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 and Occupational Pensions Authority, Proposal for a Regulation of the European Parliament and of the Council establishing a European Securities and Markets Authority : impact assessment {COM(2009) 499 final} {COM(2009) 500 final} {COM(2009) 501 final} {COM(2009) 502 final} {COM(2009) 503 final} {SEC(2009) 1235}
Date: 2009-09-23
Institutions: European Commission
Subjects: EU financial instrument, EU office or agency, bank, drafting of EU law, financial control, financial institution, financial services, operation of the Institutions, pension scheme, retired person

EN 

EN 

 
COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 23.9.2009 
SEC(2009) 1234 

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 

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

Proposal for a  

establishing a European Banking Authority 

Proposal for a  

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

establishing a European Insurance and Occupational Pensions Authority 

Proposal for a  

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

establishing a European Securities and Markets Authority 

IMPACT ASSESSMENT  
{COM(2009) 499 final} 
{COM(2009) 500 final} 
{COM(2009) 501 final} 
{COM(2009) 502 final} 
{COM(2009) 503 final} 
{SEC(2009) 1235} 

 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Outline of the Impact Assessment report: 

1. 

Introduction   

2. 

Consultations and procedural issues 

3. 

Problem definition  

4. 

Objectives 

5. 

Identification of policy options 

5.1. ESFS 

5.1.1 Powers and competences of the Authorities in the ESFS 

5.1.2 Organisation and structure of the Authorities in the ESFS 

5.1.3. Financing of the Authorities in the ESFS 

5.2. ESRB 

5.2.1 Powers and competences of the ESRB 

5.2.2 Organisation and structure of the ESRB 

5.3. Financing of the ESRB: the Secretariat. 

6. 

Preliminary analysis of impacts and comparison of options 

6.1. ESFS 

6.1.1 Powers and competences of the Authorities in the ESFS 

6.1.2 Organisation and structure of the Authorities in the ESFS 

6.1.3. Financing of the Authorities in the ESFS 

6.2. ESRB 

6.2.1 Powers and competences of the ESRB 

6.2.2 Organisation and structure of the ESRB 

2 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
6.3. Financing of the ESRB: the Secretariat. 

7. 

Impact of the selected options 

8. 

Monitoring and evaluation 

ANNEXES 

ANNEX 1 -   Costing Tables for ESFS 

ANNEX 2 -  

Impact of the ESFS and ESRB on stakeholders. 

ANNEX 3 -  Preliminary outline of sectoral legislation granting European Supervisory 

Authorities scope to exercise their powers in the field of binding 
technical standards 

ANNEX 4 -   Summary of replies received to public consultation 

ANNEX 5  -  European Council Conclusions of 18/19 June 2009 

3 

 
 
 
 
 
 
 
 
 
1. Introduction 

The  Commission  Communication  of  27  May  2009,  "European  financial  supervision"1, 
proposed  changes  to  the  architecture  of  European  financial  supervision  in  order  to  remedy 
shortcomings  in  the  area  of  financial  supervision  revealed  by  the  financial  crisis  of  2008-
2009. Specifically, it proposed the creation of two new bodies: 

•  a European Systemic Risk Council (ESRC) which should monitor and assess risks to the 
stability  of  the  financial  system  as  a  whole  ("macro-prudential  supervision"),  and  should  
provide  early  warning  of  systemic  risks  that  may  be  building  up  and,  where  necessary, 
recommendations for action to deal with these risks;  

•  a  European  System  of  Financial  Supervisors  (ESFS)  for  the  supervision  of  individual 
financial institutions ("micro-prudential supervision"), consisting of a network of national 
financial  supervisors  working  in  tandem  with  new  European  Supervisory  Authorities 
(European  Supervisory  Authorities),  created  by  the  transformation  of  the  existing 
Committees for the banking, securities and insurance and occupational pensions sectors2. 
The  Communication  proposed  transferring  to  the  new  Authorities  all  of  the  current 
competences of these committees and granting them additional competences, including the 
following: 

•  Developing proposals for draft technical standards; 
•  Resolving cases of disagreement between national supervisory authorities, 

including within in colleges of supervisors; 
Intervening in cases of manifest breach of Community law; 

• 
•  Exercising direct supervisory powers for defined entities; 
•  Co-ordination and decision-making in crisis situations. 

The  Communication  of  27  May  (henceforth  "the  Communication")  was  accompanied  by  an 
Impact Assessment3, which was considered by the Impact Assessment Board on 22 April. The 
Board provided its comments on 24 April, and a revised Impact Assessment was sent to the 
Board on 18 May. 

The Communication of 27 May stated that the Commission intended to bring forward, as soon 
as possible, the legislative changes to put in place the new framework for EU supervision, on 
the  basis  of  the  orientations  set  out  in  the  Communication  and  after  further  consultation  of 
stakeholders,  so  that  the  necessary  measures  could  be  adopted  in  time  for  the  renewed 
framework to be up and running before the end of 2010. It invited the European Council to 
endorse this plan. 

The Conclusions of the European Council of 18-19 June 20094 supported the creation of an 
ESRC (renamed European Systemic Risk Board, henceforth ESRB) and an ESFS, consisting 

1 COM(2009) 252 final.  
2 Widely known as the "Lamfalussy level 3 committees": the Committee of European Banking Supervisors, the 
Committee of European Securities Regulators and the Committee of European Insurance and Occupational 
Pensions Supervisors. 
3 COM(2009) 715 final.  
4 Annex 5 to this Impact Assessment. 

1 

 
 
 
 
 
 
                                                 
of  three  new  European  Supervisory  Authorities.  Among  other  things,  the  European  Council 
stated the following: 

•  "The European Council supports the creation of a European Systemic Risk Board…" 

•  "The  European  Council  also  recommends  that  a  European  System  of  Financial 
Supervisors,  comprising  three  new  European  Supervisory  Authorities,  be  established 
aimed at upgrading the quality and consistency of national supervision, strengthening 
oversight  of  cross  border  groups  through  the  setting  up  of  supervisory  colleges  and 
establishing a European single rule book applicable to all financial institutions in the 
Single Market." 

•  "the  European  Council  stresses  that  decisions  taken  by  the  European  Supervisory 
Authorities  should  not  impinge  in  any  way  on  the  fiscal  responsibilities  of  Member 
States. Subject to this and supplemental to the Council conclusions of 9 June 2009, the 
European  Council  agrees  that  the  European  System  of  Financial  Supervisors  should 
have  binding  and  proportionate  decision-making  powers  in  respect  of  whether 
supervisors  are  meeting  their  requirements  under  a  single  rule  book  and  relevant 
Community  law  and  in  the  case  of  disagreement  between  the  home  and  host  state 
supervisors, including within colleges of supervisors." 

•  "European  Supervisory  Authorities  should  also  have  supervisory  powers  for  credit 

rating agencies." 

•  The European Council welcomes the Commission's intention to bring forward, by early 
autumn 2009 at the latest, the legislative proposals to put in place the new framework 
for EU supervision." 

•  "The European Council invites the Commission to make concrete proposals for how the 
European System of Financial Supervisors could play a strong coordinating role among 
supervisors in crisis situations." 

The  present  Impact  Assessment  accompanies  the  proposals  for  legislative  acts  creating  the 
ESRB and the ESFS. For the ESRB two draft legislative acts are proposed: (i) a Council and 
Parliament Regulation based on article 95 of the Treaty, creating the ESRB, and (ii) a Council 
Decision  based  on  Article  105.6  of  the  Treaty,  governing  the  role  of  the  European  Central 
Bank in the ESRB. For the ESFS three legislative acts are proposed, all of them Council and 
Parliament  Regulations  under  article  95  of  the  Treaty,  one  Regulation  for  each  of  the 
proposed  new  European  Supervisory  Authorities:  a  European  Banking  Authority  (EBA),  a 
European  Securities  and  Markets  Authority  (ESMA),  and  a  European  Insurance  and 
Occupational Pensions Authority (EIOPA). 

It should be noted, regarding the European Supervisory Authorities in the ESFS, that in order 
to determine the scope of certain of the powers conferred on them in the draft Regulations - in 
particular  the  power  to  propose  draft  technical  standards  -  amendments  to  the  relevant 
community  legislation  in  the  banking,  securities  and  insurance  and  occupational  pensions 
fields will be introduced. It is intended that such amendments to sectoral legislation will be 
brought forward shortly  in  the  form  of  an  "omnibus" directive with amendments  to sectoral 

2 

legislation5. Annex 3 outlines the specific matters in the relevant community legislation which 
have been identified for inclusion among the future amendments.    

This  Impact  Assessment  builds  on  the  analysis  outlined  in  the  Impact  Assessment 
accompanying the Communication, and focuses in greater detail on those key decision points 
not  already  assessed  previously.  It  therefore  focuses  on  three  particular  aspects  which  were 
not  covered  in  the  first  Impact  Assessment  but  which  must  be  determined  before  the 
legislative acts creating the ESRB and the ESFS can be presented, namely: 

1.  The competences and powers of the ESRB and the Authorities in the ESFS; 

2.  The organisation, structures and procedures of the ESRB and the Authorities in 

the ESFS; 

3.  Financing of ESRB and the Authorities in the ESFS. 

2. Consultations and procedural issues 

A  public  consultation  and  a  public  hearing  took  place  prior  to  the  adoption  of  the 
Communication, as noted in the first Impact Assessment. 

A  second  public  consultation,  on  the  contents  of  the  Communication,  was  launched  on  27 
May,  the  day  of  adoption  of  the  Communication,  with  a  deadline  for  comments  of  15  July 
2009. Ninety-eight replies were received. A summary of the replies is available in annex 4. 

An Impact Assessment Steering Group was constituted in order to steer the preparation of this 
Impact Assessment, comprising representatives from DGs: MARKT, ECFIN, SG, SJ,  ENTR, 
EMPL, COMP, ADMIN, BUDG and SANCO. The Steering Group met twice on 25 June and 
14 July 2009. The minutes of both meetings were made available to the Impact Assessment 
Board. The Impact Assessment was submitted on 22 July 2009 and discussed by the Impact 
Assessment Board on 28 August 2009. 

The Board issued its opinion on 31 August 2009 and made a number of recommendations for 
the improvement of this report.  These have been taken into account in this final version of the 
impact assessment. The principal recommendations were the following: 

•  Clarify that the independence of the ESAs, the ESFS the ESRB and members of their 

governing bodies is a specific objective of these proposals; 

•  Explain the need for interaction between micro and macro supervision on the basis of 

stylised examples; 

•  Clarify the notion of the single rulebook" and explain the mechanism for creating it; 

•  Explicitly  address  how  in  substance  the  supervisory  powers  exercised  by  the  ESAs 
could impact on Member States' fiscal responsibilities, and illustrate this with practical 
examples; 

5 In addition, an amendment to the Regulation on Credit Rating Agencies will be necessary in order to give the 
European Securities and Markets Authority full supervisory powers in that area. 

3 

 
                                                 
•  Explain in greater detail at which stage and how the impacts (particularly on financial 
institutions)  of  the  introduction  of  future  binding  standards  and  information 
obligations will be assessed; 

•  Clarify the arrangements for financing of the new agencies. 

3. Problem definition 

Regarding  micro-prudential  supervision,  the  problems  identified  in  the  first  Impact 
Assessment can be summarised as follows: 

•  Imbalance  of  interests  of  the  home  and  host  countries  in  the  current  supervisory 
model (resulting in a misalignment of incentives in particular in cross-border crisis 
management), 

•  Risks of competitive distortions in the Internal Market and of regulatory arbitrage 
by  financial  institutions  (arising  in  part  from  differing  supervisory  rules  and 
practices), 

•  Insufficient co-operation and information exchange between national supervisors, 

•  Excessive  costs  and  administrative  burden  to  cross-border  companies  due  to 

fragmented and inconsistent financial supervision. 

The problem tree for micro-prudential supervision is presented again here for convenience:  

Figure 1. Problem tree: micro-prudential supervision 

4 

 
 
 
 
 
 
Problem drivers 

Problems

General problems

Failures to challenge supervisory 
practices on a cross-border basis

Lack of consistent rules, powers and 
sanctions across Member States

Diverging interests of the home and host 
countries in the current supervisory 
model

Differences in supervisory practices

Risks of competitive distortions in the 
Internal Market and of regulatory 
arbitrage by financial companies 

Mismatch between the level of 
integration of EU financial markets and 
the organisation of supervision

Increased risks of cross border 
contagion for EU financial markets 
linked with the incresed integration, both 
throughout the EU and with global 
financial markets

Undermined confidence of consumers, 
employees, pensioners, small business 
and retail investors contributing to the 
economic recession

Fragmented responsibilities for 
supervision of the same financial group

Lack of cooperation and information 
exchange among EU national 
supervisors

Reduced global competitiveness of the 
European financial industry

Fragmented system of supervisory 
mandates leading to EU considerations 
not being taken into account

Absence of legal arrangements 
allowing for EU-wide supervision of 
specific institutions, e.g. credit rating 
agencies

Excessive costs and administrative 
burden to cross-border companies due 
to fragmented and inconsistent financial 
supervision

Risks of uncoordinated policies driven 
by national interests with negative 
impact on the Single Market

Source: European Commission. Impact Assessment for the Communication 'European financial supervision' of 
27 May 2009 

The  preferred  solution  for  addressing  these  problems  was  to  create  a  European  System  of 
Financial  Supervision,  comprising  three  European  Supervisory  Authorities,  building  on  the 
existing  Level  3  committees  but  with  extended  powers.  This  is  not  creating  bodies  from 
scratch,  as  is  the  case  for  the  ESRB,  but  it  is  nevertheless  an  important  evolution.  In 
implementing this preferred option, a number of specific problems need to be addressed. The 
new  bodies  must  be  in  a  position  to  ensure  greater  coherence  of  supervision  across  EU 
Member  States,  via  all  of  their  interventions,  both  legally-binding  and  non-legally  binding 
ones.  They  must  also  have  a  structure  which  ensures  that  the  powers  will  be  used  in  an 
appropriate  manner.  The  budgetary  needs  of  the  new  Authorities  will  be  greater  than  the 
Level  3  committees,  if  only  because  the  additional  powers  will  require  more  staff.  Specific 
issues to be tackled include the following:  

•  Technical  standards:  despite  the  efforts  and  progress  achieved  by  the  current  level  3 
committees, the prudential legislative framework has not yet attained the desired level 
of harmonisation and consistent application of rules in the EU. Ensuring a single set of 
harmonised  rules  is  an  ambitious  objective  which  requires  establishing  new 
mechanisms  that  may  help  accelerate  this  process.  Indeed,  the  current  financial 
supervisory  framework  has  been  a  good  starting  point  but  there  is  now  a  firm 
determination to move forward and reach a higher degree of consistency than the one 
achieved so far. To contribute to this, the Authorities will, in areas to be specified in 
the  relevant  sectoral  legislation,  develop  draft  technical  standards.  These  standards 
constitute  an  effective  instrument  to  strengthen  Level  3  of  the  Lamfalussy  structure, 
which is currently limited to the adoption of non-binding guidelines; 

5 

 
 
 
 
•  Colleges  of  supervisors:  one  issue  is  to  ensure  the  adequate  functioning  of  colleges, 
particularly  in  terms  of  balancing  the  flow  of  information  between  home  and  host 
authorities.  Another  issue  is  to  strengthen  cooperation  and  facilitate  joint  decision-
making between members of colleges. 

•  Emergency  situations:  there  is  a  clear  need  for  increased  coordination  between 
national supervisory authorities, in particular in case of adverse developments which 
potentially jeopardise the orderly functioning and integrity of the financial system in 
the EU. However, in some emergency situations, coordination may not be sufficient, 
notably  when  national  supervisors  alone  lack  the  tools  to  respond  rapidly  to  an 
emerging  cross-border  crisis.  The  new  Authorities  should  therefore,  in  such 
exceptional  circumstances,  have  the  power  to  require  national  supervisors  to  jointly 
take specific action. 

• 

Impingement of Member States' fiscal responsibility:  the Member States have decided 
that decisions taken by the ESAs cannot impinge on their fiscal responsibilities6. This 
decision  ensures  that  the  principle  of  subsidiarity  is  respected,  because  the  area  of 
direct  taxation  is  an  exclusive  competence  of  the  Member  States,  and  EU  bodies 
cannot  exercise  any  competences  in  that  area.  This  limitation  on  the  ESAs’  activity 
potentially concerns decisions settling disagreements between national supervisors and 
decisions taken in emergency situations. The problem is to implement this limitation 
on the ESAs' powers in an effective way, while not hindering the activity of the ESAs 
in areas which do not impinge on the fiscal responsibilities of Member States. 

