EN Official Journal of the European Union C 251/33

Opinion of the European Economic and Social Committee on the Report from the Commission to the European Parliament and the Council on the operation of the European Supervisory Authorities (ESAs) and the European System of Financial Supervision (ESFS)

(COM(2014) 509 final)

and the Report from the Commission to the European Parliament and the Council on the mission and organisation of the European Systemic Risk Board (ESRB)

(COM(2014) 508 final)

(2015/C 251/07)

Rapporteur: Carmelo CEDRONE

On 8 August 2014, the European Commission decided to consult the European Economic and Social Committee, under Article 304 of the Treaty on the Functioning of the European Union, on the

Report from the Commission to the European Parliament and the Council on the operation of the European Supervisory Authorities (ESAs) and the European System of Financial Supervision (ESFS)

COM(2014) 509 final

and the

Report from the Commission to the European Parliament and the Council on the mission and organisation of the European Systemic Risk Board (ESRB)

COM(2014) 508 final.

The Section for Economic and Monetary Union and Economic and Social Cohesion, which was responsible for preparing the Committee’s work on the subject, adopted its opinion on 3 February 2015.

At its 505th plenary session, held on 18 and 19 February 2015 (meeting of 18 February), the European Economic and Social Committee adopted the following opinion by 166 votes to 5 with 11 abstentions.

1. Conclusions and recommendations

1.1. The Committee welcomes the information provided by the Commission (1) and agrees on the need for corrective action to improve the operation of the European System of Financial Supervision (ESFS). It also believes that it is necessary to promote a medium-to-long term systemic approach and move faster on building structures to streamline the European Supervisory Authorities (ESAs)’ work as far as possible. It is of the utmost importance that the new supervisory and regulatory set-up be equipped to secure the stability of the financial system and growth — the substance of this must be anticyclical — and halt asymmetric growth of the shadow banking economy.

1.2. The Committee considers that the work done by the European Systemic Risk Board (ESRB) and the ESAs needs to be made more effective; to that end the ESAs’ regulatory role should be reviewed and the cost-benefit analysis of structures, governance and decision-making processes adopted by the ESRB and the ESAs applied in practice, the operational instruments available to them should be fine-tuned and the overall structure of the ESFS should be streamlined.

1.3. The Committee considers that these corrective measures should be aimed primarily at minimising the pro-cyclical impact of supervisory regulations and conflicts between EU and national interests, optimising the supervisory system’s cost-benefit ratio, and protecting consumers from any unfair practices on the part of intermediaries. Nevertheless, the Committee considers that, at the present stage, there are still two questions that need answering: a) whether the new supervisory mechanism might entail excessive regulation that could have a negative impact on banks’ operational flexibility and management costs; b) and whether it will be possible to avoid, or at least to reduce, the risk of a new crisis and make the financial system more effective, safer and more transparent, thus protecting customers/consumers.

1.4. When it comes to the ESRB and its governance, the Committee welcomes the Commission’s proposal to make the president of the European Central Bank (ECB) its chair, while also appointing a managing director with an operational remit, to provide a link between the chair and the General Board, also giving consideration to potential conflicts of interest. As regards the need for the ESRB bodies to be restructured in both quantitative and qualitative terms, the Committee, though considering this to be appropriate, believes that thought must be given to ensuring the Member States are properly represented within the General Board and to enhancing the independence of Advisory Scientific Committee (ASC) members.

1.5. With reference to the functions and processes adopted by the ESRB, the Committee considers it vital to implement forms of coordination between the ESRB, the ECB and the Single Supervisory Mechanism (SSM), making the most of the ESRB’s specific characteristics, including both its ability to represent non-eurozone countries and also its broad remit, covering the financial system as a whole. The Committee is in favour of stepping up ESRB involvement in the legislative process where relevant and of boosting coordination with the ESAs.

1.6. When it comes to the ESAs, the Committee believes that it would be worthwhile taking corrective measures in order to ensure that the EU’s interests prevail; to this end the ESAs’ governance must allow for the effective use of peer review and binding mediation, so as to secure convergence between systems and reinforce a culture of joint supervision.

1.7. In the Committee’s view, the procedures governing the ESAs’ regulatory role need to be more transparent, including where public consultations promoted by the authorities are involved, so as to step up the involvement of the sector’s consumer and worker representatives; it also believes that the ESAs should be more closely involved in the process of shaping primary legislation. More coordination is needed among the ESAs, and between them and the ESRB, making more of the role of the Joint Committee.

