EN    EN EN 
EN    EN  COMMISSION OF THE E UROPEAN COMMUNITIES 
Brussels, 23.9.2009 
SEC(2009) 1235   
COMMISSION STAFF WORKING DOCUMENT 
 
accompanying document to the 
Proposal for a  
 
REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 
 
on Community macro prudential oversight of the financial system and establishing a 
European Systemic Risk Board 
 
Proposal for a  
 
COUNCIL DECISION 
 
entrusting the European Central Bank with specific tasks concerning the functioning of 
the European Systemic Risk Board 
 
Proposal for a  
 
REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 
 
establishing a European Banking Authority 
 
Proposal for a  
 
REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 
 
establishing a European Insurance a nd Occupational Pensions Authority 
 
Proposal for a  
 
REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 
 
establishing a European Securities and Markets Authority 
 
SUMMARY OF THE IMPACT ASSESSMENT  
{COM(2009) 499 final} {COM(2009) 500 final} {COM(2009) 501 final} {COM(2009) 502 final} {COM(2009) 503 final} 
{SEC(2009) 1234}  
EN 2   EN 1. INTRODUCTION  
In its Communication "European Financ ial Supervision" of 27 May 2009, the 
European Commission proposed changes to Eu ropean financial supervision in order 
to remedy failings revealed in the recent fi nancial crisis. Specifically, it proposed the 
creation of:  
• a European Systemic Risk  Council or Board (ESRB)  to assess risks to the 
stability of the financial sy stem as a whole ("macro-prudential supervision"), and 
provide early warning of systemic risk s and, where necessary, recommendations 
for action.  
• a European System of Financial Supervisors (ESFS) for the supervision of 
individual financial institu tions ("micro-prudential supe rvision"), consisting of a 
network of national financial supervis ors working with three new European 
Supervisory Authorities (ESAs), for th e banking, securities and insurance and 
occupational pensions sectors. 
These proposals were endorse d by the European  Council of 18-19 June 2009, which 
however also emphasised that decisions taken by the ESAs should not impinge on 
the fiscal responsibilities of Member States. 
This Impact Assessment accompanies the propo sals for legislative acts creating the 
ESRB and the ESFS. In order in particular  to define the scope  of the power to 
propose binding technical standards conferred on the ESAs, amendments to the relevant community legislati on will shortly be introduced.  
2. C
ONSULTATIONS AND PROCESS  
The Commission conducted a public consul tation on the Communication of 27 May, 
with a closing date of 15 July. 98 submissi ons were received, the great majority of 
them broadly supportive of the supervis ion proposals in the Communication. An 
Impact Assessment Steering Group to st eer the preparation of this Impact 
Assessment, comprising representati ves from various DGs, met twice. 
3. PROBLEM DEFINITION  
Building on the general problems identified in the Impact Assessment accompanying 
the Communication, more specific problems we re identified linked to the creation of 
the ESRB and the ESFS.  
For the ESFS these are: 
• How to ensure a single set of harmonised technical rules, and consistent 
application of those rules. 
• How to ensure the good functioning of co lleges of supervisors, particularly in 
terms of supply of appropriate information to all members of the college.  
EN 3   EN • How to achieve agreement between home  and host supervisors on matters which 
require agreement. 
• There is a need for better co-ordination be tween supervisors, and coherent action, 
in financial emergencies. 
• How to avoid impingement of Member Stat es' fiscal responsibility, in line with 
the European Council conclusions, while not  hindering the activity  of the ESAs in 
areas which do not impinge on the fiscal re sponsibilities of Me mber States. This 
will ensure that the principle of subsidiari ty is respected in the activity of the 
ESAs, because the area of direct fiscal ity is an exclusive competence of the 
Member States.  
For the ESRB these are: 
• How to make the ESRB as effective as pos sible, given that it cannot be given 
binding powers because a political decision has already been taken not to give it 
legal personality.  
• The warnings and recommendations of the ESRB must reach the right addressees 
and lead to the desired action, but wit hout having the self-fulfilling effect of 
helping to trigger a crisis.  
• The ESRB must receive the information which it needs to carry out macro-
prudential assessments effectively. 
• The ESRB must have a secretar iat structured and located so  as to allow it to carry 