Regarding  macro-prudential  supervision,  the  problems  identified  in  the  first  Impact 
Assessment can be summarised as follows: 

•  Lack  of  appropriate  analysis  of  macro-prudential  risks  at  EU  level,  including  risks 
stemming  from  macro-economic  imbalances.  Currently,  there  is  no  EU  body 
entrusted with this role; 

•  Lack of interaction between micro- and macro-prudential analysis. The soundness of 
individual  firms  was  often  supervised  in  isolation  and  there  was  little  or  no 
awareness of the degree of “interdependence” or “interconnectedness”; 

•  Lack  of  adequate  corrective  action,  cooperation  and  co-ordination  by  competent 

authorities during the building up and in the course of financial crisis. 

The problem tree macro-prudential supervision is presented again here for convenience: 

Figure 2. Problem tree: macro-prudential supervision 

6 European Council Conclusions quoted in the Introduction. 

6 

 
 
 
 
 
 
                                                 
Problem drivers 

Problems

General problems

EU supervisory arrangements place too 
much emphasis on the supervision of 
individual firms, and too little on the 
macro-prudential side

Fragmented approach to macro-
prudential supervision poses 
challenges to information exchange 
between the relevant authorities

Lack of appropriate analysis of macro-
prudential risks at EU level, including risks 
stemming from macro-economic imbalances

Mismatch between the level of 
integration of EU financial markets and 
the organisation of supervision

Increased risks of cross border 
contagion for EU financial markets 
linked with the incresed integration, both 
throughout the EU and with global 
financial markets

Ineffective early warning mechanisms 
in the EU

Lack of interaction between micro- and macro-
prudential analysis - the soundness of individual 
firms' was often supervised in isolation and 
there was little or no awareness of the degree 
of “interdependence” or “interconnectedness” 

Undermined confidence of consumers, 
employees, pensioners, small business 
and retail investors contributing to the 
economic recession

Lack of the appropriate process in the 
EU insitutional framework for ensuring 
follow-up to any warnings on macro-
prudential risks

Lack of adequate corrective action and 
coordination by competent authorities during 
the building up and in the course of financial 
crisis

Insufficient cooperation at international 
level on macro-prudential supervision

Reduced global competitiveness of the 
European financial industry

Risks of uncoordinated policies driven 
by national interests with negative 
impact on the Single Market

Source: European Commission. Impact Assessment for the Communication 'European financial supervision' of 
27 May 2009 

In determining a solution for addressing these problems, the first Impact Assessment took as 
its baseline scenario the EU retaining its fragmented approach to macro-prudential oversight, 
without  introducing  a  mechanism  for  formally  issuing  and  ensuring  follow-up  to  warnings 
and  recommendations.  It  analysed  a  range  of  possible  options  for  developing  a  macro-
prudential  body,  including  building  on  existing  structures  using  either  the  Economic  and 
Financial  Committee  (EFC)  or  the  European  System  of  Central  Banks  (ESCB)  or  using  the 
new  microprudential  structure  (ESFS)  by  giving  the  leading  role  in  macro-prudential 
supervision  to  the  new  Authorities  with  the  support  of  the  network  of  national  supervisors.  
The analysis concluded that, on balance, a new body (the ESRB) should attain high level of 
effectiveness  and  provide  for  an  adequate  level  of  legitimacy.  The  envisaged  architecture, 
status and operating procedures should allow this body to meet the objectives of efficiency, 
effectiveness and value for money in the most appropriate way.  Having sole responsibility for 
macro-prudential risk warnings and an appropriate composition (bringing together the ECB, 
the  national  central  banks,  the  new  Supervisory  Authorities  as  well  as  national  supervisory 
authorities)  would  create  valuable  synergies,  ensure  an  appropriate  level  of  representation, 
and have a mutually reinforcing impact on the stability of the financial system. 

In  implementing  this  preferred  option,  a  number  of  specific  problems  need  to  be  addressed 
with regard to the ESRB. A new body is being created, with no precedents. The challenge is 
to create the body in such a way  that its powers are appropriate for the tasks which it must 
carry  out,  namely  that  of  analysing  macro-economic  risk  and  warning  of  potential  systemic 
risks. Specific elements to be dealt with or taken into account include the following: 

•  The ESRB cannot be given binding powers unless it has legal personality, but despite 

this it must be as effective as possible in preventing financial crises.  

7 

 
 
 
 
•  The warnings and recommendations of the ESRB must reach the right addressees and 
lead to the desired action, but without having the counter-productive effect of helping 
to trigger a crisis by being self-fulfilling through the reaction which they provoke.  
•  The issue of information needs is also a key one, as the ESRB will only be effective if 
it  receives  the  information  which  it  needs  in  order  to  carry  out  macro-prudential 
assessments effectively. 

•  The ESRB must have a secretariat so structured and located as to allow it to carry out 

its functions effectively and with a minimum cost.  

•  Subsidiarity must be respected in the structuring and activity of the ESRB, in matters 
such as the representation of Member States and other parties on the Board, decision-
making procedures, and follow-up to warnings and recommendations. 

4. Objectives 

4.1.  General objectives 

This impact assessment takes as its starting point the conclusions reached in the first impact 
assessment  and  considers  the  options  for  best  delivering  the  policy  choices  made  in  that 
assessment.    Therefore,  the  specific  objectives  defined  in  the  first  impact  assessment  now 
constitute  the  general  objectives  of  the  current  initiative,  to  facilitate  this  more  detailed 
analysis.  

For  micro-prudential  supervision,  the  specific  objectives  outlined  in  the  first  impact 
assessment can be summarised as: 

1.  Improve the coordination of cross border supervision. This includes ensuring that the 
interests  of  all  supervisors  are  well  represented  and  taken  into  account  by  others,  that  
cross-border  supervisory  colleges  operate  effectively,  and  that  decisions  are  taken 
consistently across borders.  

2.  Raise  the  quality  of  financial  regulation  across  the  EU  by  bringing  about  a  level 
playing  field  for  financial  institutions  operating  in  various  Member  States,  including  a 
consistent  application  of  rules  and  the  development  of  a  single  rulebook7  and  ensuring 
supervision and regulation is exercised independently. 

3.  Improve crisis prevention, coordination and management across the EU as a whole, 
and  in  particular  in  areas  where  a  decision  in  one  Member  State  can  have  an  impact  of 
other Member States. 

4.  Improve effectiveness and efficiency of supervision for supervised institutions. 

The  mandate  of  the  ESFS  will  be  to  act  with  a  view  to:  (i)  improve  the  functioning  of  the 
internal market, including in particular a high, effective and consistent level of regulation and 

7  A  "single  rulebook"  is  a  long  term  policy  objective.  The  expression  "single  rulebook"  is  used  here  and 
elsewhere to reflect two important goals - that  community legislation be applied more consistently, and that as 
far as possible differences in national transposition of Community law stemming from exceptions, derogations, 
additions or ambiguities be identified and removed, so that one harmonised core set of standards can be defined 
and applied.  Such a single rulebook will be a combination of European legislation adopted at level 1 and level 2, 
and technical standards based on proposals from the Authorities in areas clearly defined in sectoral legislation, 
including matters which are presently covered by non-binding level 3 guidelines. 

8 

 
 
 
 
 
 
                                                 
supervision,  (ii)  protect  depositors,  investors,  and  policyholders  and  other  beneficiaries  (iii) 
ensure the integrity, efficiency and orderly functioning of financial markets, (iv) safeguard the 
stability of the financial system, and (v) strengthen international supervisory coordination. 

For macro-prudential oversight, the objectives were: 

1.  Develop  a  European  macro-prudential  risk  assessment  to  deal  with  the  lack  of 
appropriate analysis of macro-prudential risks at EU level, including risks stemming from 
macro-economic imbalances; 

2.  Enhance the effectiveness of early warning mechanisms by improving the interaction 
between micro- and macro-prudential analysis and ensuring the independence of the body 
issuing  early  warnings.  The  soundness  of  individual  firms  was  often  supervised  in 
isolation  and  there  was  little  or  no  awareness  of  the  degree  of  “interdependence”  or 
“interconnectedness”; 

3.  Allow for risk assessments to be translated into action by the relevant authorities to 
respond to the current lack of adequate corrective action, cooperation and co-ordination by 
competent authorities before a financial crisis occurs. 

The mandate of the ESRB shall be to be responsible for the macro-prudential oversight of the 
financial  system  within  the  European  Union  in  order  to  prevent  or  mitigate  systemic  risks 
within  the  financial  system,  so  as  to  avoid  episodes  of  widespread  financial  distress, 
contribute to a smooth functioning of the internal market and ensure a sustainable contribution 
of the financial sector to economic growth.  

System-wide objectives 

In addition to the analysis in the previous impact assessment, it is important to ensure that the 
system as a whole functions effectively, that is, that the financial system is able to withstand 
shocks and the unravelling of financial imbalances or potential risks are spotted early by the 
relevant  authorities  and  necessary  action  is  taken.    The  latter  can  flow  both  ways,  with  the 
risks  being  identified  at  the  macro  level  and  action  taken  at  the  supervisory  and  regulatory 
level involving individual institutions, or alternatively in the opposite direction with risks in 
an  individual  institution  identified  at  the  supervisory  level  and  action  taken  to  prevent 
contagion  at  the  macro  level.  This  is  an  objective  that  will  need  to  be  considered  in  the 
selection of a number of options. 

An  example  of  the  system-wide  linkages  could  be  that  of  remuneration.    Given  the  widely 
held view that, to an extent, some remuneration policies may have led to excessive risk-taking 
in certain institutions which on aggregate may have contributed to putting the wider system at 
risk, this is a clear area where the need for action could fall to either or both elements of the 
system.    At  the  macro  level,  if  some  remuneration  policies  are  putting  the  entire  system  at 
risk,  the  ESRB  may  wish  to  make  a  warning  or  a  recommendation  to  supervisors  to  adjust 
their remuneration policies to reflect this.  Alternatively they may request the Authorities to 
develop  guidelines  or  draft  technical  standards  to  ensure  a  more  consistent  application  of 
community law if there is a divergence of practices. 

9 

 
 
 
 
 
 
 
 
 
Alternatively,  the  European  Supervisory  Authorities  via  national  supervisors  may  identify 
risky remuneration policies in individual institutions and take action either to issue guidelines, 
or to channel the information on to the ESRB for analysis.  In extreme cases, if such policies 
are  the  result  of  non-application  of  legal  requirements,  the  Authority  may  be  able  to  take 
action to require national supervisors to apply the requirements effectively. 

As  a  specific  objective,  this  means  that  it  is  important  to  achieve  the  appropriate  degree  of 
coordination  between  the  macro  and  micro  elements  of  the  system.    In  particular  it  means 
that: 

• 

• 

• 

the  mandates  and  objectives  of  each  are  sufficiently  clear  and  precise,  so  as  not  to 
create uncertainty over who is responsible for what; 

information sharing obligations are sufficient to ensure that the ESFS and the ESRB 
are able to discharge their responsibilities effectively, but not unduly burdensome on 
either market participants or the authorities themselves; 

there is appropriate cross representation between the ESFS and ESRB, but that neither 
institution dominates the other. 

The  mandates  of  the  ESRB  and  ESFS  (above)  show  that  while  each  part  of  the  system's 
objectives are clear and distinct, there is a limited (and necessary) degree of overlap between 
the  two.    Issues  related  to  information  sharing  and  cross-representation  are  discussed  in 
sections 6.1.1, 6.1.2, 6.2.1 and 6.2.2. 

4.2.  Specific and operational objectives: 

Building on these general objectives, there are also more specific objectives for the purposes 
of this Impact Assessment, related specifically to the possible options to be considered in the 
creation  of  new  bodies.  The  powers,  structure,  organisation,  costs  and  revenues  of  the  new 
bodies,  the  ESRB  and  the  European  Supervisory  Authorities,  must  be  appropriate  for 
achieving the objectives determined above.   

These specific objectives can be defined as:  

Specific objectives with regard to the ESFS: 

a.  Assume  all  of  the  tasks  of  the  current  EU  Committees  of  Supervisors: 
including the issuance of non-binding guidelines and the ability to give advice 
on certain issues; 

b.  Ensure a  set of common rules to complement non-binding guidelines at level 3 
of  the  Lamfalussy  structure,  ensuring  a  level  playing  field  for  financial 
institutions and minimising the risk for regulatory arbitrage; 

c.  Ensure  a  consistent  application  of  EU  rules:    together  with  a  set  of  common 
rules,  the  development  of  a  single  rule  book  which  will  increase  certainty, 
predictability and a greater likelihood of supervisory best practice spreading; 

d.  Determine  how  to  ensure  a  common  supervisory  culture,  including  ensuring 

colleges of supervisors develop successfully and consistently; 

10 

 
 
 
 
 
 
 
 
 
 
e.  Determine  whether/how 

to  grant  full  supervisory  powers  for  certain 
institutions:  including  ensuring  that  a  coherent  balance  is  struck  between 
national and pan-EU supervision; 

f.  Determine  how  to  co-ordinate  and  effectively  manage  crisis  situations,  to 
ensure that decisions in one Member State do not have negative effects in other 
Member States; 

g.  Ensure  access  to  necessary  information  to  facilitate  the  achievement  of  the 

objectives outlined above; 

h.  Member  States  have  a  core  responsibility  in  preserving  financial  stability  in 
crisis  management,  in  particular  with  regard  to  stabilising  and  resolving 
individual  ailing financial  institutions.  A  mechanism  should  be  established  to 
ensure  that  measures  by  the  Authority  do  not  impinge  on  the  fiscal 
responsibilities of Member States, while not unduly hindering the effectiveness 
of the new Authorities.; 

i.  Ensure  the  independence  of  the  members  of  the  Boards  of  the  ESAs  in  the 
fulfilment  of  their  tasks  as  well  as  the  independence  of  the  institution  as  a 
whole. 

Specific objectives with regard to the ESRB 

a.  Establish  adequate  procedures  to  obtain  information  about  macro-economic 

risks for financial stability; 

b.  Identify  macro-prudential  risks  in  Europe  (and  analyse  the  interconnection 

with individual financial institutions' soundness); 

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 members of the ESRB in the fulfilment of their 

tasks as well as the independence of the institution as a whole. 

In  order  to  achieve  these  specific  objectives,  a  number  of  decisions  need  to  be  taken  with 
regard to the particular powers, organisation and financing of the ESFS and the ESRB. Thus, 
the  operational  objectives  can  be  defined  as  granting  the  ESFS  and  the  ESRB  the  correct 
powers, organisation and financing so as to achieve the specific objectives detailed above. 

5. Identification of policy options 

5.1. ESFS 

5.1.1 Powers and competences of the Authorities in the ESFS 

Regarding  the  precise  powers  and  competences  to  be  granted  to  the  European  Supervisory 
Authorities (ESAs) in the ESFS, the following discussion considers the categories of powers 
and  competences  covered  in  the  Communication,  and  the  horizontal  issue  of  safeguards  to 
prevent  the  Authorities  taking  actions  which  impinge  upon  the  fiscal  responsibilities  of 

11 

 
 
 
 
 
 
 
 
Member States. It takes for granted that all of the current powers of the Level 3 Committees 
will  be  transferred  to  the  new  Authorities,  as this  issue  was  covered  in  the  previous  Impact 
Assessment.  It  does  not  consider  the  option  of  granting  to  the  European  Supervisory 
Authorities competences falling below those of the Level 3 committees, as this would be out 
of line with the conclusions of the previous Impact Assessment and the Communication.  

The  discussion  of  powers  and  competences  therefore  focuses  on  the  question  of  which 
additional  powers  and  competences  should  be  granted  to  the  European  Supervisory 
Authorities,  on  top  of  those  currently  held  by  the  Level  3  committees.  In  each  case,  the 
baseline is considered to be the powers/competences, which the Level 3 committees currently 
have. 

It should also be emphasised again here that, with regard to binding technical standards, draft 
sectoral legislation will be introduced in order to specify precisely in which areas the powers 
granted  to  the  European  Supervisory  Authorities  can  be  applied.  The  granting  of  full 
supervisory  powers  for  any  particular  category  of  institution  will  also  involve  sectoral 
legislation. With regard to the powers of the Authorities in the field of dispute settlement, this 
can only be exercised in areas in which co-operation, coordination or joint  decision-making 
between  supervisors  is  required  by  sectoral  legislation,  and  some  modifications  to  sectoral 
legislation will be necessary in order to clarify when this is the case.  