1.8. The Committee considers that the structural and organisational costs of the ESAs must be rationalised; this should be accompanied by a transparent process of accountability geared towards logistical and functional streamlining.

1.9. In order to improve economic and financial risk forecasting capacity, the Committee considers that it would be useful for the ESFS to develop effective interaction with other national and international institutions in order to share the management of systemic risks.

1.10. Summary of the Committee’s proposals

1.10.1. Single market: promotion of measures to facilitate coordination between the ESFS, the new SSM arrangement and the Single Resolution Mechanism (SRM), to foster the development of an efficient and effective European system of supervision.

1.10.2. Simplification, transparency and effectiveness: rationalisation of the regulatory functions of the ESFS institutions with a view to simplifying the regulatory framework and making procedures more transparent and effective.

1.10.3. Governance: promotion of a medium-term strategy designed to bring about a process of organisational and functional consolidation on the part of the supervisors, which could make economies of scale and scope by considering the possibility of a single seat and the adoption of a twin peaks model.

1.10.4. EMU: promotion of mechanisms to support the priorities of the eurozone countries with particular reference to the banking market and the Single Supervisory Mechanism, which sets out specific provisions for membership of non-eurozone countries.

1.10.5. The EESC considers that, on the basis of the pointers set out in this opinion: a) the ESRB’s Advisory Scientific Committee and relevant ESA committees or expert groups — having obtained the opinion of the stakeholder groups — should waste no time in making specific proposals for improvement; b) in parallel, the European Commission should assess the feasibility of more structural measures regarding the organisation of the ESFS and the authorities’ funding mechanisms.

2. Background

2.1. The economic and financial crisis in Europe has demonstrated the need to review the supervisory and regulatory framework governing banking and financial intermediaries; considerable emphasis has been placed on the ESFS’s functionality and the effectiveness of the action of its constituent institutions.

2.2. On the basis of the recommendations set out in the 2009 de Larosière report (2), the Commission has prepared a comprehensive package of measures to reinforce interdependency and coordination between national supervisors and promote the importance of macro-prudential supervision.

2.3. In January 2010, the EESC issued an opinion on the founding regulations of the ESRB and the ESAs (3). In this opinion, the Committee stressed the importance of having a single supervisory mechanism for the EU’s financial system and made specific suggestions for amending the ESRB and ESA founding regulations.

2.4. In 2010, by means of specific regulations, the European Parliament and the Council established the European Systemic Risk Board (ESRB) and three European Supervisory Authorities (ESAs) — the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA) — which, together with the Joint Committee of the ESAs and the ESRB, comprise the European System of Financial Supervision (ESFS).

2.5. The ESFS commenced its own activities in January 2011; the ESFS founding regulations (4) required the Commission to publish a report on the operation of the ESRB and the ESAs after the first three years of their activity, a period which commenced in January 2011.

2.6. To perform the mandate conferred upon it, the Commission organised a public hearing (May 2013) and a public consultation (April-July 2013) as part of the ESFS review process.

2.7. Based on the results of the stakeholder input, the self-assessments supplied by the ESAs (5), the European Parliament resolution of March 2014 on the ESFS review (6) and studies conducted by the IMF (7) and the European Parliament (8), the Commission issued two separate reports, one on the ESRB and the ESAs and the other on the ESFS.

3. General comments

3.1. The present opinion on the Commission’s reports on the operation of the ESRB and the ESAs is based on the assessment of the activities carried out by the ESRB and the ESAs and the stepping up of the single supervisory mechanism over the past year.

3.2. The Committee has expressed its approval regarding the ESFS on a number of occasions and would now reiterate its appreciation for the work carried out by the ESRB and the ESAs in their first three years in operation.

3.3. Areas for improvement in the running of the European System of Financial Supervision have been identified at both organisational and governance levels and with regard to operational processes and instruments; the Committee agrees on the areas for potential action that the Commission has identified in its reports. It would also point out the need to adopt a medium-to-long term systemic approach and highlights the need to flesh out the consumer and worker protection proposals.

3.4. The Committee considers that the running of the ESRB has highlighted the need to examine possibilities for a quantitative and qualitative reconfiguration of its various organs — General Board, Steering Committee, Advisory Technical Committee, Advisory Scientific Committee — and to find a solution for the appointment of the board’s second chair, given that the first chair’s term will come to an end in December 2015. In terms of process, room for improvement has been identified in the procedures by which the board is involved in the legislative process and also with regard to the time frame for internal decision making.