out its functions cost-effectively.  
• Subsidiarity must be respected in the structuring and activity of the ESRB.  
4. OBJECTIVES  
The specific objectives identified in the Impact Assessment accompanying the 
Communication of 27 May are considered as the general objectives for this Impact 
Assessment, as the level of analysis is more detailed in this case.  
A number of specific objectives are al so defined, for the ESRB and the ESFS:  
ESFS 
a. Assume all of the tasks of the cu rrent EU Committees of Supervisors; 
b. Ensure a set of common rules; c. Ensure a consistent application of EU rules; d. Determine how to ensure a co mmon supervisory culture, including 
ensuring colleges of supervisors deve lop successfully and consistently; 
EN 4   EN e. Determine whether/how to grant full supervisory powers for certain 
institutions; 
f. Determine how to co-ordinate and effectively manage crisis situations; g. Ensure access to necessary information; h. Define safeguards to avoid imp act on Member States’ fiscal 
responsibilities; 
i. Ensure the independence of the ESAs. 
ESRB 
a. Establish adequate procedures to obtain information about macro-
economic risks for financial stability; 
b. Identify macro-prudential risks in Europe; c. Issue warnings to the relevant actors and recommend the appropriate 
actions; 
d. Determine how to achieve effective follow-up to 
warnings/recommendations; 
e. Ensure the independence of the ESRB. 
Furthermore, a system-wide objective is to  ensure that both levels (ESRB and ESFS) 
work together coherently to identify and r eact to cross-cutting elements which impact 
both micro- and macro-level stabilit y (such as remuneration policies). 
5. A
NALYSIS AND COMPARISON OF POLICY OPTIONS  
For both the ESFS and the ESRB, options were considered in the following areas: 
a. Powers and competences 
For the ESFS, the areas consider ed under this heading were: 
• Powers to ensure a single set of harmonised rules . Here, two types of powers are 
envisaged: firstly the power to propose binding technical rules for endorsement by 
the Commission, in areas to be defined by forthcoming modifica tions to sectoral 
legislation; secondly, powers to interv ene in case of disagreement between 
national supervisors on matters where agreement is, for example, required 
regarding a cross-border group, by media ting, and adopting a binding decision if 
necessary.  
• Powers to bring about consiste nt application of EU rules . Where a national 
supervisor seems to be breaching applicable  rules, an ESA would be able to issue 
a recommendation, which could be made  binding by a Commission decision in 
case of non-compliance. As an ultimate resort, and on the basis of directly 
EN 5   EN applicable Community rules, an ESA c ould address a decision to a financial 
institution if the Commission decision were ignored by the national supervisor. 
• Ensure a common supervisory culture and consistent supervisory practices . ESAs 
should continue and expand the role of the level 3 committees in this area, 
including training, and also contribut e to the functioning of colleges of 
supervisors, including by defining the information to be distributed and managing 
a database. 
• Full supervisory powers . It was decided to place in each Regulation creating an 
ESA an article making it possible to grant it direct supervisory powers for certain 
types of institution, but only by further modi fications to sector al legislation. For 
the moment, this is only envisaged for Credit Rating Agencies. 
• Powers in crisis situations . On this point, it was considered that the ESAs should 
be able to adopt decisions addressed to  national supervisory authorities over the 
full scope of relevant sectoral legisl ation, once the Commissi on has declared the 
existence of an emergency.  
• Powers to collect and manage mi cro-prudential information . The ESAs must 
have access at the minimum to the info rmation currently re ceived by the Level 3 
committees (anonymised and aggregated da ta). In order to  carry out their 
functions, it would be effective and cohere nt for them to be able to request 
national supervisors to pr ovide the information needed, on the basis of a 
motivated request, including informati on regarding individual financial 
institutions. 
• Safeguard for fiscal responsib ilities of Member States . Rather than have just a 
declaratory provision, or to allow Member States discretion as to when their fiscal 
responsibilities are impinged upon, it was c onsidered appropriate for the Council 
to decide by QMV, when a Member State and an ESA disagree as to whether the fiscal responsibilities of the Member State concerned are at stake in an ESA 