The European Supervisory Authorities will always have the right to address an opinion to the 
Commission  on  such  prudential  matters,  either  at  the  request  of  the  Commission  or  at  their 
own  initiative.  They  should  be  able  to  adopt  such  opinions  on  prudential  assessments  by 
Member  States  on  mergers  and  acquisitions  in  the  financial  sector,  covered  by  Directive 
2007/44/EC (with or without a Community dimension) and to publish such opinions. 

5.1.1.1. 

Powers to ensure a single set of harmonised rules  

The options for consideration here are the following:  

1.  

2.  

The power for the Authorities to adopt guidelines and recommendations only, together 
with level 2 implementing rules adopted by the Commission under current procedure 
(baseline scenario). Under this option, in order to promote convergence of prudential 
rules  the  European  Supervisory  Authorities  would  have  the  capacity  to  issue 
guidelines  and  recommendations  addressed  to  national  authorities.  Non-binding 
guidelines and recommendations may be addressed to national supervisors and market 
operators in order to provide guidance on the application of EU regulatory provisions. 
There would thus be no changes to the "Lamfalussy system" of legislation, with level 
2  measures  adopted  by  the  Commission  with  comitology  and  non-binding  level  3 
measures. 

Option 1, plus the power to make proposals to the Commission for binding technical 
standards,  in  areas  to  be  specified  in  sectoral  legislation.  In  order  to  achieve  the 
objective  previously  mentioned,  the  Authorities  would  also,  in  areas  specified  in  the 
relevant  sectoral  legislation,  develop  draft  technical  standards.  These  draft  standards 
would be submitted to the Commission for endorsement (accompanied as appropriate 
by a proportionate analysis of the potential related costs and benefits) in the form of 
regulations or decisions so as to give them direct legal effect. 

12 

 
 
 
 
 
 
 
3. 

A  theoretical  third  option,  for  the  Authorities  to  themselves  adopt  binding  technical 
standards,  must  be  ruled  out  at  the  outset  as  it  would  conflict  with  the  Treaty  based 
responsibilities  of  the  Commission  and  give  the  Authorities  discretionary  powers, 
requiring a revision of the Treaty. 

5.1.1.2. 

Powers to bring about consistent application of EU rules 

The options for consideration here are the following:  

1.  

2.  

3.  

4.  

5.  

No  powers  (baseline).  Under  this  option,  in  line  with  the  current  competencies  of 
Level 3 Committees, the European Supervisory Authorities would have no powers to 
contribute  to  the  consistent  application  of  EU  rules,  that  is,  they  have  no  powers  to 
ensure  consistent  application  of  Community  rules  nor  any  powers  to  settle  disputes 
between home and host authorities.  

Option  1,  mediation  role  only  in  case  of  disagreement  between  national  supervisors. 
According  to  this  mediation  role,  the  European  Supervisory  Authorities  should 
encourage  and  facilitate  the  dialogue  between  national  supervisors  in  order  to  find  a 
common point of understanding.  

Option 2, binding dispute settlement powers, in case of disagreement between national 
supervisors. In the event of inability to reach an agreement the European Supervisory 
Authority would adopt a decision that would settle the dispute. This decision would be 
binding for the parties concerned. 

Option  3,  plus  a  power  to  intervene  to  warn  national  supervisors  of  breaches  of 
Community  law.  Besides  the  capacity  to  settle  disputes  through  legally  binding 
decisions,  the  European  Supervisory  Authority  could  investigate  situations  where 
national  supervisors  may  have  diverged  significantly  from  Community  legislation. 
Whenever  a  breach  of  Community  law  is  observed,  the  European  Supervisory 
Authorities  would  then  issue  a  recommendation  for  action  addressed  to  the  relevant 
national  authority.  The  Commission  could  subsequently  intervene  to  make  such  a 
recommendation binding. 

Option  4,  plus  the  possibility  for  the  European  Supervisory  Authorities  to  adopt  a 
binding decision addressed to a market operator (in respect to Community law which 
is directly applicable to them, i.e. Regulations), in cases where a Commission decision 
rendering  an  ESA  recommendation  binding  has  not  been  followed  by  a  national 
supervisor 

5.1.1.3. 
practices 

Ensure a common supervisory culture and consistent supervisory 

The options for consideration here are the following:  

13 

 
 
 
 
 
 
 
 
 
 
 
 
 
  
1. 

Same  powers  as  the  Level  3  committees  (baseline).  The  European  Supervisory 
Authorities  would  continue  to  build  a  common  supervisory  culture  with  the  same 
powers  held  at  present  by  the  Level  3  committees.  Thus,  the  European  Supervisory 
Authorities would carry out tasks such as:  

• 

Issuing guidelines and technical interpretations to promote the convergence 
of supervisory practices; 

•  Fostering training programmes and exchange of personnel; 
•  Conducting peer analysis, and 
•  Providing advice to supervisors. 
• 

2.  

Option  1,  plus  power  to  participate  in  colleges  of  supervisors.  The  European 
Supervisory Authorities would be granted the possibility to participate in colleges of 
supervisors.  By  participating  in  the  main  colleges  of  supervisors,  the  Authorities 
would contribute to promoting the efficient and consistent functioning of colleges and 
monitoring  the  coherence  of  the  implementation  of  Community  legislation  across 
colleges. 

3.  

Option  2,  with  a  requirement  to  participate  in  all  colleges  of  supervisors.  The 
European  Supervisory  Authority  would  be  present  in  all  colleges  of  supervisors  to 
ensure the consistency and convergence of all decisions adopted by these colleges. 

5.1.1.4. 

Full supervisory powers 

The options for consideration here are the following:  

1.  

2.  

3.  

No  possibility  of  powers  (baseline).  At  present,  day-to-day  supervision  of  financial 
entities  is  in  all  circumstances  carried  out  by  national  supervisory  authorities.  The 
baseline implies no supervisory powers for any European body. 

Option  1,  the  possibility  of  exclusive  supervisory  powers  for  entities  with  a 
Community-wide reach, to be granted by sectoral legislation. 

Option 2, the possibility of supervisory powers for certain entities shared with national 
supervisors.  The  supervision  of  these  entities  would  be  carried  out  both  by  national 
supervisors and European Supervisory Authorities.  

It  should  be  noted  that  the  Regulations  establishing  the  European  Supervisory  Authorities 
would  not  grant  them  any  supervisory  powers,  but  would  only  open  the  possibility  for 
subsequent legislation to grant them such powers. This is only envisaged in cases where there 
is  directly-applicable  EU  legislation  regulating  the  entities  in  question  (Regulations,  not 
Directives  transposed  by  national  legislation).  That  is  why  the  discussion  in  this  document 
does not concern the pros and cons of granting full supervisory powers to the Authorities for 
any  particular  category  of  institution  (although  it  should  be  noted  that  the  only  category  of 
financial  institution  currently  regulated  –  or  shortly  to  be  regulated  –  by  EU  Regulation  is 
Credit Rating Agencies). 

14 

 
 
 
 
 
 
 
 
 
 
 
 
5.1.1.5. 

Powers in emergency situations:  

As a preliminary remark, an issue arises with regard to the definition of emergency situations. 
It is impossible to define exhaustively in legislation when a cross-border emergency situation 
does  and  does  not  exist.  Having  noted  this,  the  options  for  consideration  here  are  the 
following:  

1.  

2.  

3.  

No  powers  (baseline).  Following  the  baseline  scenario,  the  European  Supervisory 
Authorities  would  not  be  involved  in  either  coordinating  the  actions  of  national 
supervisory authorities nor take any decisions to that effect. 

Option  1,  coordination  powers  only.  Under  this  option,  the  European  Supervisory 
Authorities  would  have  a  coordinating  role  in  emergency  situations  by  facilitating 
cooperation and exchange of information between the competent authorities.  

Option 2, coordination power plus the power to take binding decisions (addressed to 
financial  institutions  and/or  to  national  supervisors).  Serious  threats  to  the  orderly 
functioning and integrity of financial markets or the stability of the financial system in 
the  Community  require  a  swift  and  concerted  response  at  Community  level.  The 
Authority  could  therefore  be  able  to  require  national  supervisory  authorities  to  take 
specific  actions  to  remedy  an  emergency  situation.  As  the  determination  of  the 
existence of an emergency situation involves a significant degree of appreciation, this 
power  could  be  conferred  on  the  Commission.  Such  powers  would  be  subject  to  the 
safeguard  provisions  discussed  below,  ensuring  that  decisions  by  the  Authorities 
would not impinge on the fiscal responsibilities of the Member States. 

5.1.1.6. 

Powers to collect and manage micro-prudential information  

This power should be analysed separately as regards information for colleges of supervisors, 
and information for carrying out the other tasks of the Authorities. With regard to colleges of 
supervisors, there are three options: 

1.  No information for colleges of supervisors (this is the baseline); 

2.  Option 1: receive information relating to individual financial institutions, as a member of 
all colleges of supervisors, but no role in management or distribution of information; 

3.  Option 2: receive information relating to individual financial institutions, as a member  of 
colleges  of  supervisors,  and  in  addition  play  a  role  in  management  or  distribution  of 
information, in order to ensure that all relevant information is received by all members of 
the college.,  

With regard to information relating to the other tasks of the Authorities, there are again three 
options:  

1.  The  same  information  which  the  Level  3  Committees  receive,  namely  aggregated 

anonymised information only (this is the baseline); 

15 

 
  
 
 
 
 
 
  
  
 
 
 
  
2.  Option 1: only information on individual financial entities which are directly supervised 

by a European Supervisory Authority;  

3.  Option  2:  option  1,  plus  the  possibility  of  ad  hoc  information  requests  to  national 
supervisors or other relevant national authorities in connection with any matter related to 
the execution of the tasks of the Authorities.  

For  each  category  of  information,  the  decision  on  whether  the  European  Supervisory 
Authorities  should  have  access  to  it  must  be  taken  in  the  light  of  the  conclusions  on  the 
competences  of  the  European  Supervisory  Authorities.  Once  the  appropriate  tasks  and 
competences of the European Supervisory Authorities have been decided, it can be considered 
what  information  is  necessary  for  the  European  Supervisory  Authorities  to  fulfil  that  role 
adequately.  

For each category of information, if it is considered that the European Supervisory Authorities 
should  have  access  to  that  category  of  information,  it  should  further  be  considered  if  they 
should be able to approach financial institutions directly in order to obtain it, or whether they 
should be obliged to obtain it via the national supervisory authorities. 

5.1.1.7. 

Safeguard for fiscal responsibilities of Member States 

The  Communication  (section  4.2,  part  8)  states  the  following:  "Without  prejudice  to  the 
application of Community law, and recognising the potential liabilities that may be involved 
for Member States, decisions under the above mechanisms shall not directly impinge on the 
fiscal  responsibilities  of  the  Member  States."  This  was  echoed  in  the  conclusions  of  the 
European  Council  of  18-19  June  2009,  which  stated:  "  decisions  taken  by  the  European 
Supervisory  Authorities  should  not  impinge  in  any  way  on  the  fiscal  responsibilities  of 
Member States." The options to be considered are the following:  

1. 

2. 

3. 

No  formal  legal  reference  in  the  Regulations  establishing  the  European  Supervisory 
Authorities  to  safeguards  for  Member  States'  fiscal  responsibilities,  other  than  a 
recital, leaving no legal obligation on the European Supervisory Authorities to respect 
this principle other than the Treaty, which reserves direct taxation as a competence of 
the Member States;  

Option  1,  a  general  reference  in  the  founding  act  of  the  European  Supervisory 
Authorities,  which  does  not  stipulate  which  acts  may  impinge  on  Member  States' 
fiscal  responsibilities,  combined  with  the  standard  right  of  Member  States  to  appeal 
acts of the Authorities to the Appeal Board and the Court of Justice;  

Option 2, the application of a formal safeguard procedure, requiring a Member State 
which considers its fiscal responsibilities to have been infringed to bring the matter to 
the  attention  of  the  Council,  which  could  take  a  decision  on  the  basis  of  a  qualified 
majority 

16 

 
 
 
 
 
 
 
 
 
 
 
5.1.2. Organisation and structure of the Authorities in the ESFS 

5.1.2.1. 
Joint Committee of European Supervisory Authorities 
There is a need for the three new Authorities to coordinate their policies and ensure cross-
sectoral cooperation so as to reflect the relevant market trends and realities.  

The options to be considered are the following:  

1.  No  Joint  Committee  for  the  ESFS  at  all  (in  which  case  the  Joint  Committee  on 
Financial Conglomerates would need to remain in existence). This is the baseline. 

2.  Option  1:  create  a  Joint  Committee  with  no  legal  personality,  ensuring  mutual 
understanding,  cooperation  and  consistent  supervisory  approaches  between  the  three 
new  Authorities.  A  Subcommittee  to  the  Joint  Committee  could  be  established  to 
specifically  address  cross-sectoral  issues,  including  financial  conglomerates,  and 
ensuring a level playing field. While the actual decisions on, for example the Financial 
Conglomerates Directive, would be taken by the individual ESAs, the Joint Committee 
should ensure that common decisions are taken by the Authorities in parallel. Option 
2:  to,  create  a  Joint  Committee  with  legal  personality  as  a  Community  body,  with 
specific tasks and competences, notably with respect to cross-sectoral issues. 

5.1.2.2. 

Voting procedure 

The options to be considered are the following:  

1.  Qualified majority voting (to be considered as the baseline based on the practice in the 

Level 3 committees);  
2.  One member one vote, or  
3.  A  hybrid  system,  involving  for  example  QMV  for  certain  issues,  otherwise  one 

member one vote. 

5.1.2.3. 

Involvement and role of relevant stakeholders  

The  Communication  states  "The  European  Supervisory  Authorities  should  liaise  in  a 
structured way with all relevant stakeholders, including consumers."  This structured liaison 
could  involve  consultation  with  the  stakeholder  group  or  groups,  who  would  in  turn 
communicate  the  opinions  of  existing  or  new  Commission  financial  services  groups 
representing a broader stakeholder community.  The options are: 

1.  No  formal  standing  stakeholder  group,  but  the  possibility  for  the  European 

Supervisory Authorities to make public consultations (this is the baseline); 
2.  One permanent stakeholder group for all European Supervisory Authorities;  
3.  Specialised separate stakeholder groups for each European Supervisory Authority;  
4.  Ad hoc consultative groups on different topics. 

17 

 
 
 
 
 
 
 
 
 
 
 
 
 
5.1.3. Financing of the Authorities in the ESFS 

The current Level 3 Committees of Supervisors are financed by contributions from national 
supervisory authorities, complemented by action grants for specific tasks (e.g. training) from 
the Community budget. However, since the new Authorities are to be classified as Regulatory 
Agencies for the purposes of Article 185 Financial Regulation, it will not be possible for them 
to receive funding from such grants. The baseline option in this impact assessment is therefore 
considered  to  be  100%  Member  State  funding  via  national  supervisors,  as  for  the  level  3 
committees, without Community grants. 

Due  to  the  new  Authorities'  status  as  EU  bodies,  the  Member  State  funding  could  be 
complemented by a subsidy from the EU budget. The Community contribution would be set 
at  a  level  to  balance  expenditure  and  revenue  and  ensure  continuity  of  the  Authorities'  
respective missions. Any combination of proportions  of funding  by the Community  and the 
Member States is possible. 

Although it is also theoretically possible that the new Authorities could be 100% financed by 
the  Community,  the  constraints  of  the  Community  budget  under  the  current  financial 
perspective  (2007-2013)  have  to  be  duly  taken  into  consideration.    In  case  of  Community 
funding – be it partial or total – the Framework Financial Regulation (Commission Regulation 
No 2343/2002) will be applied to the new Authorities.  

The following options for financing the European Supervisory Authorities are therefore 
considered: 

1.  Full funding of ESAs' costs by the Member States (contributions from national 

supervisory authorities); 

2.  Combined financing from the Community budget and from the Member States; 

3.  Full funding of ESA's costs from the Community budget. 

5.2. ESRB 

Building  on  the  analysis  in  the  previous  impact  assessment,  the  following  assessment 
considers at a more granular level the various options for designing and operationalising the 
ESRB  in  the  most  effective  and  efficient  manner  and  at  the  minimum  cost  to  achieve  the 
specific objectives, identified in chapter 4 above.   

5.2.1 Powers and competences of the ESRB 

5.2.1.1. 

Follow up to warnings and recommendations 

The options for consideration here are the following:  

1. 

 No  follow  up  mechanism  (baseline).  The  ESRB  would  be  considered  as  a  purely 
its 
advisory  body 

there  would  be  no 

follow-up 

required 

and 

to 

18 

 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
2. 

3.   

warnings/recommendations. Addressees would be free to follow the ESRB advice or 
not. 

