Opinion of the European Central Bank of 20 February 2004 at the request of the Council of the European Union on a proposal for a Directive of the European Parliament and of the Council amending Council Directives 73/239/EEC, 85/611/EEC, 91/675/EEC, 93/6/EEC and 94/19/EC and Directives 2000/12/EC, 2002/83/EC and 2002/87/EC of the European Parliament and of the Council, in order to establish a new financial services committee organisational structure (COM(2003) 659 final) (CON/2004/7)
Date: 2004-02-20
Institutions: European Central Bank
Subjects: committee (EU), division of powers, financial market, insurance law, law of banking, market supervision, powers of the institutions (EU)

6.3.2004

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Official Journal of the European Union

C 58/23

EUROPEAN CENTRAL BANK

OPINION OF THE EUROPEAN CENTRAL BANK

of 20 February 2004

at the request of the Council of the European Union on a proposal for a Directive of the European
Parliament and of the Council amending Council Directives 73/239/EEC, 85/611/EEC, 91/675/EEC,
93/6/EEC and 94/19/EC and Directives 2000/12/EC, 2002/83/EC and 2002/87/EC of the European
Parliament and of the Council, in order to establish a new financial services committee organisa-
tional structure (COM(2003) 659 final)

(CON/2004/7)

(2004/C 58/11)

1. On 18 November 2003 the European Central Bank (ECB)
received a request from the Council of the European Union
for an opinion on a proposal
the
European Parliament
amending
and of
Council Directives 73/239/EEC, 85/611/EEC, 91/675/EEC,
93/6/EEC and 94/19/EC and Directives 2000/12/EC,
2002/83/EC and 2002/87/EC of the European Parliament
and of the Council,
in order to establish a new financial
services committee organisational structure (hereinafter the
‘proposed directive’).

for a Directive of
the Council

2. The ECB's competence to deliver an opinion is based on the
first indent of Article 105(4) of the Treaty establishing the
European Community since the proposed directive concerns
the EU's financial services committee structure and affects
prudential supervision and the stability of
the financial
In accordance with the first sentence of Article
system.
17.5 of the Rules of Procedure of the European Central
Bank, the Governing Council of the ECB has adopted this
opinion.

3. The proposed directive is part of a package of measures
adopted by the Commission to implement the Council's
the Council's
recommendation, based on the Report of
Economic and Financial Committee on financial regulation,
supervision and stability, to extend the so-called ‘Lamfalussy
process’ for financial regulation from the securities to the
banking,
insurance, occupational pensions and investment
funds (UCITS) sectors. The Lamfalussy process is based on a
four-level approach. At Level 1 legal acts are adopted by the
European Parliament and the Council under the co-decision
procedure. This legislation contains the framework prin-
ciples reflecting the basic political choices and defines the
extent of the Commission's implementing powers. Level 2
covers the legislation adopted by the Commission with the
assistance of so-called ‘Level 2 committees’ composed of
representatives from the Member States. This level of legis-
implementing measures
lation contains
necessary to make the principles of Level 1 legislation oper-
ational. These technical measures are prepared on the basis
of the work of so-called ‘Level 3 committees’ composed of
high-level
from the national supervisory
authorities. Level 3 committees also have the role of

representatives

technical

the

enhancing cooperation among and converging the super-
visory practices of
the competent national authorities.
Finally, at Level 4 the Commission and the Member States
act to strengthen the enforcement of Community law.

Following the Stockholm Council's approval of the recom-
mendations in the report of the Committee of Wise Men on
the Regulation of European Securities Markets,
the
Commission adopted two Decisions (1) on 6 June 2001
establishing the European Securities Committee (ESC) at
Level 2 and the Committee of European Securities
Regulators (CESR) at Level 3. A second Level 2 committee
Financial Conglomerates
in the
the
Committee
Directive
by
2002/87/EC (2).

sector,
was

established

financial

(FCC),

4. The proposed directive together with the decisions adopted
by the Commission aim to establish two new Level 2
committees and two new Level 3 committees.

The European Banking Committee (EBC) and the European
Insurance and Occupational Pensions Committee (EIOPC)
will be established as Level 2 committees (3). The EBC and

(2) Directive 2002/87/EC of

the European Parliament and of

(1) Commission Decision 2001/527/EC of 6 June 2001 establishing the
Committee of European Securities Regulators (OJ L 191, 13.7.2001,
p. 43), as amended by Decision 2004/7/EC (OJ L 3, 7.1.2004, p.
32), and Commission Decision 2001/528/EC of 6 June 2001 estab-
lishing the European Securities Committee (OJ L 191, 13.7.2001, p.
45), as amended by Decision 2004/8/EC (OJ L 3, 7.1.2004, p. 33).
the
Council of 16 December 2002 on the supplementary supervision
of credit institutions, insurance undertakings and investment firms
in a financial conglomerate and amending Council Directives
73/239/EEC, 79/267/EEC, 92/49/EEC, 92/96/EEC, 93/6/EEC and
93/22/EEC, and Directives 98/78/EC and 2000/12/EC of
the
European Parliament and of the Council (OJ L 35, 11.2.2003, p. 1).
(3) Commission Decision 2004/9/EC of 5 November 2003 establishing
the European Insurance and Occupational Pensions Committee (OJ
L 3, 7.1.2004, p. 34) and Commission Decision 2004/10/EC of 5
November 2003 establishing the European Banking Committee (OJ
L 3, 7.1.2004, p. 36).