decision. 
For the ESRB, the areas consider ed under this heading were: 
• Regarding follow up to warnings and recommendations,  obligatory compliance is 
not possible, since a body without legal personality cannot issue binding acts, and 
no follow-up at all would undermine effectiveness, so a "comply or explain" obligation was considered to be the best option. 
• On access to information,  the ESRB could not issue credible warnings and 
recommendations without access to aggregated data, at the EU or country level. This could be channelled through the ES As. Furthermore, allowing the ESRB to 
access data on individual institutions on r easoned request would also improve its 
effectiveness. 
• Regarding publicity of warnings and recommendations,  it was considered that 
systematic publicity could be counter-pr oductive by potentially triggering crises, 
while publicity could on occasion be useful in case of non-compliance. Fixed 
EN 6   EN criteria for publication or non-publication would be difficult to set, so it was 
considered best to allow the ESRB discre tion as to when to publish on an ad hoc 
basis. 
b. Organisation and structure 
For the ESFS, the areas consider ed under this heading were: 
• Joint Steering Committee.  A joint committee with legal personality could adopt 
legal acts obliging coherent interv entions by the three ESAs, and on 
conglomerates. However a joint Committee with legal personality could engender 
extra costs such as for a secretariat. Overa ll, it is considered more prudent to have 
a flexible joint Committee with no legal personality, pending the first review of ESFS functioning. There will be a sub-committee on conglomerates.  
• Voting procedure.  It was considered that a simple majority of voting Board 
members would be the most effective opti on for acts of ESAs in individual cases, 
with qualified majority voting used for hor izontal matters such as the proposal of 
binding technical standards, recommendati ons and guidelines, and financial and 
budgetary decisions. 
• Involvement and role of relevant stakeholders . The lack of any stakeholder 
consultation other than ad hoc public c onsultations would lead to poor quality 
interventions. Holding open public consu ltations on every act of the ESAs would 
also be inefficient. A single stakeholder consultative group would be incoherent 
given the varying nature of the work of  the three ESAs. Therefore, separate 
consultative groups for each ESA are considered optimal. 
For the ESRB, the areas consider ed under this heading were: 
• Size of board and scope of expertise . For the effectiveness of the ESRB, the board 
must ensure adequate representation of expertise and views. The Commission 
proposal endorsed by the European C ouncil suggests a board comprising: 
* The President and Vice President of the European Central Bank; 
* Governors of each of the EU's National Central Banks; * One representative of the European Commission; 
* Representatives of each of the Eu ropean Supervisory Authorities; 
* One non-voting supervisor y representative from each Member State; 
* One non-voting representative fro m the Economic and Financial 
Committee. 
• Addressees of warnings . It seems that the most effective option to meet the 
objectives of the ESRB would be a range of addressees (Member States, national 
supervisors, European Supervisory Aut horities and the Commission). It would be 
ineffective and inefficient to limit the scope of potential addressees. For a macro-
EN 7   EN prudential body, it seems unnecessary to include individual financial institutions 
as possible addressees. 
• Stakeholder involvement and consultation . A Technical Advisory Group, putting 
together experts from the different institutions participating to the ESRB was 
considered useful to refine the analysis of the Secretariat when appropriate. Ad 
hoc wider consultations shoul d also not be ruled out. 
c. Financing 
For the ESFS, the options considered range d from 100% financi ng from the Member 
States to 100% financing from the Co mmunity budget. 60% financing by Member 
States and 40% Community subsidy has b een selected. This balance will ensure 
independence of ESAs both from Member States and the Community, give stability of funding, and reflect the important Commun ity dimension of the ESAs' objectives.  
Regarding the ESRB, the options evaluate d regarded the provision and location of 
the secretariat: whether this should be done by the Commission, a virtual network of 
Central Banks or the European Central Ba nk. It was considered that the most 
appropriate option for the ESRB secretaria t was that it should be provided by the 