Required  follow–up.  Under  this  option,  the  ESRB  warnings  or  recommendations 
would  be  binding  for  the  addressees  which  would  be  required  to  comply  within  a 
specific timeline. 

Comply or explain (within a specific timeline). The follow-up of the ESRB warnings 
or recommendations would be ensured by a "comply or explain" mechanism according 
to  which  the  addressees  would  have  to  comply  with  the  decision  within  a  specific 
timeframe  or  will  be  required  to  explain  their  decision  not  to  comply.  Under  this 
option,  addressees  of  recommendations  would  not  be  able  to  simply  ignore  a 
recommendation  from  the  ESRB.  They  would  be  compelled  to  evaluate  the 
recommendation  and  choose  a  line  of  action.  This  could  be  to  follow  what  is 
prescribed  in  the  recommendation  or  to  choose  a  different  approach,  but  the 
recommendation  could  not  be  ignored.  If  the  addressee  chooses  not  to  follow  the 
recommendation, it is required to detail the reasons for this. 

5.2.1.2. 

Information access 

The options for consideration here are the following:  

1.  

2.  

3.  

No  access  (baseline).  Under  this  option,  the  ESRB  would  only  have  access  to 
information  already  in  the  public  domain  on  financial  institutions  and  the  financial 
system.  

Access  to  aggregated  data  as  necessary  (for  example  based  on  existing  reporting 
procedures). The ESRB would collect ad-hoc or regular data on the financial system 
and  institutions,  on  an  aggregated  basis,  such  that  individual  financial  institutions 
cannot be identified. 

Access  to  aggregated  data  and  relevant  information  on  individual  institutions  upon 
request.  In  addition  to  the  regular  collection  of  the  aggregated  data,  upon  reasoned 
request, the ESRB would be granted access to individual data when the entity, because 
of its size, cross-border nature or the risks posed, may be considered as systemic. 

5.2.1.3. 

Degree of publicity of warnings and recommendations 

The options for consideration here are the following:  

1.  

2.  

3.  

All  warnings  and  recommendations  remain  confidential.  They  would  be  transmitted 
only to the addressees and other relevant parties (e.g. ESAs, Council). This would be 
the baseline. 

Full  transparency.  Warnings  and  recommendations  would  be  automatically  made 
public. 

Publication  according  to  general  principles  agreed  in  advance.  General  guiding 
principles  would  be  defined  to  determine  in  advance,  whether  a  decision  should  be 
made  public  or  not  (for  example  general  risk  warnings  related  to  financial 

19 

 
 
 
 
 
  
 
 
 
 
 
 
developments  at  EU  level  could  be  made  public  as  a  rule  to  raise  awareness  among 
market  participants  while  more  targeted  warnings/recommendations  could  be  kept 
confidential in order to avoid counter-productive reactions of panic). 

4. 

Publication  to  be  decided  on  a  case-by-case  basis.  The  decision  to  publish  or  not  a 
warning or a recommendation would be left to the ESRB as part of its discretionary 
power.  This  could  be  part  of 
follow-up  mechanism.  Warnings  and 
recommendations  would  be  confidential  by  default  but  the  ESRB  could  decide  to 
make a warning or recommendation public if it deems the follow-up to insufficient, or 
for  any  other  reason.  The  publicity  of  the  decision  could  in  this  case  be  used  as  an 
additional incentive to act. 

the 

5.2.2 Organisation and structure of the ESRB  

5.2.2.1. 

Size of board and scope of expertise 

The options listed below are not mutually exclusive.  The analysis will assess the appropriate 
balance between each of the groups identified below: 

1.  Baseline (current situation of fragmented macro-prudential supervision) 
2.  Central banks  
3.  Micro-prudential supervisors 
4.  Other bodies (such as the Commission, EFC chair, EEA country representatives) 
5.  Independent persons, including experts, academics etc. 

5.2.2.2. 

Addressees of warnings 

The options for consideration here are the following:  

1.  

No specific addressees (baseline). 

2. 

3.  

4.  

Member  States  only.  Under  this  option,  the  addressees  of  ESRB  warnings  or 
recommendations  would  be  the  Member  States  (including  supervisors).  Warnings  or 
recommendations could be addressed to one individual Member State or to a group of 
Member States, pointing out a particular risk and asking the Member State(s) to take 
corrective action –in the case of recommendation. 

Supranational Authorities: ESAs and the Commission only. It could be envisaged that 
the  ESA  receive  warnings  or  recommendations  from  the  ESRB  for  measures  falling 
under  their  field  of  competences  or  the  Commission  when  legislative  action  is 
necessary. 

Competent national authorities + individual institutions. Under this option, the ESRB 
would be entitled to issue warnings or recommendations to individual institutions or 
categories  of  institutions  i.e.  credit  institutions,  insurance  companies,  investment 
firms.   

5. 

A  combination  of  all  the  previously  mentioned  addressees.  Under  this  option,  the 
ESRB would be able to issue warnings and recommendations to any of the following 

20 

 
 
 
 
 
 
 
 
 
 
 
 
 
addressees:  the  ESAs,  the  Commission,  Member  States  or  more  specifically,  to 
competent national authorities. 

5.2.2.3. 

Stakeholder involvement and other advisory bodies  

The  options  below  refer  to  the  modalities  of  involvement  and  not  the  frequency  of 
consultation. Due to the nature and objectives of the tasks fulfilled by the ESRB it is neither 
feasible  nor  appropriate  to  undertake  a  consultation  on  all  warnings/recommendations. 
Therefore the description and subsequent analysis of the options below assume that it will be 
up to the ESRB to decide about the criteria concerning the frequency of the consultation of 
stakeholders (i.e. according to the subject discussed, the urgency of the ESRB initiative etc.). 
The same applies a fortiori to the consultation of other advisory bodies deemed to provide a 
support to the ESRB 'on demand'.  

1.  None (baseline) 

2.  Public  consultations.  According  to  this  option  the  ESRB  would  involve  all  concerned 
stakeholders through an open consultation using different means (internet, public hearing 
etc.) and deciding on a case by case basis the delay for the collection of inputs.   

3.  Through a stakeholder group. This option implies setting-up an appropriate framework for 
a  structured  dialogue  with  relevant  stakeholders  (industry,  consumers,  workers, 
academics).  A  permanent  stakeholders  group  would  be  then  established  to  advise 
regularly the ESRB  

4.  Ad hoc consultations. The ESRB could consult relevant stakeholders as appropriate. 

5.  Other advisory bodies, such as an Advisory Technical Committee. Under this option the 
ESRB  could  be  assisted  by  an  Advisory  Technical  Committee  which  would  reflect  the 
composition of the Board, i.e. it will include a representative of each national central bank 
and  of  each  national  supervisory  authority  of  the  Member  States,  two  representatives  of 
the  European  Commission  and  one  representative  of  the  EFC.  The  existing  Banking 
Supervision Committee would provide the basis for setting-up the Committee. 

6.  Ad hoc consultations + Advisory Technical Committee. Under this option, consultations 
would  comprise  both  the  Advisory  Technical  Committee  as  well  as  any  relevant 
stakeholders as appropriate. 

5.2.3. Funding of the ESRB: the Secretariat  

Regarding  the  set-up  of  the  Secretariat  in  charge  of  assisting  the  ESRB  in  carrying  out  its 
tasks  -  both  on  the  administrative/logistic  side  and  on  the  statistical/analytical  issues  –  the 
following options have been identified: 

1. 

2. 

As  baseline  scenario  we  assume  the  absence  of  any  Community  initiative,  i.e.  the 
decision  to  live  with  the  current  (inadequate)  EU  arrangement  for  macro-prudential 
oversight and not establishing any EU Body (and related support structure) in charge 
of the detection of systemic risks and identification of remedial actions.  

European  Central  Bank.  The  European  Central  Bank  would  make  available  the 
resources  necessary  to  ensure  the  analytical,  statistical,  administrative  and  logistical 

21 

 
 
 
 
 
 
 
 
3.   

4.   

support  to  the  ESRB.  The  Secretariat  will  be  staffed  with  European  Central  Bank 
officials, and staff seconded from other Central Banks around the EU as appropriate. It 
will  largely  build  on  the  well  established  network  with  national  Central  Banks  and 
Supervisory Authorities on the extensive internal work in relation to European Central 
Bank/ESCB functions on financial stability monitoring. 

Commission ("EFC model"). The Commission would be responsible for the provision 
of  the  analytical,  statistical,  administrative  and  logistical  support  to  the  ESRB  and 
would undertake this internally, by setting up a dedicated unit within the Directorate 
General  for  Economic  and  Financial  Affairs.  The  Structure  would  be  similar  to  that 
provided to support the work of the EFC and of the EPC and would be managed by a 
Director,  assisted  by  a  group  of  officials.  The  Secretariat  could  be  organized  in  4-5 
Units  (according  to  geographical  competence  +  one  Unit  for  inter-institutional 
relationships  and  international  relations  and  one  for  the  organization  of  the  ESRB 
the  Directorate 
meetings).  The  Structure  could  be  either 
"Macrofinancial Stability" or be under the direct responsibility of the Director-General 
to give it prominent political visibility. 

integrated 

into 

A  virtual  network  of  Central  Banks.  Under  this  option  the  statistical  and  analytical 
work would be performed by the single Central Banks building on (the enhancement 
of)  the  existing  network  structures.    It  would  also  comprise  a  small  secretariat 
provided  by  the  European  Central  Bank  (around  10  people)  which  would  be 
responsible  for  the  day-to-day  management  of  the  network  and  to  deal  with  the 
administrative and logistical support to the Board, including organization of meetings. 
The European Central Bank secretariat would also ensure overall coordination of the 
network, including harmonization of methodologies and analytical tools. Each Central 
Bank  would  largely  build  on  the  structures  already  in  place  to  fulfil  their  stability-
related tasks. Central banks perform overall surveillance and analysis of the financial 
system  (macro-prudential  analysis).  Analyses  are  undertaken  to  identify  the  effects 
that financial system structures, structural changes and integration developments have 
on financial stability. 

6. Preliminary analysis of impacts and comparison of options 

In this section, the following score system is used for the analysis of impact of the options: 

•  Positive effect: from slightly positive (+) to strongly positive (++++) 
•  Negative effect: from slightly negative ( - ) to strongly negative (- - - -)  
•  No impact: 0 

22 

 
 
 
 
 
 
 
6.1. ESFS 

6.1.1. Powers and competences of the Authorities in the ESFS 

6.1.1.1. 

Powers to ensure a single set of harmonised rules  

The existing procedure  (baseline  scenario) provides for the Commission to develop Level 2 
detailed implementing rules in areas specified at Level 1.  This approach is complemented by 
Level 3 non-binding guidelines developed by the existing European supervisory committees.     

However, as has been seen from the recent financial market disruption, a strengthening of the 
single  market  in  financial  services  to  ensure  consistent  application  and  minimise  regulatory 
arbitrage  is  necessary.    This  may  mean  in  some  cases  areas  that  were  previously  guidelines 
should  be  mandatory.    Additionally,  given  that  financial  service  providers  and  markets  can 
rapidly  evolve,  in  some  areas,  even  more  rapid  updating  of  standards  is  necessary.    These 
areas  often  cover  issues  best  left  to  supervisory  experts  to  agree  on.    Finally,  there  may  be 
new  areas  following  on  from  the  financial  market  disruption  where  more  detailed/amended 
standards will be necessary. 

Against this background, option 1 allows for the development, in certain pre-specified areas, 
of  draft  technical  standards  to  complement  Level  2  implementing  measures.    In  the  past, 
standards  and  guidelines  published  by  Level  3  committees  have  provided  very  valuable 
guidance for the correct incorporation of EU legislation into national frameworks.  However, 
since they are non-binding, they have not in all cases been able to play the role of effective 
legislation. 

This option would reinforce those standards by granting the European Supervisory Authorities 
the  capacity  to  submit  draft  technical  standards  .  Where  appropriate,  transforming  non-
binding  Level  3  measures  binding  would  represent  a  significant  step  towards  a  single 
European rulebook.  

However,  this  capacity  would  be  rightly  limited  to  those  areas  to  be  defined  in  sectoral 
legislation.    Additionally,  in  developing  the  actual  standards,  the  Authorities  should  use 
appropriate  market  analysis  and  consultation  procedures  before  submitting  the  proposed 
standards  to  the  Commission.    This  issue  should  be  tackled  in  the  sectoral  legislation  by 
defining the precise areas where the European Supervisory Authorities will have the power to 
propose  binding  technical  rules8.    As  a  safeguard,  the  empowerment  for  the  authorities  to 
develop standards would normally remain at Level 1. 

Granting  the  European  Supervisory  Authority  the  power  to  autonomously  adopt  binding 
technical  standards  (option  2)  is  not  legally  feasible.  Thus,  the  ability  to  submit  draft 
standards for adoption by the Commission is the most effective way to ensure a single set of 
harmonised rules.    

From the point of view of coherence, the Authorities are effectively a strengthened network of 
national  supervisors.    The  Authorities  are  therefore    best  placed  to  identify  the  standards 
which are necessary. In this regard, the other competences and powers entrusted to European 

8 See annex 3 for the areas in sectoral legislation which have been identified for the use of such a procedure for 
binding technical rules. 

23 

 
 
 
 
 
  
 
 
 
                                                 
Supervisory  Authorities  provide  them  with  the  appropriate  knowledge  to  develop  technical 
standards. Thus, this competence is coherent with the proposed set of powers and tasks. 

Table 1. 

Options 

Assessment criteria 

Single rule book 

Effectiveness 

Efficiency 

Coherence 

1.  Baseline  (Non-binding  guidelines 
and recommendations) 

2.  Baseline  +  proposals 
to 
Commission for binding standards 

the 

0 

++ 

0 

+++ 

0 

+++ 

6.1.1.2. 

Powers to bring about consistent application of EU rules  

The efforts to pursue a greater harmonisation of EU rules would be pointless if such rules are 
later applied inconsistently. The desired level of convergence in the supervision of financial 
institutions  across  the  EU  requires  not  only  a  single  set  of  harmonised  rules,  but  also  a 
consistent  application  of  such  rules  and  common  supervisory  practices.  Consequently,  it 
would be coherent to entrust also the European Supervisory Authorities with this task.   

The  European  Supervisory  Authorities  should  facilitate  coordination  and  joint  decision-
making between the national supervisors when applying EU rules. While fulfilling this task, 
the European Supervisory Authority should additionally verify the correct application of EU 
rules. 

Two issues are involved under this heading: (i) settlement of disagreements between national 
supervisors, and (ii) procedure for breaches of EU legislation 

Regarding  settlement  of  disagreements  between  supervisors,  the  European  Supervisory 
Authorities must coordinate the actions of supervisors to ensure a consistent application of EU 
rules. Nevertheless, this mediation may not be sufficient in those cases where there is a strong 
discrepancy between supervisors. Discussions between national supervisors are often blocked 
by  conflicting  interests  or  points  of  view.  In  these  circumstances,  it  is  essential  to  create  a 
mechanism which allows the supervisor to arbitrate and provide a solution to the controversy.  

Concerning incorrect or inconsistent  application  of  EU rules,  the two alternatives envisaged 
are  either  granting  the  European  Supervisory  Authority  the  capacity  to  take  decisions 
requiring  national  supervisors  to  apply  Community  law  correctly  or  just  the  possibility  to 
issue a recommendation apply Community law correctly. The preferred option is the capacity 
to  issue  recommendations,  with  the  possibility  for  the  Commission  to  make  such  warnings 
binding if not followed by the national supervisor in question.  

To  overcome  exceptional  situations  of  persistent  inaction  by  the  competent  authority 
concerned, the Authority could be empowered, as a last resort, to adopt decisions addressed to 
individual  financial  institutions.  This  power  should  be  limited  to  areas  of  Community  law 
directly applicable to financial institutions, and defined by the subject matter and conclusions 
in the Commission decision which it has to fully respect. 

24 

 
 
 
 
 
 
 
 
 
 
 
Table 2. 

Options 

Assessment criteria 

Consistent application of rules 

Effectiveness 

Efficiency 

Coherence 

1. Baseline (no powers) 

2. Mediation role 

3. Mediation + binding decision-making 
powers in case of disagreement 

4.  Mediation  +  3  +  power  to  warn  of 
manifest breaches of EU law 

5.  4  +  power 
addressed to market operators 

to  adopt  decisions 

0 

+ 

++ 

+++ 

++++ 

0 

++ 

++ 

+++ 

+++ 

0 

+ 

++ 

+++ 

+++ 

6.1.1.3. 
supervisors) 

Ensure a common supervisory culture (including colleges of 

Until now, one of the main tasks of the Committees of Supervisors has been to contribute to 
the consistent application of Community directives and to the convergence of Member States' 
supervisory  practices  throughout  the  Community.  As  mentioned  in  the  Communication 
"European Financial Supervision" of 27 May 2009, the new European Supervisory Authorities 
will take on all the missions of the current Committees of Supervisors. 