3.5. In the Committee’s view, the running of the ESAs has highlighted the need to rethink the regulatory and supervisory function, boost the consumer protection dimension and review the membership of the bodies in order to strike a better balance between EU and individual Member States’ interests. The overall supervisory structure may need to be reviewed, in relation to both the mechanisms for financing the various authorities and the logistical structures and the supervisory model itself. Issues raised in this respect include a rationalisation of headquarters and also organisational streamlining regarding functions and spheres of competence.

4. Specific comments

4.1. The European Systemic Risk Board (ESRB)

4.1.1. The Committee believes that the ESRB can continue to play a significant role in systemic risk prevention even after the introduction of the SSM. There are at least three reasons for this: a) the adoption of a common supervisory system calls for closer coordination in the banking sector as well as between other financial markets; b) supervision of the major banking groups with systemic relevance also enhances the role of the ESRB in terms of its interaction with the ECB; c) the fact that representatives of both eurozone and non-eurozone countries participate in the ESRB means that it also has a stabilising effect on variables that are external to monetary union. Against this background, changes to governance and internal procedures can also improve how the ESRB operates and how it interacts with the ESAs and the ECB.

4.1.2. The Committee is in favour of changing the quantitative and qualitative composition of the ESRB bodies. It believes, nevertheless, that it would be worthwhile assessing the impact that reducing the number of members of the General Board might have on the representativeness of the individual Member States. Any reduction in the number of board members should be accompanied by the establishment of theme-based committees and working groups. The Committee also considers it necessary to maintain balanced representation of the various stakeholders, while also boosting the role of the Advisory Scientific Committee. In this respect the suggestion that this committee might merge with the Advisory Technical Committee does not seem appropriate.

4.1.3. The Committee believes that the ESRB could be made more effective by implementing the Commission’s proposal to make the president of the ECB its chair, while also appointing a managing director with an operational remit, to provide a link between the chair and the General Board.

4.1.4. The Committee considers it necessary to strengthen the ESRB’s involvement in the legislative process by establishing specific mechanisms for consulting the ESRB prior to the adoption of legislative proposals on relevant issues. On this note, the Committee supports the idea of an ESRB representative participating formally in the Ecofin Council and the Economic and Financial Committee (EFC), in accordance with terms and conditions still to be defined.

4.1.5. A swifter and more streamlined decision-making process would make the ESRB more effective: the Committee considers that it would be useful to ask the ESRB to task the Advisory Scientific Committee with a self-assessment of its internal procedures, with a view to proposing an alternative model that is more closely geared to the dynamics of the financial system. The Committee also considers it necessary that the ESRB adopt procedures to strengthen follow-up to guidelines and recommendations.

4.1.6. The operation of the ESRB should be grounded in closer interaction with other European bodies, particularly the various ESAs; the Committee considers that the ESRB should be asked to come up with a proposal as swiftly as possible outlining ways of communicating and exchanging data with the various ESFS institutions. The Committee would also stress the need to establish coordination between the ESRB and the national macro-prudential supervisory authorities to be set up, inter alia, to avoid duplication of representatives in the ESRB. The Committee considers it necessary to lay the foundations for more fruitful interaction between the ESRB and the ECB in light of the new responsibilities assigned to the Bank in the area of macro-prudential supervision.

4.2. European Supervisory Authorities (ESAs) and the European System of Financial Supervision (ESFS)

4.2.1. The Committee believes that a number of changes must be made to the current institutional and operational arrangements of ESAs if they are to operate more effectively. In particular, measures are required to make their regulatory and consumer protection role, governance and procedures more efficient; corrective measures should also be developed for the authorities’ financing mechanisms and organisational structure.

4.2.2. The regulatory role must be accompanied by more transparent procedures to secure time lines that are more finely attuned to the stages of public consultation and impact assessments that combine a statistical-accounting approach with a qualitative one. The Committee is of the view that the ESAs need to establish effective mechanisms for interacting with consumer and worker representatives in the sector. The ESAs should be more closely involved in the process of defining Level 1 legislation. The Committee considers that it is vital to establish a transparent mechanism for consulting ESAs prior to the adoption of legislative proposals on relevant issues, as this will assist the Parliament and the Commission in assessing the impact of measures taken and in establishing a more accurate and effective time frame for implementing them. Moreover, the Committee supports the idea of making provision for the chairs of the ESAs to participate formally in the Ecofin Council.

4.2.3. The Committee endorses the Commission’s request to the ESAs to reinforce, as part of their current governance, functions and mechanisms that would help to ensure that timely measures are taken in the interests of the EU as a whole. First and foremost, the mechanism for resolving disputes between national authorities must be strengthened, bringing clarity to current arrangements and assessing potential corrective measures.