European Central Bank. 
6. I
MPACT OF THE SELECTED OPTIONS  
The specific impacts on various entities directly concerned by the establishment of 
the ESRB and ESFS can be analysed as follows: 
• National supervisors. The ESAs will contribute to harmonisation of financial 
supervision in the EU, by proposing bind ing technical rules and monitoring 
application of EU rules by national supe rvisors. They will also facilitate 
functioning of colleges of supervisors, and run information databa ses of benefit to 
supervisors participating in colleges. Na tional supervisors will be able to bring 
appeals against decisions taken by the European Supervisor y Authorities. The 
ESRB should help national supervisors to better understand the impact of their 
actions on the wider economic and financ ial system. National Supervisors may 
however have a greater burden in te rms of information provision and a 
requirement to "comply or explain" following the receipt of an ESRB recommendation. 
• National Finance Ministries. These will benefit from enhanced financial stability 
across the EU, and reduced risk of expens ive bail-outs of financial institutions. 
They will have access to the analyses of  systemic risks carried out by the ESRB, 
and will receive warnings and recomm endations if necessary. The fiscal 
responsibility of Member States will be protected by the safeguard clause in the 
ESA Regulations. On the other hand, Member  States may have to contribute to 
finance the European Supervisory Authorities, according to the funding arrangements to be determined. 
• Level 2 and 3 Committees. With the establishment of the ESFS, the Level 3 
committees will cease to exist and their f unctions will be fully taken over by the 
EN 8   EN ESAs. However, the new Authorities will as far as possible ensure continuity with 
the Level 3 committees. Maintenance of current staff, and growth in staff 
numbers, is foreseen. The Level 2 comm ittees will continue as at present. 
• European Central Bank. The European Central Bank will be involved both 
through participation in the ESRB and thr ough the provision of the Secretariat to 
the ESRB.  
• National Central Banks. Participation in the ESRB and the input to the work of 
the Secretariat should not involve any si gnificant additional costs for national 
central banks.  
• Financial institutions. For large financial groups, the improved cross-border and 
cross-sector supervision will reduce compliance costs thanks to harmonised standards and supervisory practices. The ESRB will contribute to an improved business environment through effective cris is prevention in the EU. Credit Rating 
Agencies registered in the EU will be  able undergo direct supervision by the 
European Securities Markets Authority, ensuring greater coherence and cost 
reduction. The establishment of the Joint Steering Committee for three ESAs will 
be a basis for further strengthening of oversight of financial conglomerates.  
• Other stakeholders. To ensure appropriate input of stakeholders  into the decision 
making process of the ESAs, a dedicated stakeholder group will be created for 
each authority, with thirty members representing in a balanced way consumers, industry and employees. The ESRB will have  the ability to consult widely as 
appropriate, and have access to  a technical advisory group. 
The costs of the ESFS have been estimated according to three cost  categories: staff 
costs, infrastructure cost s and operations costs. The total costs of creating the 
European Supervisory Authorities has been estimated at about 36 million Euro in the 
first year of operations (2010), reaching over 67 million Euro after three years (2013). The staff cost estimates are based on the assumption that each ESA will aim 
to double its staff as compared to the staff numbers in the existing Level 3 
Committees in the first year of its operat ion, an average increase from 20 to 40 in 
each of the three Authorities. 
Regarding the ESRB, as its secretariat will be provided by the European Central 
Bank and the European System of Central Ba nks, no direct cost will accrue to the 
Community budget nor to the budgets or Memb er States, except as regards seconded 
staff. 
7. M
ONITORING AND EVALUATION  
The Regulations establishing the ESFS and the ESRB provide for evaluation of the 
new system for European financial supervisi on three years from the effective start of 
its operation. The Commission will prepare two reports on the experience with 
functioning of the ESFS and ESRB respectivel y. The final set of indicators will be 
decided by the Commission at the time of  conducting the required evaluations.