It has been mentioned previously that the new Authorities should contribute to promoting the 
efficient and consistent functioning of colleges of supervisors and monitoring the coherence 
of  the  implementation  of  Community  legislation  across  these  colleges.  Against  this 
background,  they  should  participate  as  observers  in  colleges  of  supervisors  and  receive  all 
relevant information shared between the members of the college. The question is whether the 
European  Supervisory  Authorities  should  be  required  to  participate  in  all  colleges  of 
supervisors  or  leave  it  up  to  the  Authorities  to  decide  in  which  colleges  they  want  to 
participate.  

From  the  point  of  view  of  effectiveness,  the  involvement  of  the  European  Supervisory 
Authorities  in  all  colleges  of  supervisors  would  ensure  a  high  degree  of  consistency  as  it 
would gain a complete overview of all the key regulatory and market developments in the EU. 
From  the  point  of  view  of  efficiency,  requiring  the  European  Supervisory  Authorities  to 
participate in all colleges of supervisors would imply very high costs, while the advantages of 
such presence are not guaranteed. The most pragmatic solution therefore seems to be to leave 
the decisions on the participation in individual colleges up to the Authorities, as they are  best 
placed to make consider the trade-off between effectiveness and efficiency. 

25 

 
 
 
 
 
 
 
 
 
 
Table 3. 

Options 

Colleges of supervisors 

1.  Baseline  (same  powers  as  current 
Committees) 

2.  Baseline  +  power  to  participate  in 
colleges of supervisors 

3.  Baseline  +  2  +  requirement  to 
participate in all colleges of supervisors 

Assessment criteria 

Effectiveness 

Efficiency 

Coherence 

0 

+++ 

++ 

0 

+++ 

+ 

0 

+++ 

++ 

6.1.1.4. 

Full supervisory powers 

In  May,  the  Commission  announced  the  possibility  of  granting  the  European  Supervisory 
Authorities responsibility for the supervision of entities with a Community-wide reach (such 
as credit rating agencies or possibly central counterparty clearing houses). The supervision of 
such  entities  involves  a  clear  Community  dimension.  For  example,  central  counter  party 
clearing  houses  can  process  and  settle  operations  from  a  large  number  of  states  and  credit 
rating  agencies  based  in  one  country  can  issue  ratings  which  affect  a  large  number  of 
countries. Consequently, it is not optimal that a single national authority should be entrusted 
with the task of supervising them. From this perspective, granting this power to a European 
body  could  be  more  effective  and  coherent  than  sharing  this  competence  with  national 
supervisors. It would also be more efficient as it would concentrate the costs of supervision in 
only one authority avoiding any overlaps. 

In this context, entities with a Community-wide reach refers to entities which by their nature 
can operate throughout the EU. It does not refer to cross-border financial institutions which 
are  supervised  by  national  supervisors  operating  in  colleges  of  supervisors.    A  hierarchy  of 
possibilities is thus established: for national entities supervision is totally national, for cross-
border groups colleges of supervisors is key, and for entities with a Community-wide reach 
there is the possibility of European supervision. 

It  is  logical  to  introduce  the  possibility  of  granting  such  powers  to  all  three  Regulations 
creating European Supervisory Authorities, in case it is in future decided to grant supervisory 
powers  to  the  ESAs  for  any  entities  in  the  areas  of  banking  or  insurance  and  occupational 
pensions. Then in such cases, EU supervision could be introduced with a sectoral legislative 
act, without any need to amend the Regulation founding the Authority in question. However, 
in the short term, only Credit Rating Agencies are envisaged for the possible introduction of 
EU  supervision.  This  would  involve  an  amendment  to  the  Regulation  on  Credit  Rating 
Agencies. 

26 

 
 
 
 
 
 
Table 4. 

Options 

Single rule book 

1. Baseline (no powers) 

2.  Full  supervisory  powers  only  for 
entities with a Community-wide reach 

3.  Supervisory  powers  only  for  entities 
with  a  Community-wide  reach  shared 
with national supervisors  

Assessment criteria 

Effectiveness 

Efficiency 

Coherence 

0 

+++ 

+ 

0 

+++ 

- 

0 

+++ 

+ 

6.1.1.5. 

Powers in emergency situations  

From  the  point  of  view  of  effectiveness,  the  prime  objective  is  to  respond  to  emergency 
situations with highly coordinated and harmonised measures. As already noted, the European 
Commission will define when a emergency situation exists and the powers under discussion 
here can be invoked. 

The  fact  that  the  responsibility  for  emergency  management  over  locally  incorporated  and 
supervised entities of cross-border groups is predominantly national-based heightens the need 
for close EU coordination in these demanding times. Growing financial integration in the EU 
has  fostered  the  development  of  large  cross-border  entities.  Consequently,  there  must  be  an 
evolution  towards  a  more  integrated  management  of  emergency  which  affect  those  entities. 
This implies information sharing and joint responses to the problems which are identified. 

The first option relies solely on a higher willingness of Member States to increase cooperation 
after the present emergency. As mentioned earlier, one of the lessons that have been extracted 
from  this  emergency  is  the  need  for  more  harmonised  solutions  to  the  financial  turmoil. 
National  authorities  are  more  aware  of  this  problem  and  therefore,  are  expected  to  act  in  a 
more  coordinated  way  in  the  future.  However,  this  may  seem  insufficient  in  view  of  the 
magnitude of the problems which may occur.  

There is therefore a strong case for new initiatives to increase cooperation amongst national 
authorities.  European  Supervisory  Authorities  would  enhance  coordination  by  ensuring  a 
better  flow  of  information  between  national  authorities  and  also,  by  assisting  national 
supervisors  in  the  definition  and  correct  timing  of  the  measures  to  be  taken.  In  their 
overarching position, the new authorities would reduce frictions between national authorities 
by  analysing  both  the  requests  for  information  and  the  needs  for  action  under  specific 
circumstances  in  order  to  determine  the  correct  line  to  take.  This  mediating  role  would 
facilitate the adoption of remedial actions and increase the swiftness and effectiveness of such 
measures.  

As  for  the  possibility  of  granting  decision-making  powers  to  the  European  Supervisory 
Authorities,  it  seems  clear  that  this  option  would  eliminate  obstacles  and  accelerate  the 
adoption  of  measures  to  a  given  problem.  Certain  problems  like  short-selling  of  shares  for 
instance,  require  rapid  and  synchronised  actions.  In  an  emergency  situation,  these  decisions 
have to be adopted on an EU wide basis to avoid unequal implementation of the measures and 
ensure their effectiveness.  

27 

 
 
 
 
 
 
 
 
In  the  past,  emergency  have  revealed  to  which  extent  national  interests  may  collide  and 
hamper  the  management  of  the  emergency.  Consequently,  it  is  coherent  with  the  objectives 
set forth in the Communication to envisage a mechanism which can improve the management 
of the emergency by providing coordinated responses to the problems, as well as ensuring that 
no decision by the Authorities impinges on the fiscal responsibilities of the Member States. 

Table 5. 

Options 

Assessment criteria 

Coordination in crisis situations 

Effectiveness 

Efficiency 

Coherence 

1. No powers 

2. Coordination powers 

3.  Binding  decision  making  powers 
in emergency situations 

0 

++ 

+++ 

0 

++ 

+++ 

0 

++ 

+++ 

6.1.1.6. 

Powers to collect and manage micro-prudential information:  

The  most  appropriate  option  with  regard  to  collection  of  information  depends  on  the  other 
competences and powers selected for the European Supervisory Authorities, and is the option 
which allows it to fulfil its functions correctly, with no more and no less information than it 
needs  for  its  tasks.  "Effectiveness"  in  this  respect  means  effectiveness  for  carrying  out  its 
tasks,  and  "coherence"  means  primarily  coherence  with  the  other  tasks  and  competences  of 
the European Supervisory Authorities.  

The  European  Supervisory  Authorities  will  not  be  able  to  carry  out  any  functions,  and  will 
therefore have zero effectiveness, without access at the minimum to the information currently 
received  by  the  Level  3  committees,  the  anonymised  and  aggregated  data.  Without  this 
information they will have a very limited insight into developments in their sector in Europe, 
limited  to  public  sources  such  as  the  press.  The  issue  of  whether  the  European  Supervisory 
Authorities should share this or any other information, with the ESRB is discussed elsewhere, 
in the ESRB part of this report. The baseline should therefore constitute the minimum for the 
European Supervisory Authorities, in terms of access to information. 

Considering ad hoc information-gathering powers, the European Supervisory Authorities will 
not be able to exercise the powers proposed for them without relevant information. It would 
therefore  be  both  effective  and  coherent  for  European  Supervisory  Authorities  to  be  able  to 
request national supervisors to provide the information needed to carry out any area of their 
work, including the general assessment of market developments, on the basis of a motivated 
request. This would certainly generate costs, but if the information is already in the possession 
of the national supervisory authority, the additional cost should be limited. 

It  should  also  be  considered  whether  the  European  Supervisory  Authorities  should  have  the 
power to gather information regarding individual financial institutions which is not already in 
the possession of national  supervisory authorities, and if so,  whether  they  should be able to 
approach financial institutions directly or only via national supervisory authorities. European 
Supervisory  Authorities  may  also  need  access  to  information  regarding  individual  financial 

28 

 
 
 
 
 
 
 
 
 
institutions  which  is  not  in  the  possession  of  national  supervisors.  In  such  cases  it  will  be 
more  efficient  for  them  to  be  able  to  obtain  the  information  directly  from  financial 
institutions.  

With  regard  to  information  for  colleges  of  supervisors,  clearly  the  European  Supervisory 
Authorities will not be able to participate in colleges in any meaningful way without access to 
all  of  the  information  which  is  available  for  the  college.  More  fundamentally,  it  has  been 
considered  above  (6.1.1.3.)  that  European  Supervisory  Authorities  should  play  a  significant 
role  with  regard  to  colleges  of  supervisors,  facilitating  them  and  ensuring  that  all  national 
supervisors are fully informed. This requires the European Supervisory Authorities to have a 
role  defining  and  collecting  information  for  all  colleges  of  supervisors.  This  involves  the 
management  of  a  database  of  information  originating  from  home  and  host  supervisors  for 
meetings  of  colleges  of  supervisors.  Going  beyond  this,  in  order  to  ensure  coherent 
information, the European Supervisory Authorities should lay down the minimum information 
which home and host supervisors should circulate prior to meetings of colleges of supervisors. 

While  this  role  regarding  information  for  meetings  of  colleges  of  supervisors  can  be 
considered  both  effective  and  coherent,  as  defined  above,  it  might  be  considered  as  not 
efficient, especially as it would incur high costs, particularly with regard to the maintenance 
of  a  database  (the  precise  costs  are  considered  below).  However,  centralised  distribution  of 
information  for  colleges  of  supervisors  would  be  more  efficient  than  the  alternative,  which 
would involve all relevant national supervisors distributing information separately to all other 
national supervisors attending the meeting. 

Table 6. 

Options 

Information collection (general) 

1. 
Baseline 
anonymised information) 

(aggregated, 

2.  Baseline  +  ad  hoc  information 
gathering  powers 
via  national 
supervisors 

3.  Baseline  +  ad  hoc  information 
gathering  powers  directly 
from 
financial undertakings 

Table 7. 

Options 

Information collection (related to 
colleges of supervisors) 

1. Baseline (no information) 

2.  Receive  all 
colleges of supervisors 

information 

for 

3.  option  2.  +  management  and 
distribution 
for 
colleges of supervisors 

information 

of 

Assessment criteria 

Effectiveness 

Efficiency 

Coherence 

0 

++  

0 

+ +  

+ ++ 

+ + + 

0 

+ +  

++ 

Assessment criteria 

Effectiveness 

Efficiency 

Coherence 

0 

+ 

+ + 

0 

+ 

+ + 

0 

+ 

+ + 

29 

 
 
 
 
 
 
 
 
 
6.1.1.7. 

Safeguard for fiscal responsibilities of Member States 

The issue is to lay down provisions which ensure that European Supervisory Authorities do 
not take decisions which impinge on the financial responsibilities of Member States, without 
preventing  European  Supervisory  Authorities  from  taking  other  decisions,  which  do  not 
impinge on the fiscal responsibilities of Member States.   

It is however of high importance to ensure that the safeguard clause is not abused by Member 
States. Its use should therefore be limited to well-justified cases so as to avoid disrupting the 
effective  functioning  of  the  Authorities.  To  achieve  this,  clarity  about  how  and  when  the 
process can be triggered, and how it is judged, is essential.   

The first and second options would be broadly similar, in that they would not provide legal 
clarity as to the definition of decisions which impinge on the fiscal responsibility of Member 
States, the procedure to be followed or the initiator of the proceedings. The third option would 
give  Member  States  a  wide  power  of  appreciation  and  intervention  regarding  European 
Supervisory Authority decisions, and would allow them to judge when the safeguard clause 
applies or not, and could ultimately undermine the effectiveness of the Authority if misused. 
The  fourth  option  would  allow  European  Supervisory  Authorities  to  adopt  decisions,  which 
Member States can challenge if they consider the safeguard clause to be triggered. Should the 
European  Supervisory  Authority  not  withdraw  or  revise  its  decision,  the  matter  would  be 
referred to the Council, which would take a decision using qualified majority voting. 

A  broad  prohibition  of  taking  any  decisions  which  might,  directly  or  indirectly,  impinge  on 
the fiscal responsibilities of Member States, could considerably reduce the scope of activity of 
the  Authorities.  On  the  other  hand,  a  general  and  imprecise  statement  that  European 
Supervisory  Authorities  must  not  impinge  on  the  fiscal  responsibilities  of  Member  States, 
without specific remedial mechanisms in place in case they do so, would not protect the fiscal 
interests of Member States. Neither of these options would therefore be effective in achieving 
the desired objective. 

Only a safeguard procedure could provide a rigorous framework for determining if a decision 
by a European Supervisory Authority could genuinely impinge on the fiscal responsibilities of 
Member  States,  with  an  ultimate  decision  being  taken  by  the  Council  under  QMV.  Such  a 
procedure might be considered to be burdensome, but the very length of the procedure should 
lead to it being used sparingly and only in cases where genuinely important fiscal issues are at 
stake.  To  balance  the  risk  that  this  procedure  could  be  overly  burdensome,  it  may  be 
appropriate  to  provide  for  a  more  expedited  procedure  in  the  case  of  emergency  situations 
compared  with  day-to-day  supervisory  decisions.    However,  regardless  of  this  difference, 
ultimately, the decision should remain subject to the Council procedure outlined above. 

30 

 
 
  
 
 
 
 
 
  
 
Table 8. 

Options 

Safeguard 

1. Baseline (no explicit safeguard) 

2. General safeguard clause 

veto  over 
3.  Member  State 
European  Supervisory  Authority 
activity 

4.  Formal  safeguard  procedure 
Decision 
based 
1999/468 

Council 

on 

Assessment criteria 

Effectiveness 

Efficiency 

Coherence 

0 

+ 

- 

++ 

0 

+ 

0 

+. 

0 

+ 

+ 

+ + + 

6.1.2. Organisation and structure of the Authorities in the ESFS 

6.1.2.1. 

Joint Committee of European Supervisory Authorities  

A Joint Committee  would  play  a  key  role in ensuring consistency of outcomes between  the 
three authorities. Therefore, the option of having no Joint Committee would be ineffective, in 
that it would require the Joint Committee on Financial Conglomerates to remain in place as a 
relic of the old Level 3 committees and would risk divergences in approach between the three 
Authorities. It would also render the concept of a network-based ESFS rather empty. In terms 
of efficiency, it would save some travelling costs but could engender greater costs in the long 
term if diverging approaches between different European Supervisory Authorities require ex-
post intervention in order to remedy their effects.  

A Joint Committee with no legal personality could replace the JCFC, co-ordinate informally 
between  the  three  European  Supervisory  Authorities,  without  being  encumbered  by  legal 
requirements.  Its  informal  nature  could  increase  its  effectiveness,  it  would  involve  no 
operational costs (other than mission expenses), and it could be served by staff of the ESAs. 
The Executive Director, the Commission and the European Systemic Risk Board (to  ensure 
effective coordination between the ESFS and ESRB) would attend Joint Committee meetings, 
and  other  participants,  at  the  discretion  of  the  Joint  Committee.  The  Joint  Committee  on 
Financial  Conglomerates  would  in  this  case  be  replaced  by  a  subcommittee  of  the  Joint 
Committee,  with  broadened  membership,  including  appropriate  representatives  of  Member 
States. 

