Firebrand targets supervision
One of the knottier issues in Brussels at the moment is the future of the European supervisory authorities (the so-called ESAs) – the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA), the European Insurance and Occupational Pensions Authority (EIOPA), and the European Systemic Risk Board (ESRB).
The Commission would like to boost the supervisory reach of the ESAs as part of its Capital Markets Union project and outlined these plans in September 2017.
The reforms are described as changing the competences, structure, governance and financing of the ESAs. The intention is to reinforce their powers but proposals to transfer competences from national supervisors to the ESAs have proved controversial. The Commission also intends to undertake a comprehensive overhaul of existing rules, including venture capital, MiFID, long-term investment, issuers’ and prospectuses.
An expansive 320-page legislative text cleared the European Parliament’s Economic and Monetary Control Committee (ECON) in January with cross-party support. It has passed to the Council for discussion by member state governments.
Pervenche Berès, as co-rapporteur for the measures – along with the Austrian Christian Democrat Othmar Karas who replaced the German MEP Burkhard Balz last September – supports the EU’s review for three reasons.
● 1994- Member of the European Parliament in the centre-left Socialists and Democrats (S&D) grouping
● 2017-19 Co-rapporteur (with Otmar Karas) for regulation on reform of the European Supervisory Authorities
● 2004-09 Chair, Economic and Monetary Affairs Committee (ECON)
● 1978 Graduate of the Paris Institute of Political Studies École alsacienne
First there is the timing. “The ESAs started seven years ago, so in any case this justifies a review. We needed to take a look at what does work and what does not”.
Second, the MEP insists that supervisory governance clearly “does not work”. Here the reputed firebrand lays unmercifully into the practices of the national financial authorities, at least in some member states, described as “a motley group”. One thing they do is “play tricks” by reopening points that have already been agreed in Brussels, according to Berès. This she describes as dangerous: “We need our legislation to be implemented in a convergent way”.
Although she largely absolves the UK’s Financial Conduct Authority (FCA), she does not name culprits. “Not wise,” as she put it. Yet there are concerns that strong rules should also apply to third countries, which the UK will become upon Brexit.
A third reason for the review is Brexit given that at present “80% of investment funds are managed in London”. Berès clearly has in mind the relocation of lucrative businesses to rival Continental centres. Hence the need exists, she says, to “prevent some national authorities from going in for a [supervisory] race to the bottom to attract lucrative business unfairly. This is a threat which, I understand, is huge”.
Berès also contends MiFID should be extended to cover funds that present a systemic risk, and says EIOPA and ESMA should have more power over trading venues.
The MEP turns to discussions on occupational pension interests in the ECON negotiations. Interest groups had complained about a lack of their representation in the stakeholder consultancy groups, but the MEP says this has been taken on board in amendments.
In fact, the groups look set to have 13 representatives for industry, the user-side and employer representatives, and four academics, which the MEP describes as “decent compensation for non-industry stakeholders”.
As co-rapporteur, Berès piloted several of key amendments to the Commission’s 2017 draft text through ECON, from among 1,400 altogether. One amendment set up a new committee on consumer protection aimed at a co-ordinated approach to regulation and supervision of “new or innovative financial activities”. Another move is to grant national authorities in charge of consumer protection access to comparable data elsewhere. Consumer protection is “aimed to become much stronger than it is at present”, according to Berès.
Furthermore, the current text allows ESAs to ban financial products and activities that may cause detriment to consumers. The ESAs will also have the power to carry out investigations into products or institutions if they constitute a threat to consumer protection.
On cross-border pensions, despite a lack of activity, Berès notes that policyholders could be at risk of losing entitlements if they buy insurance protection through “shell companies” located in other members states, if those firms were later to become insolvent.
ECON’s approval of the current text paves the way for future discussions between Parliament and the Council. Yet Berès sees a serious risk of dilution to the current text.
Perversely, the Danske Bank €200bn lobbying scandal could boost the position of the Parliament and Commission on ESA reform. The scandal emerged as a result of interventions by the US Department of Justice, not EU authorities – strengthening the case for stronger European supervision.
The Danish government has since moved to bolster its financial services regulator, which chose to censure Danske in 2018 as allegations of money laundering were emerging, but did not act against board members.
Fallout from the scandal and a sense of responsibility among governments could boost the chance of reform. The Council has heard the message from Parliament. “If the Council wants to do it, it will,” she states. “Now there is a very small window of opportunity to conclude the file before the end of the mandate.”