4.2.4. In the medium term, the Committee considers that it would be useful to assess potential structural corrective measures to the ESAs’ current system of governance, with the aim of strengthening independent representation at the various tiers of decision making.

4.2.5. Each individual ESA should be able to coordinate its activities more closely with those of the others. In the Committee’s view, it would be useful for the ESAs to establish a committee or group of experts to carry out, as quickly as possible, a self-assessment to promote the peer review mechanism, bolster the role of the Joint Committee and frame specific procedures for coordination and data exchange. The Committee believes it would be worthwhile requiring that the ESAs waste no time in streamlining their activities and making recommendations for a possible reorganisation of the responsibilities to be assigned to the individual authorities and the Joint Committee.

4.2.6. Coordination between the ESAs should be based on an equivalent system of functions and powers; the Committee thinks it would be useful for all the ESAs to have the option of conducting stress tests along the lines of the EBA model. Coordination between the ESAs should also take into account variations in the degree of EU-level integration and harmonisation of the various sectors supervised.

4.2.7. The Committee endorses the Commission’s emphasis on the need for closer cooperation between ESAs in the area of consumer protection, with particular regard to the type of products supplied and their compatibility with customer profiles. Action to promote financial education must also be stepped up. It also considers it necessary to extend the ESAs’ remit officially to include protection of workers in the sector, particularly regarding the impact of sales models and remuneration schemes used by financial intermediaries. It would suggest here that the ESAs adopt a code of ethics in relation to their activities, and publish a joint annual report on consumer and worker protection. The Committee considers that, in these areas, the Joint Committee should take on a primary role, aimed at aligning standards of consumer and worker protection for the sector across the various authorities’ different areas of responsibility.

4.2.8. The tasks entrusted to the ESAs and financial market trends make it necessary to strengthen: a) the ESAs’ powers and their coordination throughout the financial sector, especially in microcredit and impact investing, by stepping up the involvement of experts and representatives from the sector in the ESRB’s Advisory Scientific Committee and in the ESAs’ stakeholder groups; b) the role of the Joint Committee, and its adoption of swift and effective procedures, while also giving boosting ESA staff a stronger role in the preparatory bodies.

4.2.9. When it comes to ESA financing procedures, the Committee believes that the transition to a funding model based on private resources should be assessed on the basis of a thorough analysis of the advantages and potential problems. The Committee proposes that the option of increasing the share of ESA budgets covered by fees and levies could be considered as a temporary five-year measure, meeting increased costs entirely from any additional resources allocated to the ESAs. It would urge the Commission to carry out an impact assessment within the five-year transition period, not least so as to evaluate alternative financing mechanisms with a view to reducing the risk of duplicating supervisory costs, rationalising public financial commitments and preventing the burden from being passed on to the end users.

4.2.10. If the ESAs were to rationalise costs by means of logistical reorganisation, this could support their sustainability. The Committee supports the Commission’s proposal for a single seat for the ESAs, as this would also make for more efficient dialogue and coordination between the authorities.

4.2.11. The Committee considers logistical and operational rationalisation to be closely linked to the underlying supervisory model; this being so, it would invite the Commission to explore in the medium term the case for reviewing the architecture of European supervision, optimising it in relation to the three variables of functions, markets and intermediaries, and if appropriate considering adopting a twin peaks approach.

4.2.12. Lastly, the Committee considers that it is necessary to reinforce the democratic control and monitoring of activities carried out by the ESRB and the ESAs.

Brussels, 18 February 2015. The President of the European Economic and Social Committee Henri MALOSSE

(1) COM(2014) 508 final and COM(2014) 509 final, 8 September 2014.

(2) Report of the High-Level Group on Financial Supervision in the EU, 25 February 2009, http://ec.europa.eu/internal_market/finances/docs/de_larosiere_report_en.pdf

(3) OJ C 339, 14.12.2010, pp. 33-40.

(4) Regulations (EU) No 1092/2010, (EU) No 1093/2010, 1094/2010 and 1095/2010 of 24 November 2010 (OJ L 331, 15.12.2010, p. 12).

(5) Joint Committee (JC 2012 100), Self Assessment Report of the European Supervisory Authorities, 21 December 2012 (confidential document).

(6) European Parliament resolution of 11 March 2014 with recommendations to the Commission on the European System of Financial Supervision (ESFS) Review.

(7) IMF, Financial Sector Assessment Program at EU Level, March 2013.

(8) EP 507.490 (on the ESRB) and EP 507.446 (on the ESAs), October 2013.