Regarding the option of a Steering committee with legal personality, this option may have a 
positive score on effectiveness as it could adopt legal acts obliging coherent interventions by 
the  three  European  Supervisory  Authorities.  But  it  is  not  certain  that  such  acts  would  be 
necessary. It might be inefficient, as a Joint Committee with legal personality could engender 
extra costs such as for a secretariat. A possible disadvantage of a Joint Committee with legal 
personality  is  potential  overlap  with  the  three  ESAs  and  blurring  of  responsibilities.  On  the 
other hand, a potential advantage of a Joint Committee with legal personality is that it could 
take decisions on conglomerates, removing the need for the European Banking Authority and 
European  Insurance  and  Occupational  Pensions  Authority  to  take  separate  and  identical 

31 

 
 
 
 
 
 
 
decisions, following co-ordination (which would be necessary with a Joint Committee with no 
legal personality); this could lead to a more fragmented and less coherent approach.  

Overall, it is considered more prudent to have a Joint Committee with no legal personality for 
the moment, pending the outcome of the first review of ESFS functioning. 

Table 9. 

Options 

Steering committee 

1. Baseline (no Joint Committee) 

2.  Joint  Committee  with  no  legal 
personality 

3.  Joint  Committee  with 
personality 

legal 

6.1.2.2. 

Voting procedure 

Assessment criteria 

Effectiveness 

Efficiency 

Coherence 

0 

+ + + 

+ + + 

0 

+ + + 

+ + 

0 

+ + + 

+ 

Concerning voting procedures, the baseline is QMV as applied in the level 3 committees. For 
the purposes of adopting proposals for binding technical standards, it would be coherent with 
the  adoption  procedures  for  other  binding  acts,  to  retain  the  use  of  QMV,  since  the  role  of 
European  Supervisory  Authority  voting  members  in  that  case  would  be  similar  to  that  of 
Member  States.  The  use  of  QMV  excludes  the  chairman  having  a  vote,  as  he  will  not  be 
representative  of  a  Member  State;  however  there  remains  the  question  of  whether  the 
chairman should vote when simple majority voting applies. 

For  other  matters,  simple  majority  voting  would  be  appropriate,  as  QMV  is  more  suitable 
when the Authorities are adopting draft horizontal legislative and quasi-legislative acts which 
will  apply  in  the  whole  of  the  EU,  including  guidelines  and  recommendations,  and  also  for 
budgetary  and  financial  matters.  On  the  other  hand,  for  individual  acts  of  the  Authorities 
concerning specific cases a simple majority voting procedure would be adequate, as such acts 
are implementation of Community legislation already adopted. 

It should be laid down in the acts creating the ESAs that members of the Board of Supervisors 
must  always  act  in  the  Community  interest  and  not  represent  Member  States.  Conflicts  of 
interest should thus be avoided. In voting in the Board of Supervisors on dispute settlement 
issues, the representatives of supervisors involved in the disagreement can be expect to vote in 
different ways, thus eliminating each other. 

32 

 
 
 
 
 
 
 
 
 
 
Table 10. 

Options 

Assessment criteria 

Voting 

Effectiveness 

Efficiency 

Coherence 

1. Baseline (QMV on all decisions) 

2. Majority voting 

3.  Mixed  QMV  and  majority  voting, 
depending on subject matter 

0 

+ + 

+ + 

0 

+ 

+  

0 

0 

+  + 

6.1.2.3. 

Liaising with relevant stakeholders including consumers:  

In terms of effectiveness, the lack of any kind of stakeholder consultation other than ad hoc 
public consultations can be dismissed as leading to poor quality interventions. Holding open 
public  consultations  on  every  act  of  the  European  Supervisory  Authorities  would  also  be 
inefficient. It would also be incoherent with practice in other agencies which have stakeholder 
consultation panels. This option can therefore be dismissed. 

The option of one stakeholder group for all three European Supervisory Authorities (that is, 
for  the  ESFS  as  a  whole)  could  be  considered  as  effective  and  efficient,  while  broadly 
coherent  with  existing  practice,  as  long  as  the  ESFS  is  considered  as  a  unity  and  not  three 
totally separate Authorities. The existence of a Joint Committee underlines this unity. 

Constituting  separate  stakeholder  consultation  groups  for  each  European  Supervisory 
Authority would however be more effective, as each group would be composed of experts on 
the sector in question. However, it would be less efficient, as it would be costly in terms of 
holding three times as many meetings and missions. It would also be coherent with practice 
for  existing  agencies,  which  each  have  their  own  stakeholder  group.  This  is  therefore  the 
preferred option. 

The  constitution  of  ad  hoc  stakeholder  groups  per  issue  would  be  highly  inefficient  and 
expensive,  without  any  guarantee  of  better  quality  input  than  with  a  permanent  stakeholder 
group.  This  practice  is  not  currently  followed  in  any  agency,  and  thus  scores  low  on 
coherence. 

33 

 
 
 
 
 
 
 
 
 
 
 
Table 11 

Options 

Stakeholder consultation 

1.  Baseline 
consultation only) 

(ad 

hoc 

public 

2.  Separate  stakeholder  groups  for 
Supervisory 
each 
Authority 

European 

3.  One  stakeholder  group  for  all 
three 
Supervisory 
Authorities in the ESFS 

European 

4. Ad hoc stakeholder groups 

Assessment criteria 

Effectiveness 

Efficiency 

Coherence 

0 

+ + + 

+ + 

+ + 

0 

+ 

+ + 

- 

0 

+ + + 

+ + 

- 

6.1.3. Financing the Authorities in the ESFS 

The total costs of creating the European Supervisory Authorities have been estimated at about 
37 million Euro in the first full year of operations (2011), reaching over 68 million Euro after 
three years (2014) – see Table 24 in Chapter 7.3. 

The  cost  of  functioning  of  the  new  Authorities  could  be  covered  from  various  sources, 
including  contributions  from  national  supervisors,  a  subsidy  from  the  Community  budget, 
own  revenues  from  fees  and  licences  (this  is  linked  with  direct  supervisory  powers  over 
Credit  Rating  Agencies  and  will  only  be  relevant  for  the  European  Securities  Markets 
Authority).  

The practice adopted in the L3 Committees is that the national contributions are proportionate 
to the weight of the Member State concerned in the qualified majority voting arrangements in 
the Council. This system could be maintained in the European Supervisory Authorities, or an 
alternative system of allocation, for example, based on relative Gross National Income, could 
be used. Since their own revenues (i.e. from fees and licences) are expected to be of marginal 
importance,  at  least  in  the  first  stages  of  operation,  the  funding  will  basically  have  to  come 
from  national  contributions  and  the  Community  subsidy.  There  is  a  full  spectrum  of 
possibilities for sharing the costs between these two main sources. Some illustrative options 
are presented in Table 12 below.  

Table 12. Illustrative options for European Supervisory Authorities' funding 
In thousands € 

Total costs for EU 
and MS 

Option 1 
(the baseline) 

Option 2 (a) 

Option 2 (b) 

National contributions 
Community subsidy 

National contributions 
Community subsidy 

National contributions 
Community subsidy 

2011 

2012 

2013 

2014 

37.263 

51.268 

60.639 

68.426 

100% 

37.263 

51.268 

60.639 

68.426 

0% 
80% 

20% 
60% 

0 
29.810 

7.453 
22.358 

0 
41.015 

10.254 
30.761 

0 
48.511 

12.128 
36.384 

0 
54.741 

13.685 
41.056 

40% 

14.905 

20.507 

24.256 

27.370 

34 

 
 
 
 
 
 
  
  
  
  
  
  
  
Option 2 (c) 

Option 2 (d) 

Option 2 (e) 

Option 3 

National contributions 
Community subsidy 

National contributions 
Community subsidy 

National contributions 
Community subsidy 

National contributions 
Community subsidy 

Source: Commission calculations 

50% 

18.631 

25.634 

30.320 

34.213 

50% 
40% 

60% 
20% 
80% 
0% 
100% 

18.631 
14.905 

22.358 
7.453 
29.810 
0 
37.263 

25.634 
20.507 

30.761 
10.254 
41.015 
0 
51.268 

30.320 
24.256 

36.384 
12.128 
48.511 
0 
60.639 

34.213 
27.370 

41.056 
13.685 
54.741 
0 
68.426 

As  regards  Option  1  –  the  baseline  –  one  common  argument  raised  in  favour  of  100% 
Member  State  financing  is  the  need  to  ensure  independence  of  the  new  Authorities  from 
excessive  influence  of  European  institutions.  However,  experience  with  existing  EU 
regulatory agencies, which are mostly fully funded through the EU budget, suggests that they 
enjoy  a  significant  degree  of  independence.  The  arguments  that  the  EU  subsidy  would 
compromise  the  independence  of  the  new  Authorities  therefore  does  not  seem  to  be 
substantiated.  

100% funding from the Member States on one hand would not entail any additional expense 
from the Community budget. But on the other hand, it would have as a consequence that the 
EU  Financial  Regulation would not  apply and there would be no automatic requirement for 
Parliamentary  discharge  for  the  budget9.  This  could  be  perceived  as  reducing  controls  and 
increasing  risk.  Finally,  the  exclusive  national  financing  would  be  incoherent  with  the  EU 
principle of solidarity and the level playing field in the Internal Market. National supervisors 
use  a  variety  of  funding  models  at  national  level  -  some  from  general  taxation,  some  from 
levies  on  the  industry.    Thus  the  costs  linked  with  financing  the  ESAs  would  have  to  be 
passed  directly  on  to  the  industry  or  indirectly  to  the  taxpayers.  Given  unequal  sizes  and 
levels  of  development  of  financial  sectors  in  various  MS,  the  contributions  to  the  ESAs 
calculated according to the weights in the Council voting mechanism could be contested by 
some  countries.  Opposition  could  be  expected  especially  from  the  Member  States  with 
relatively small financial sectors as compared to the number of their QMV votes, especially in 
the context of budgetary strain in the post-crisis period.  

The Option 2 and 3, i.e. the Community financing in part or in full, implies the application of 
the Financial Regulation, with all the checks and controls it involves. This would guarantee 
the transparency of the ESAs' internal financial procedures and support their accountability. 
They  would  be  subject  to  oversight  by  the  established  Community  framework  for  financial 
audit  and  control.  This  would  help  to  protect  the  ESAs  from  fraud  or  any  kind  of 
fraudfinancial abuse.  

The need for Community funding is also particularly important to ensure that the Authorities 
are  truly  independent  from  Member  States.  The  choice  has  been  made,  in  order  to  limit  as 
much as possible interferences in the technical work of supervisors, to limit the Commission's 
participation  to  the  minimum  in  the  supervisory  boards  of  the  Authorities  (with  one  non-
voting member) and the management boards (with one voting member). If there were to be in 
addition  an  excessive  reliance  on  Member  States'  contributions,  the  credibility  of  the 
Authorities'  independence  would  be  seriously  put  at  risk.  A  significant  Community 

9 The Parliament could, however, establish itself as a discharge authority. 

35 

  
  
  
  
 
 
 
 
                                                 
contribution  is  needed  to  compensate  for  the  limited  role  which  is  being  given  to  the 
Commission in the decision-making bodies of the Authorities; 

Besides,  experience  with  the  existing  EU  agencies  shows  that  the  Community  financing 
guarantees the stability of revenues. In case of mixed funding arrangements (for agencies with 
some  own  revenues),  the  Community  subsidy  usually  tops  up  other  types  of  revenues  to 
ensure  the  necessary  budget  for  conducting  the  statutory  operations.  Such  a  solution  could 
also be foreseen in the case of a mixed financing with contributions from national supervisors. 
Excluding Community financing completely to rely on national contributions would entail the 
risk of budgetary problems in case one or several Member State(s) for whatever reason fail(s) 
to contribute. 

In light of the above arguments, it seems that the involvement of the Community in financing 
of the ESAs would be beneficial in comparison to the baseline, i.e. financing exclusively by 
the Member States. It could contribute positively to the effectiveness of the new Authorities 
by  ensuring  their  stable  financing  and  thus  operations  while  not  endangering  their 
independence.  At  the  same  time,  the  application  of  EU  financial  control  and  audit 
mechanisms  is  likely  to  enhance  the  ESA’s  efficiency.  Funding  or  co-funding  from  the 
Community budget also seems to be in all ways more coherent with other EU objectives and 
policies than 100% Member State financing. On the other hand, full funding of the ESAs from 
the  Community  budget  is  not  coherent  with  the  appropriations  planned  in  the  2007-2013 
financial perspective. 

Table 13. 

Options 

Financing options 

1. Baseline: 100% funding by MS 

2. Mixed funding by MS and EC (60% - 
40%) 

3. 100% funding by EC 

Assessment criteria 

Effectiveness 

Efficiency 

Coherence 

0 

++ 

++ 

0 

++ 

++ 

0 

++ 

+ 

Within  the  Option  2,  a  Sub-option  2b  whereby  it  is  proposed  that  the  Community  budget 
funds 40% of the costs and Member States fund the 60% is suggested as the optimal solution. 
The reasons for this choice are the following: 

•  a  well-balanced  financing  is  the  best  way  to  ensure  that  the  Authorities  act  (and  are 
perceived  to  be  acting)  independently  of  Member  States  and  of  the  Community 
institutions. If one particular source of funding were to be overly dominant, this could cast 
a shadow on the credibility of the decisions made by the Authorities and thus undermine 
the new framework proposed to safeguard financial stability; 

•  given that national supervisors will continue, in this new framework, to carry out the bulk 
of  supervisory  activities  on  the  ground,  it  seems  appropriate  to  reflect  this  in  a  slightly 
higher  contribution  from  Member  States.  In  doing  so,  allowance  should  be  made  for  a 
smooth  evolution  from  the  present  situation  where  the  level  3  committees  are  almost 
exclusively funded by Member States;  

36 

 
 
 
•  however,  it  is  of  the  essence  that  a  significant  part  of  the  funding  comes  from  the 
Community budget. Indeed, the new Authorities will serve objectives which have a clear 
Community  dimension:  preserving  financial  stability  in  the  Internal  Market  as  well  as 
sustainable growth in  the EU. Moreover, one of the Authorities' core tasks and powers is 
to ensure a consistent, efficient and effective application of Community rules in the sector. 
This  justifies,  at  least,  a  40%  funding  from  the  Community  budget  (as  most  of  these 
entities are normally fully funded through the Community budget). Furthermore, one can 
doubt  whether  all  Member  States  will  be  able  to  cope  with  the  sharp  increase  in  their 
contributions that would be required under the new framework, which will be much more 
costly than the present level 3 arrangements;  

• 

this approach is the most conducive to stable funding, with no over-reliance on one source 
or on contributions from big Member States who could threaten the continued operation of 
the Authorities by putting an end to their financial contributions. Finally, this approach is 
also more fair than a full or very large funding from Member States. 

6.2. ESRB 

6.2.1 Powers and competences of the ESRB 

6.2.1.1. Follow up mechanism to warnings and recommendations 

One  of  the  specific  objectives  outlined  above  was  to  "ensure  follow  up  to  warnings  and 
recommendations".    The  purpose  of  ESRB  warnings  and  recommendations  is  to  bring 
potential  systemic  risks  to  the  attention  of  recipients.    However,  unlike  policies  such  as 
inflation targeting, there is no quantitative target in the field of systemic risks.  Therefore any 
warning  or  recommendation  is  likely  to  contain  some  uncertainties  and  elements  of 
subjectivity.  On the other hand, with risks of this type, the earlier action is taken to mitigate 
them, the more likely the cost of such action and the probability of the risk materialising will 
be minimised.  Therefore it is important to strike a balance between incentivising early action 
and not prescribing actions in the face of uncertainty.  

The  first  option,  no  follow-up  mechanism,  would  significantly  lessen  the  effectiveness  of 
ESRB  warnings  and  recommendations. There would  be a  high risk that addressees may not 
heed  the  ESRB  warnings  and  recommendations,  which  would  be  exacerbated  if  ESRB  acts 
were  not  made  public  (discussed  under  6.2.1.4).  However,  granting  binding  powers  to  the 
ESRB to require compliance from addressees would probably be a too rigid and too simplistic 
option  and  could  lead  to  legal  challenges.  The  purpose  of  the  ESRB  should  be  to  raise 
awareness among Member States, the ESAs  or national supervisory authorities on potentially 
unsound financial developments and initiate an early constructive dialogue with addressees on 
possible  ways  to  react.  A  "comply  or  explain"  mechanism  seems  therefore  to  be  the  best 
option  in  terms  of  effectiveness  as  it  leaves  to  the  addressees  sufficient  flexibility  to  adjust 
while it ensures there is follow up (as specified in the specific objectives) by requesting them 
to react (complying or explaining) within a specific timeline.  

