issued on two levels: Micro-prudential supervision; and Macro-prudential supervision.
In December 2009 the ECOFIN Council agreed on some of the elements of a new supervisory framework, in particular a European System of Financial Supervisors (ESFS) designed to deal with micro-prudential supervision.
In June 2010 the EC issued its Green Paper on Corporate Governance in Financial Institutions and Remuneration Policies. With far-reaching potential for a prescriptive approach to Board Governance EC is looking to implement its proposals in 2011.
European System of Financial Supervisors
The ESFS will consist of a network of national financial supervisors working in tandem with three new European authorities for the supervision of financial markets:
- European Banking Authority
- European Insurance and Occupational Pensions Authority
- European Securities and Markets Authority.
Micro-Prudential Supervision
The EU Commission analysis on micro-prudential supervision was that it had reached its limits with the present structure of the EU Committee of Supervisors and concluded that “transference of competences to the community level is necessary.”
It considered five options and concluded that the only feasible option was the De Larosiere proposal: European System of Financial Supervision (ESFS) and has chosen, for now, to retain the current sectoral structure of the three committees of supervisors by creating three European Authorities with the same sectoral mandates as the existing committees, combined with an analysis of the functioning of the new structures three years after the start of the ESFS.
Macro-Prudential Supervision
The EU Commission concluded that “…the weakness of present arrangements clearly played a role in the recent financial sector turbulence…” and it stated that the EU should set up a new body responsible for identifying financial stability risks at European level.
It then assessed five options and confirmed that establishing a new body: the European Systemic Risk Council (ESRC) would be the most effective. The ESRC is to be an independent body outside of the European Central Bank, but sharing its chairman. Its main tasks are to be to detect macro-prudential risks, to identify the appropriate measures to reduce these risks and to trigger remedial action by competent authorities via warnings.
See EU Commission Summary (March 2009) EU Commission announcement (December 2009)
EC Corporate Governance Paper
The EC governance green paper may have far more impact than was first envisaged. EC Commissioner for internal markets, Michel Barnier launched the EC governance code green paper at the begining of June 2010:
"On corporate governance, I am convinced that true crisis prevention starts from within companies. If we are to prevent future crises, financial institutions themselves need to change. We need to ensure more effective internal controls. Promote better risk management. Strengthen the role of supervisory authorities. And existing rules on sound remuneration policies should be implemented quickly to help curb excessive risk-taking."
The questions asked in the green paper suggest corporate governance could become a much more prescriptive matter for Boards across the EU.
Suggestions include:
* compulsory external evaluation and publication of reports for regulators and shareholders
* limiting the number of Board positions
* prohibiting combined Chair/CEO
* compulsory risk committees
* increasing director accountability
* obligatory shareholder code
* regulators obligated to check board functioning, etc.
The EC is looking for implementation in 2011.
For the full text of the green paper, including a new reference to an upcoming "broader review on corporate governance" Read more...
EU Roadmap for Financial Reform (published Autumn 2010 here...
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