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EIOPC — like the ESC in the securities sector and the FCC
issues — will advise the
for the financial conglomerates'
Commission on policy
and on Commission
issues
proposals in the banking and insurance fields respectively.
They will also assist the Commission in the exercise of its
implementing powers at Level 2. The EBC and EIOPC will
replace the existing Banking Advisory Committee and the
Insurance Committee respectively. The ECB — similarly to
the ESC and the FCC — will participate in the EBC as an
observer.

the current

the UCITS
Furthermore,
in assisting the Commission for
Contact Committee
implementing measures in the UCITS sector will be trans-
ferred to the ESC.

responsibilities of

the proposed directive is

to replace
The objective of
references
in Community legislation to the previous
committee structure in the banking, insurance and UCITS
sector with references
to the EBC, EIOPC and ESC
respectively. The Commission Decisions establishing the
EBC and the EIOPC and extending the role of the ESC
will enter into force once the European Parliament and
the Council adopt the proposed directive.

At Level 3, the Committee of European Banking Supervisors
(CEBS) and the Committee of European Insurance and
Occupational Pensions Supervisors
(CEIOPS) have been
from 1 January 2004 (4) and 24
established with effect
November 2003 (5) respectively. The role of the CEBS and
the CEIOPS is to advise the Commission on implementing
measures in their respective fields,
to contribute to the
convergence of supervisory practices and to enhance super-
visory cooperation, including the exchange of information
on individual supervised institutions. In line with the recom-
mendations of the Report of the Economic and Financial
Committee,
the central banks which are not directly
involved in the supervision of individual credit institutions,
including the ECB, are members of the CEBS without voting
rights.

Finally, the UCITS Contact Committee's current responsi-
bilities for Level 3 work will be transferred to the CESR
once the proposed directive is adopted (6).

5. The ECB welcomes the extension of the Lamfalussy process
from the securities sector to the banking, insurance, occu-
pational pensions and UCITS sectors. As the Inter-institu-
in its
tional Monitoring Group (IIMG) also points out
second Interim Report, the Lamfalussy process is making

(4) Commission Decision 2004/5/EC of 5 November 2003 establishing
the Committee of European Banking Supervisors (OJ L 3, 7.1.2004,
p. 28).

(5) Commission Decision 2004/6/EC of 5 November 2003 establishing
the Committee of European Insurance and Occupational Pensions
Supervisors (OJ L 3, 7.1.2004, p. 30).

(6) See Commission Decisions 2004/7/EC and 2004/8/EC as referred to

in footnote 1.

the measures

a positive contribution to the swift and flexible regulation of
EU securities markets and is suitable for legislation in any
financial sector. The ECB shares this view and therefore fully
supports
the Commission has put
forward. With an appropriate interinstitutional agreement
the Community institutions
safeguarding the rights of
involved, extending the Lamfalussy process will
lead to a
more efficient and transparent
legislative process in all
financial sectors. It will facilitate the adoption of a quick
and effective regulatory response to market developments.

that

In this regard,

6. Extending the Lamfalussy process to all financial sectors also
provides an opportunity for creating a more harmonised
and simplified regulatory framework.
the
ECB would like to underline the desirability of achieving
further progress in developing a more consistent set of
institutions. The recommen-
European rules for financial
dations of the IIMG's second interim report point in the
same direction. This report states that Level 1 measures
should be limited to framework principles only and Level
2 measures should contain unambiguous rules to ensure
consistent implementation in Member States. In addition,
indicates that more frequent use should be
the report
made at Level 2 of
It also recommends
regulations.
limiting the use of directives at this level to cases where
fundamental considerations make the use of regulations
legislation is
undesirable, or where the need for national
demonstrated. The ECB supports these recommendations.
Their implementation could gradually lead to Level 2 acts
emerging as the main body of technical rules applicable to
institutions. At the same time, those aspects
EU financial
that could be more appropriately dealt with in EU legis-
lation could be transferred from national
legislation to
Level 2 acts. The ECB is convinced that such a harmonised,
simplified
contribute
significantly to further integrating financial markets, would
considerably reduce regulatory costs for
insti-
tutions and would enhance consumers' rights in relation
to financial
In the new regulatory process
extensive consultations with market participants will be
to
any
essential
financial market
regulatory
solutions to overcome them.

integration and

in identifying

rules would

remaining

European

obstacles

financial

services.