In addition, it could be envisaged that ESRB recommendations, as well as the responses of the 
addresses, are transmitted to the Council and, where relevant, to the ESAs. This mechanism 
would help to better co-ordinate the responses in the case of multiple addressees. The ESAs in 
particular should use their powers to ensure timely follow-up to recommendations addressed 

37 

 
 
 
 
 
 
to  one  or  more  competent  national  supervisory  authorities.  This  role  would  contribute  to 
ensure a smoother interaction of supervision at macro-prudential and micro-prudential levels, 
which would be fully in line with the system-wide specific objectives. If the ESRB judges that 
its recommendation has not been properly addressed and is not satisfied with the addressee's 
explanation, it would inform the Council and, where appropriate, the ESAs. Such a prospect 
should  help  put  pressure  on  the  addressees  and  would  certainly  help  achieving  effective 
follow-up to warnings and recommendations, as mentioned in the specific objectives. 

Table 14. 

Options 

Assessment criteria 

Warnings 

Effectiveness 

Efficiency 

Coherence 

1. Baseline (no follow-up mechanism) 

2. Comply 

3. Comply or explain 

0 

++ 

++ 

0 

- 

+  

0 

- - 

++ 

6.2.1.2. Information access  

The ESRB needs sufficient information to effectively identify macro-prudential risks and to 
analyse the interconnection with the soundness of individual financial institutions.  Provision 
of  such  information  should  not  place  undue  burdens  on  national  supervisors  or  financial 
institutions.  To deliver this objective, the ESRB is likely to need access to a wide range of 
information on financial institutions and the financial sector. It would not be possible to issue 
credible  warnings  and  recommendations  without  such  access  to  accurate  and  up-to  date 
information. However, gaining this information should be as efficient as possible.  In order to 
alleviate the burden on the reporting entities, the ESRB could potentially have access within 
existing  reporting  arrangements,  channelled  through  the  ESAs.  Such  an  arrangement  would 
have  the  merit  of  having  no  impact  in  terms  of  additional  reporting  burden  on  financial 
institutions.  The  channelling  of  information  through  the  ESAs  is  also  a  way  of  enhancing 
cooperation  between  the  macro-  and  the  micro-  European  supervisor,  thus  contributing  to 
meeting the system-wide objective, as described above. 

Being responsible for identifying macro-prudential risks, the ESRB would analyse primarily 
aggregated data at the EU or country level. Yet individual institutions can present a systemic 
risk because of their size, their activities or their cross-border nature. Allowing the ESRB to 
access -under specific circumstances and on reasoned request- individual data would improve 
its  effectiveness  and  be  necessary  for  it  to  achieving  its  objectives.  The  information  on 
individual data could be collected by the ESRB Secretariat and codified for the discussions at 
Board  level.  Such  a  solution  would  have  the  advantage  not  to  rule  out  discussions  on 
individual  cases  as  a  single  financial  institution  may  put  financial  stability  (in  one  or  more 
Member States) at threat and preserve the confidentiality of the data at the same time.   Before 
a  request  for  data  is  made,  the  ESRB  would  first  take  account  of  the  existing  statistics 
produced, disseminated and developed by both the European Statistical System and the ESCB 
and then could consult the relevant European Supervisory Authority, in order to ensure that 
the request is proportionate. 

38 

 
 
 
 
 
Table 16 

Options 

Information requirements 

1. Baseline (no access) 

2.  Collection  of  aggregated  data  on  a 
regular basis 

3.  Collection  of  aggregated  data  on  a 
regular  basis  +  access  to  information 
on individual institutions upon request 

Assessment criteria 

Effectiveness 

Efficiency 

Coherence 

0 

++ 

+++ 

0 

++ 

++ 

0 

++ 

++ 

6.2.1.3. Degree of publicity of warnings 

It will be important to ensure appropriate follow up to warnings and recommendations.  One 
tool  to  achieve  this  is  through  the  threat,  or  the  act,  of  publicising  warnings  and 
recommendations.    However,  there  is  a  need  to  strike  a  balance  between  preserving  the 
confidentiality of certain decisions so as not to create excessive concerns on the markets and 
ensuring the effectiveness of ESRB action by releasing some decisions to raise awareness and 
enhance  market  discipline.  If  the  ESRB  is  only  a  silent  body,  its  image  among  market 
participants  as  well  as  with  the  general  public  would  be  limited  which  may  undermine  the 
credibility of its warnings. On the contrary, it would not be effective to require all warnings 
and  recommendations  to  be  published  as  the  publicity  of  such  sensitive  decisions  in  itself 
could  destabilise  the  financial  system.  Pre-defined  rules  on  whether  a  decision  should  be 
made  public  would  give  the  Board  and  market  participants  clear  guidance  and  create  an 
incentive for the recipient to demonstrate that they have addressed the issue.  But it could also 
potentially tie the hands of the Board too much and result in instances of publication when it 
was  not  appropriate  and/or  non-publication  would  not  have  been  appropriate.  It  would  be 
more 
a 
entrust 
warning/recommendation  should  be  made  public.  Given  the  importance  of  the  decision,  a 
qualified  majority  of  two  thirds  of  the  votes  within  the  General  Board  could  be  foreseen  to 
decide on making a warning/recommendation public. When the decision has been made not to 
make  a  warning/recommendation  public,  the  addressees,  the  Council  and  the  ESAs  should 
adopt all necessary measures to preserve the confidentiality of the decision. More specifically, 
the  President  of  the  Council  could  be  entitled  to  decide  not  to  circulate  a  warning  or 
recommendation to the other members of the Council. 

to  decide  whether 

the  Board 

effective 

efficient 

and 

to 

Table 17. 

Options 

Publicity for warnings 

1. No publicity (baseline) 

2. All decisions published 

3.Publication  according 
principles agreed in advance 

to  general 

4. Publication to be decided on a case 
by case basis (as part of the follow-up 
mechanism) 

Assessment criteria 

Effectiveness 

Efficiency 

Coherence 

0 

- 

- 

+ 

0 

0 

0 

0 

0 

- 

+ 

++ 

39 

 
 
 
 
6.2.2 Organisation and structure of the ESRB 

6.2.2.1. Size and scope of expertise of the board  

The composition of the board is a key issue for the effectiveness of the new body.  It will be 
necessary  to  have  a  board  which  strikes  the  right  balance  between  ensuring  adequate 
representation  of  expertise  and  views,  to  ensure  there  is  adequate  pooling  of  information 
about  macroeconomic  risks  for  financial  stability,  while  at  the  same  time  ensuring  it  is 
flexible enough to be able to issue warnings and recommendations effectively and ensuring its 
size  is  not  a  limitation  to  this  effectiveness.    The  Commission  proposal  endorsed  by  the 
European Council suggests a board comprising: 

•  The President and Vice President of the European Central Bank (2, voting) 
•  Governors of each of the EU's National Central Banks (27, voting) 
•  One representative of the European Commission (1, voting) 
•  Representatives of each of the European Supervisory Authorities (3, voting) 
•  One supervisory representative from each Member State (27, non voting) 
•  One representative from the EFC (1, non voting) 

The composition in terms of specific individuals or bodies is ultimately a political decision.  
There is, however, an important judgement to make around how to ensure the composition of 
the  board  balances  the  two  key  parameters  outlined  above:    ensuring  an  effective  size,  and 
ensuring balanced representation.  The composition of the board should also contribute to the 
objective of independence of the macro-supervisor, as mentioned in the specific objectives. 

There  are  four  types  of  possible  members  (central  banks,  supervisors,  independent 
individuals/bodies and community institutions) in two possible formulae – with and without 
votes.    Having  less  voting  members  than  total  members  will  increase  the  efficiency  of  the 
Board  at  deciding  on  warnings  and  recommendations  for  a  given  size,  while  on  the  other 
hand, warnings and recommendations will necessarily represent the views of only that smaller 
group of voting members. 

In terms of the types of possible members, to ensure adequate pooling of information about 
macroeconomic risks, it seems essential to ensure a significant coverage of central banks.  In 
most  Member  States,  central  banks  are  primarily  responsible  for  maintaining  price  stability 
(and  therefore  wider  macroeconomic  stability)  through  the  use  of  monetary  policy,  the 
conduct  of  foreign  exchange  operations,  managing  the  national  official  reserves.  Moreover 
central  banks  undertake  the  macro-prudential  oversight  at  national  level  and  are  therefore  
used to looking at both financial and the wider macroeconomic stability.  Thus Central Bank 
members will be in a good position to take an overview of the linkages between developments 
in  the  financial  sector  and  the    macroeconomic  performance  of  EU  economic  systems.    In 
addition,  National  Central  Banks  are  independent  bodies  and  their  independence  is 
safeguarded  by  the  Treaty.  Having  a  large  majority  of  Central  Banks  in  the  Board  would 
therefore contribute to the objective of independence mentioned above. For all these reasons, 
it  seems  sensible  to  ensure  that  all  relevant  Central  Banks  have  a  prominent  place  on  the 
ESRB. 

40 

 
 
 
 
 
 
 
  
Supervisors,  on  the  other  hand,  are  responsible  primarily  for  the  regulation  of  financial 
institutions, with the broad objectives of protecting depositors and reducing the likelihood and 
impact of financial institution failure.  They will have the necessary information and skills to 
make judgements about the solvency of individual financial institutions.  It seems sensible to 
have as wide a representation as possible given the objective of the ESRB to ensure the link 
between macro-prudential and microprudential issues and to ensure that the ESFS functions 
are  carried  out  effectively  in  terms  of  information  flows  and  informed  actions.  The 
participation of the ESAs in the board will definitely contribute to fulfilling the system-wide 
objective of close cooperation between the macro-and the micro- European supervisor. 

The Commission, in its macroeconomic monitoring and legislative roles, and Member States 
in their political role should also be represented.  However, it is not necessary to have a wide 
representation.  Therefore it seems sensible to limit their representation to only one seat. 

The involvement of other independent individuals should also be considered.  Academics or 
independent experts may have highly relevant and informed assessments and opinions which 
could usefully shape the ESRB's thinking.  However, as discussed under the assessment of the 
options  relating  to  access  to  information,  it  is  likely  that  the  ESRB  will  be  dealing  with 
sensitive  information  in  developing  warnings  and  recommendations.    Therefore  involving 
individuals  from  outside  of  the  institutional  and  regulatory  framework  may  prove  difficult.  
Additionally, it is unlikely that a single academic or independent expert would be sufficient 
for  all  potential  situations.    Therefore,  as  an  alternative,  it  could  be  made  possible  for  the 
ESRB to consult relevant experts and academics as appropriate (see section on 'stakeholders 
involvement'). 

With the membership options outlined above, the ESRB will be a relatively large grouping.  
The  optimal  size  for  a  group  of  this  type  will  depend  among  other  things  on  the  relative 
likelihood of diverging opinions, the specific individual relationships involved, the strength of 
the  chair  and  the  effectiveness  of  the  steering  group.    However,  one  way  to  increase  the 
effectiveness  of  decision  making  is  to  limit  the  voting  members  for  a  given  size.    In  the 
proposal above around half of the members are voting members, including the national central 
banks,  the  Commission  and  the  European  Supervisory  Authorities.    This  should  help  to 
streamline  decision  making.    It  should  also  help  to  minimise  potential  conflicts  of  interest, 
given  the  bulk  of  ESRB  warnings  and  recommendations  may  go  to  Member  States  or 
National Supervisors. 

Table 18. 

Options 

Size and scope of Board 

1. Baseline (fragmented supervision) 

2.Central Banks 

3.Supervisors 

4. Central Banks + Supervisors + EFC 
+ ESAs 

5. Independent Authorities 

Assessment criteria 

Effectiveness 

Efficiency 

Coherence 

0 

+++ 

+++ 

++ 

+ 

0 

+ 

+ 

+ 

+ 

0 

++ 

+ 

++++ 

+ 

41 

 
 
 
  
 
6.2.2.2 . Addressees of warnings  

One  of  the  specific  objectives  of  the  ESRB  is  to  'issue  warnings  to  the  relevant  actors  and 
recommend  the  appropriate  actions'.    This  is  closely  linked  to  the  scope  of  warnings  and 
recommendations,  discussed  previously.    It  is  not  possible  to  specify  in  advance  an 
appropriate  scope  for  potential  warnings  and  recommendations.    It  is  however  possible  to 
identify those who might be responsible for taking appropriate policy or supervisory action.  
At the EU level, for example, this would include the new European Supervisory Authorities, 
which  will  be  responsible  for,  among  other  things,  developing  technical  standards,  ensuring 
compliance  among  national  supervisors  with  appropriate  community  law  and  eventually 
direct  supervision  of  some  EU  wide  institutions,  notably  Credit  rating  Agencies.  It  is  also 
likely to include the Commission, which is responsible for financial services legislation and 
ensuring  a  level  playing  field  between  Member  States.  However,  coverage  limited  to 
institutions at the European level would not cover the full range of possible policy responses 
(in  particular  if  recommendations  related  to  policy  action  regarding  one  or  more  individual 
financial institutions), and, in particular, would not include the policy tools held by Member 
States and national supervisors.  Therefore it would be ineffective and inefficient to limit the 
scope  of  potential  addressees.    For  example,  targeting  the  national  competent  authorities 
might also be too narrow and not appropriate in some cases (for example, when an inaccurate 
fiscal policy is the potential source of market bubbles). To conclude, it seems that the most 
effective option to meet the objectives of the ESRB would be a range of addressees (Member 
States, competent national supervisory authorities, European Supervisory Authorities and the 
Commission).  It  is  worth  noting  that  some  of  the  potential  addressees  of  ESRB 
recommendations  (ESAs,  competent  national  supervisory  authorities,  the  Commission)  are 
represented on the board, which could be an issue as regards the independence of the ESRB. 
This said, the large majority of the board members will be central bankers. Representatives of 
national  supervisory  authorities  would  be  non-voting  members.  An  additional  safeguard 
clause to protect the independence of the ESRB would require the members of the board to 
perform their duties impartially, only bearing in mind the objective of financial stability in the 
European Union. This would be a specific provision in the Regulation establishing the ESRB. 

To minimise the cost burden and ensure an efficient approach it seems unnecessary to include 
individual financial institutions within the scope of warnings and recommendations.  Whilst in 
some cases they may be the source of systemic risks due to their size,  interconnections and 
complexity, ultimately, responsibility for supervision and regulation lies with Member States. 

Table 19 

Options 

Assessment criteria 

Addressees of warnings 

Effectiveness 

Efficiency 

Coherence 

1. Baseline  

2. MS only 

3. Supranational Authorities (ESAs and 
Commission only 

4.Competent Authorities in MS 

5.Competent  Authorities  +  individual 
institutions 

0 

+ 

+ 

+ 

+ 

6. MS, ESAs, national supervisors and 

+++ 

0 

++ 

++ 

+ 

+ 

+ 

0 

++ 

++ 

++ 

++ 

++ 

42 

 
 
 
Commission 

6.2.2.3. Stakeholder involvement and other Advisory Bodies  

The assessment of the options in this section will be done in respect to the first three specific 
objectives  above  since  both  the  objectives  of  ensuring  adequate  follow-up  to  the 
warnings/recommendation and of liaising effectively with international organizations seem to 
be less affected. 

The  baseline  scenario  is  no  stakeholder  consultation.  However,  given  the  mandate  of  the 
ESRB  and  the  potential  wide  impact  of  its  initiatives  (although  it  will  not  have  binding 
powers),  an  adequate  level  of  consultation  of  the  main  stakeholders  would  be  essential. 
Therefore this option can be immediately dismissed. In the light of the wide competence of 
the Body it would be appropriate to increase the potential sources of  advice particularly for 
the most complex analysis. In this respect, limiting the analytical support to that provided by 
the Secretariat only would appear inappropriate in terms of effectiveness. 

As  regards  public  consultation,  while  a  total  absence  of  any  consultation  would  negatively 
impact  on  the  quality  of  the  analysis  done  by  the  ESRB,  an  involvement  of  the  relevant 
stakeholders  via  public  consultations  would  present  quite  limited  benefits  in  terms  of 
effectiveness. Indeed, a public consultation (especially if referred to future possible warnings 
and recommendations) would be not consistent with the need of preserving the confidentiality 
of certain ESRB analysis and preventing the spread  of  excessive/unjustified  concerns in the 
markets. Moreover, such a modality might result in excessive delays for the ESRB initiatives 
and could determine a rather limited or exceptional recourse to it.  In terms of efficiency this 
modality would be quite burdensome for the ESRB in relation to the costs for collecting and 
analysing for each consultation the reactions of an undetermined number of stakeholders. 

