WRITTEN QUESTION E-0689/00

by Robert Goebbels (PSE) to the Commission

(9 March 2000)

Subject: Possible amendment of Article 105(6) of the EC Treaty

Article 105(6) of the EC Treaty stipulates that the Council may confer upon the ECB specific tasks concerning policies relating to the prudential supervision of credit institutions and other financial institutions with the exception of insurance undertakings.

However, the large European market in financial services being established calls for global prudential supervision, particularly following the countless mergers or acquisitions, not to mention the acquisition of cross holdings, among banks, insurance undertakings, investment funds and other professionals in the financial sector. Several EU Member States have already introduced single national prudential supervision for the financial sector as a whole, including insurance undertakings, or are in the process of doing so.

Would it not be wise to take the opportunity offered by the intergovernmental conference to propose that Article 105(6) be amended so as to provide the legal basis necessary to enable the Council to confer upon the ECB certain specific tasks, including those relating to prudential supervision of insurance undertakings?

Answer given by Mr Bolkestein on behalf of the Commission

(19 April 2000)

The EC Treaty expressly excludes insurance companies from the prudential supervision tasks which could be conferred on the European Central Bank (ECB) under the procedure provided for in Article 105(6) of the EC Treaty. There are many grounds for this. The insurance industry does not risk significant contagion which could lead to a systemic crisis. Insurance companies are not covered as last resort

lenders by the central banks. Insurance companies operate mainly on the long-term capital markets (bonds and shares) and accordingly are less sensitive to monetary policy decisions. Prudential regulation of insurance companies is based on specific techniques, very different from the rules applied to banking. These facts explain why no central bank in the Community should be responsible for the prudential supervision of insurance companies.

The emergence of financial conglomerates combining credit, investment and insurance firms obviously challenges the traditionally sectoral organisation of prudential supervision of the finance industry.

Community legislation, which has liberalised the exchange of prudential information between regulatory authorities, has encouraged closer cooperation between the three sectors. In a number of countries, integrated authorities have been put in place to ensure prudential supervision of the three sectors, namely, the banks, investment services and insurance companies. It should be noted that these authorities are clearly distinct from the central banks, although the legal framework encourages the exchange of information with the monetary authority.

In its Communication Implementing the framework for financial markets: action plan(1), the Commission undertook to propose a prudential framework to ensure effective supervision of financial conglomerates. For that purpose, a joint technical group consisting of experts from the three sectors was set up to draft proposals in the fields of capital adequacy; intra-group transactions and risk concentration; the evaluation of shareholders and directors, in particular at the time of merger-acquisition operations; the exchange of information between competent authorities; and the identification of a coordinator from among the supervision authorities and the definition of his tasks.

At the same time, the Commission is the originator of the conference of supervision authorities which groups the various European bodies with responsibility for the rules and prudential supervision of the three sectors(2). By encouraging concerted action on matters of common interest, the Commission hopes to take into account the multi-sectoral dimension of financial conglomerates and to maximise cooperation between the various prudential supervision techniques.

The Commission feels that it is unnecessary to introduce into the Treaty a legal basis conferring on the ECB certain specific tasks in the prudential supervision of insurance.

(1) COM(1999) 232 final.

(2) Banking: Banking Advisory Committee, Banking Supervisory Committee, Contact Group.Securities: Forum of European Securities Commissions (FESCO).Insurance: European Insurance Committee, Conference of Insurance Supervisors.