devising

set

of

the measures put

7. With regard to the Level 2 Committees, the ECB particularly
appreciates
forward concerning the
banking sector. The proposed directive correctly emphasises
the EBC's regulatory focus, acknowledging the significant
progress made on supervisory cooperation in the EU since
the First and Second Banking Directives (7). Moreover, the
establishment of the CEBS at Level 3 will provide a platform

(7) First Council Directive 77/780/EEC of 12 December 1977 on the
coordination of the laws, regulations and administrative provisions
relating to the taking up and pursuit of the business of credit
institutions (OJ L 322, 17.12.1977, p. 30, repealed by Directive
the Council).
the European Parliament and of
2000/12/EC of
Second Council Directive 89/646/EEC of 15 December 1989 on
the coordination of laws, regulations and administrative provisions
relating to the taking up and pursuit of the business of credit
institutions and amending Directive 77/780/EEC (OJ L 386,
30.12.1989, p. 1). Both Directives have now been codified as
Directive 2000/12/EC.

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for further enhancing and strengthening such cooperation.
In this context, the ECB notes the proposed deletion of
Article 59 of Directive 2000/12/EC (8), regarding obser-
vation ratios for solvency and liquidity. The ECB agrees
the
with this proposal and supports the rationale for
deletion provided in the explanatory memorandum: obser-
vation ratios for solvency are now largely redundant taking
into account the solvency ratio defined in the Directive, and
the establishment of observation ratios for
liquidity is
outdated in view of developments in banks' liquidity risk
management. Furthermore, the monitoring of solvency and
liquidity is more appropriately dealt with at the competent
authorities and central banks level, considering the exchange
of information that this activity requires of them. The ECB
notes in this respect that it is essential to recognise the role
of the European System of Central Banks' Banking Super-
vision Committee (BSC), which has already developed a
framework for the monitoring of macro-prudential devel-
opments.

8. With regard to the new Level 3 committees,

thus

improving

the overall

the ECB
considers that they will strengthen supervisory cooperation
in all financial sectors and will ensure a more consistent
implementation of both Level 1 principles and Level 2
technical rules. Furthermore, cooperation at Level 3 will
contribute to greater supervisory convergence through the
common standards and agreed best
establishment of
practices
supervision of
financial institutions and groups operating throughout the
EU, while reducing the burden of supervisory compliance.
In increasingly integrated markets closer cooperation among
the relevant authorities will make it easier to monitor
threats to the safety and soundness of financial institutions
and risks to financial stability.
In this context, the ECB
strongly welcomes the fact that the Commission Decision
establishing the CEBS recognises the specific features of
supervisory cooperation in banking. Close and effective
cooperation between central banks and supervisory auth-
orities is crucial for the promotion of financial stability.
Banking activities entail a systemic risk that affects the

systems

interests, owing to its impact on
heart of central banks'
payment
operations.
policy
and monetary
Strengthening cooperation between central banking and
supervisory functions on a day-to-day basis is a precon-
dition for ensuring smooth cooperation in the event of a
crisis. Therefore, the ECB is glad to see this crucial role of
central banks,
their
involvement in the actual conduct of prudential supervision,
reflected in the CEBS's composition.

the breadth of

irrespective of

sectors

financial

is a matter of

implementing the extension of
to all

9. Finally, the ECB would draw attention to the fact that, as
stated in the explanatory memorandum of the proposed
the Lamfalussy
directive,
some
process
urgency in view of
the measures that still have to be
adopted in the framework of the Financial Services Action
Plan. The new process will be particularly important in
ensuring that implementation of the forthcoming EU regu-
latory framework on capital adequacy in the banking sector
is in parallel and consistent with the new Basel Accord, thus
avoiding competitive disadvantages for EU financial
insti-
tutions. Moreover,
the Lamfalussy process will establish
the basic conditions for the effective implementation and
the Community law measures already
enforcement of
adopted within the Financial Services Action Plan in order
this initiative. The need to
to reap the full benefits of
enhance
to
legislative process,
the
flexibility of
simplify EU regulation, to achieve greater consistency in
the implementation and enforcement of EU rules and to
strengthen supervisory cooperation will become
even
more urgent when the EU comprises 25 Member States.

the

Done at Frankfurt am Main, on 20 February 2004.

The President of the ECB

Jean-Claude TRICHET

(8) Directive 2000/12/EC of

the Czech Republic,

the European Parliament and of

the
Council of 20 March 2000 relating to the taking up and pursuit
of the business of credit institutions (OJ L 126, 26.5.2000, p. 1).
(Directive as last amended by the Act concerning the conditions of
accession of
the
the Republic of
Republic of Cyprus,
Lithuania, the Republic of Hungary, the Republic of Malta, the
the Republic of Slovenia and the Slovak
Republic of Poland,
to the Treaties on which the
Republic and the adjustment
European Union is founded — Annex II: List
referred to in
Article 20 of the Act of Accession — 3. Freedom to provide
services (OJ L 236, 23.9.2003, p. 335).

the Republic of Estonia,

the Republic of Latvia,