The  establishment  of  a  permanent  stakeholder  group  (including  industry,  consumers  and 
workers representatives as well as academics) would represent, as far as the effectiveness is 
concerned, a better solution in comparison with the previous one, in particular with regard to 
the  need  of  preserving  an  adequate  level  of  confidentiality  and  velocity  of  the  process  . 
Moreover,  dialogues  with  the  relevant  stakeholders  carried  out  in  structured  way  would 
increase over the time their capacity in dealing with the issues discussed by the ESRB and in 
managing  their  relationship  with  the  Body.    In  terms  of  efficiency,  the  consultation  of  a 
restricted  group  of  people  would  imply  by  lower  costs  than  public  consultations. 
Nevertheless,  according  to  the  broad  mandate  of  the  ESRB  and  the  number  of  issues  to  be 
monitored,  it  seems  that  a  certain  degree  of  flexibility  should  be  granted  to  the  ESRB  in 
dealing with the relevant stakeholders. Therefore it should be up to the Board to decide on an 
ad hoc basis, according to the issues at stake, on the appropriateness of a consultation and on 
which  categories  of  stakeholders  should  be  consulted.  In  the  end,  with  respect  to  both 
effectiveness and efficiency, this solution seems top be the best one, ensuring a good balance 
between preserving the confidentiality of the process leading to certain ESRB initiatives and 
the need of enriching the analysis with as many perspectives as possible. 

In  addition  to  this,  a  Technical  Advisory  Committee,  putting  together  experts  from  the 
different institutions participating to the ESRB would appear as a really useful tool to refine 
the analysis of the Secretariat when appropriate. It would intervene exclusively on request by 
the ESRB and could be used to advise on certain complex issues of cross-sectoral nature or 
requiring  a  more  substantial  involvement  of  the  micro-prudential  supervisors  and/or  the 
Commission  in  the  preparatory  stage.  As  regards  the  efficiency  criterion  the  (limited) 

43 

 
 
 
recurrence  of  the  Committee  activation  and  the  fact  that  it  would  basically  build  on  the 
existing BSC would mean quite limited costs of its functioning.   

Table 20 

Options 

Stakeholders' involvement  

1.Baseline 
involvement) 

(no 

stakeholder 

2.Public Consultation only 

3. Through a stakeholders group  

4.  Ad  hoc  consultation  of  stakeholders 
and a Technical Advisory Group 

Assessment criteria 

Effectiveness 

Efficiency 

Coherence 

0 

++ 

+++ 

++++ 

0 

+ 

++ 

+++ 

0 

+ 

+ 

+ 

6.2.3. Financing of the ESRB: the Secretariat  

The assessment will be carried out in relation to the functions to be fulfilled by the secretariat 
i.e. the provision of administrative, logistical, statistical and analytical support to the ESRB. 
The analysis of the impact of the various options, including that regarding the cost-efficiency 
criterion, will be undertaken in qualitative terms only. This is due to the fact that it has been 
not  possible  at  this  stage  to  obtain  sufficient  elements  to  envisage  the  likely  practical 
arrangements and the division of work between the Secretariat (particularly for options 1 and 
2)  and  national  central  banks  and  supervisory  authorities.  This  has  made  it  impossible  to 
clearly identify, i.a., the staffing needs for the different options and the set-up costs, including 
those for IT equipment (where appropriate). For the favoured option, i.e. the provision of the 
secretariat by the ECB, it has not been possible to evaluate the impact on the ECB's budget as 
the  latter  does  not  envisage  setting  up  a  dedicated  structure  but  would  rather  leverage  the 
staff, resources and expertise of various departments in the ECB, depending on the issues to 
be  analysed.  It  was  therefore  not  possible  to  determine  upfront  e.g.  the  number  of  full-time 
equivalent  staff  which  would  work  in  relation  to  the  ESRB.  The  cost  of  the  option  could 
consequently not be assessed. 

As regards the criterion of coherence, all options, by providing support for the functioning of 
the  ESRB,  are  consistent  with  the  overall  objectives  of  the  EU:  to  contribute  to  economic 
growth  and  job  creation,  to  foster  the  Single  Market  and  to  promote  the  competitiveness  of 
EU  enterprises.  The  establishment  of  the  ESRB  will  contribute  to  safeguarding  financial 
stability,  to  a  smooth  functioning  of  the  Internal  Market  and  to  ensuring  a  sustainable 
contribution of the financial sector to the economic growth. 

The following options have been assessed:  

1. 

Provision  by  the  ECB.  In  terms  of  effectiveness,  giving  the  European  Central  Bank 
the  role  of  providing  the  Secretariat  to  the  ESRB  would  mean  it  was  possible  to 
leverage the ECB's in-depth macro-prudential expertise and its central role in the EU 
monetary  system.  In  cooperation  with  the  National  Central  Banks,  the  European 
Central  Bank  compiles  and  disseminates  a  wide  range  of  monetary  statistics  and 
indicators regarding MFIs and financial institutions outside the MFIs.  

Moreover,  the  European  Central  Bank,  together  with  the  Eurosystem,  systematically 
monitors cyclical and structural developments in the euro-area/EU banking sector and 

44 

 
 
  
 
in other financial sectors to assess the possible vulnerabilities in the financial sector, 
and  its  resilience  to  potential  shocks.  As  regards  external  relations,  the  European 
Central Bank maintains working relations with relevant institutions, bodies and for a, 
both within the EU and internationally in respect of tasks entrusted to the Eurosystem.  
A secretariat provided by the European Central Bank could make it possible to benefit 
from  the  ECB’s  resources  in  terms  of  expertise,  infrastructure  and  networking  with 
information sources already available within the Institution.  A secretariat integrated in 
the European Central Bank would also be best placed to align working methods and 
analytical tools and to harmonise data originated by different sources. 

As a possible drawback, giving such a prominent role to the European Central Bank 
could  potentially  create  a  deficit  of  coverage  among  the  non-euro  area  financial 
markets. Any structure will need to ensure the close involvement of a broad range of 
EU Central Banks. 

Having regard to the cost-efficiency criterion, the establishment of the Secretariat in 
the ECB would allow for maximizing the synergies with the existing structures within 
the European Central Bank and the ESRB, relating to the financial stability and other 
tasks, including the network of national central banks and supervisory authorities. This 
would  be  particularly  true  as  regards  the  human  resources  and  the  IT  infrastructure. 
Therefore,  the  costs  linked  to  implementation  of  this  option  would  be  somewhat 
limited and the Secretariat could be fully operational in a relatively short time frame. 

2. 

Commission  provision.  This  option  could  entail  positive  outcomes  in  terms  of 
effectiveness  as  a  Commission  Secretariat  would  have  a  wide  natural  coverage. 
Moreover,  the  Secretariat  could  build  on  the  analysis  and  infrastructure  in  place 
(particularly  in  DG  ECFIN)  to  support  Commission  tasks  in  respect  to  the  macro-
economic surveillance. 

On the other hand, it can be argued that it would make sense to give central banks a 
leading  role  in  doing  the  preparatory  work  for  the  ESRB  functioning  since  the  two 
main objectives of central banks relate to the maintenance of monetary and financial 
stability.  Identifying  vulnerabilities  in  the  financial  and  non-financial  sectors  and 
potential shocks in these markets is therefore a vital part of the work of central banks. 
In  this  respect,  the  Commission  structures  would  lack  adequate  expertise  and 
experience  in  undertaking  the  analysis  to  detect  systemic  risks  stemming  from  the 
interconnections between the real economy and the financial system. Also in terms of 
technical  capacity  to  process  and  analyse  a  huge  amount  of  data,  particularly  on 
financial  markets  and  institutions,  the  Commission  would  lack  adequate  resources 
according to its current structure and tasks. A similar reasoning can be applied to the 
need of establishing from scratch effective connections with Central Banks and other 
information sources. This could in turn result in delays as far as the time needed to set-
up the structure, to adequately staff and equip it and to be fully operational (and to get 
an adequate level of reputation).  

As  regards  cost-effectiveness,  part  of  the  staff  needed  could  be  re-allocated  from 
Commission  Structures  and  the  remaining  staff  (particularly  the  most  technical  and 
analytical  tasks)  could  be  composed  of  Seconded  National  Experts  and  externally 
recruited staff. As regards the set-up costs, it can be argued that more substantial costs 
(in comparison to the other options) could be incurred, in particular as regards the up-
grade of the IT infrastructure. 

45 

 
3. 

Virtual  Network  of  Central  Banks.  This  option  would  probably  grant  the  highest 
degree of coverage and support from all Central Banks in carrying out the collection 
of the data and undertaking the analytical work. In terms of effectiveness, one should 
also refer to the positive aspects already illustrated under option A related to the wide 
expertise  of  Central  Banks  in  monitoring  vulnerabilities  in  the  financial  and  non-
financial sectors and safeguarding financial stability. 

Nevertheless, the effectiveness of such a model would be seriously hampered by the 
complexity  of  its  management  and  lack  of  independence.  Indeed,  without  an 
adequately  dimensioned  and  strong  central  Secretariat  (like  in  the  other  options), 
coordination of working methods and analytical tools and harmonisation of data used 
to  feed  the  analysis  may  prove  difficult.  It  would  also  require  extensive  work  to 
identify role and responsibilities among members and to avoid potential duplications 
of  work.  This  would  be  particularly  relevant  with  regard  to  the  collection  of  micro-
prudential  information  and  in  the  liaison  with  the  support  structures  of  other 
international  institutional  dealing  with  financial  stability  issues  (or  third  countries). 
Any possible disagreements in carrying out the preparatory work for the ESRB could 
be  quite  difficult  to  be  quickly  sorted  out  and  result  in  serious  obstructions  to  the 
functioning of the network. 

As  regards  the  cost-efficiency  criterion,  the  set-up  of  such  framework  would  imply 
rather  limited  costs  since  it  would  build  on  existing  structures  within  the  European 
Central Bank and the National Central Banks. 

On balance, provision by the European Central Bank emerges clearly as the most beneficial 
option. As regards the effectiveness the European Central Bank would be best placed, due to 
specific  functions  fulfilled  within  the  ESCB,  to  deal  with  the  broad  set  of  relevant  macro-
economic  and  micro-financial  data  and  indicators  needed  for  the  preparatory  work  for  the 
ESRB meetings. Moreover, it could fully exploit the well established networking with other 
National  Central  Banks  and  EU  supervisors.  Also  in  respect  to  the  efficiency  criterion,  the 
European Central Bank option outperforms the remaining solutions as it would maximize the 
synergies  with  existing  structures  in  relation  to  the  pursue  of  task  in  the  field  of  monetary 
policy  and  financial  stability.  The  existing  connections  with  National  Central  Banks  and 
Supervisory  Authorities  would  contribute  to  limit  start-up  costs  and  delays  in  having  the 
structure fully operational. 

Table 21 

Options 

1.  Baseline  Scenario 
fragmented arrangements) 

(current 

2. European Central Bank 

3. Commission 

4.  Virtual  network  of  Central 
Banks 

Assessment criteria 

Effectiveness 

Efficiency 

Coherence 

0  

+++ 

++ 

+ 

0 

+++ 

+++ 

+++ 

0 

+++ 

++ 

+ 

46 

 
  
 
  
 
7. Impact of the selected options 

7.1. The set of selected options 

The tables below relate the selected options to each of the operational objectives of the ESFS 
and the ESRB. 

Table 22. Options selected for the European System of Financial Supervisors 

EUROPEAN SUPERVISORY AUTHORITIES 

POWERS 

Operational objective 

Selected option 

Define  powers  to  ensure  a  single  set  of  harmonised 
rules  

Define powers to bring about consistent application of 
EU rules 

Ensure  a  common  supervisory  culture  and  consistent 
supervisory practices 

Ensure full supervisory powers 

Define powers in crisis situations 

Grant necessary powers to collect and manage micro-
prudential information  

(1) 

Issuing 
and 
recommendations and (2) proposals to the Commission 
for binding standards [Option 2] 

non-binding 

standards 

Mediation  between  supervisors  regarding  consistent 
application  of  EU  rules;  binding  decision-making  in 
case of disagreements between supervisors; warning of 
manifest breaches of EU law [Option 4] 

Tasks  of  the  3L3  Committees  plus  participation  in 
relevant colleges of supervisors, and a facilitation task 
for colleges in general [Option 2] 

Full 
supervisory  powers 
Community-wide reach [Option 2] 

for  entities  with  a 

Coordination  powers  plus  binding  decision  making 
powers in emergency situations [Option 3] 

Collecting  aggregated,  anonymised  information  plus 
ad  hoc  information  gathering  powers  directly  from 
financial  undertakings  [Option  3].  Receiving  all 
information  for  colleges  of  supervisors  and  managing 
and distributing the information [Option 3]. 

Define  safeguards  to  avoid  impact  on  MS  fiscal 
responsibilities 

Formal  safeguard  procedure  with  ultimate  Council 
decision [Option 4] 

Operational objective 

Selected option 

GOVERNANCE 

Define  roles,  powers  and  legal  status  for  the  Joint 
Committee 

Steering  committee  with  no  legal  personality  [Option 
2] 

Set up effective voting procedures 

Mixed  QMV  and  majority  voting,  depending  on 
subject matter [Option 3] 

Define effective channels of contact with stakeholders 

Separate stakeholder groups for each ESA [Option 2] 

Operational objective 

Selected option 

Design  optimal  funding  structure  as  to  the  sources  of 
funding  

Mixed financing by MS (60%) and Community budget 
(40%) [option 2 b] 

FUNDING 

47 

 
 
 
 
 
Table 23. Options selected for the European Systemic Risk Board 

EUROPEAN SYSTEMIC RISK BOARD 

POWERS 

Operational objective 

Selected option 

Define effective powers of follow-up to warnings 

“Comply or explain” mechanism [option 2] 

Define effective scope of warnings 

General/unlimited scope [option 1] 

Define adequate access to information 

Collection  of  aggregated  data  on  a  regular  basis  + 
access 
individual 
institutions upon request [option 3] 

information  on 

to  necessary 

Ensure optimal degree of publicity of warnings 

Board to decide on a case-by-case basis [option 5] 

Operational objective 

Selected option 

GOVERNANCE 

Define the size of the Board and the scope of expertise  Central Banks + Supervisors + EFC + ESAs [option 4 

] 

Define  addressees  that  ensure  the  effectiveness  of 
warnings 

MS,  ESAs,  national  supervisors,  and  Commission 
[option 6] 

Ensure an effective involvement of stakeholders 

Stakeholder  Group  and  a  Advisory  Technical  Group 
[options 3 and 5] 

Operational objective 

Selected option 

Define the optimal set-up  for the Secretariat of ESRB 

European  Central  Bank  to  provide  secretariat  [option 
2] 

FUNDING 

7.2. Impact on stakeholders 

The first Impact Assessment analysed the impacts of the creation of the European System of 
Financial  Supervisors  and  the  European  Systemic  Risk  Council  on  various  stakeholder 
groups.  These  general,  largely  beneficial  impacts  were  presented  in  the  table  which  is 
included in annex 2 to this report. 

In the present Impact Assessment we can consider more specific impacts on various entities 
more  directly  concerned  by  the  establishment  of  the  ESRB  and  ESFS.  These  impacts  are 
linked  with  the  specific  powers  and  the  governance  structures  of  the  new  European 
Supervisory  Authorities  and  the  European  Systemic  Risk  Board.  The  concerned  institutions 
include  the  national  supervisors,  the  national  finance  ministries,  the  existing  Level  3  and 
Level 2 committees, the European Central Bank and the national central banks. Although the 
impact  on  financial  companies  identified  in  the  first  IA  remains  valid,  we  can  now  also 
distinguish specific impacts on financial conglomerates and credit rating agencies. Finally, the 
new system for financial supervision will also involve other stakeholders, such as consumers 
and employees of companies in the financial services sector. 

National supervisors 

The  European  System  of  Financial  Supervisors  has  been  designed  to  ensure  effective 
harmonisation of financial supervision in the EU. This will be accomplished through the new 

48 

 
 
 
 
 
 
Authorities'  powers  to  propose  binding  standards  and  adopt  binding  decisions  in  case  of 
disagreements between supervisors on application of EU rules. In addition, application of EU 
rules  by  national  supervisors  will  be  monitored  on  a  constant  basis.  In  case  of  manifest 
breaches  of  the  Community  law,  the  European  Supervisory  Authorities  will  issue  relevant 
warnings.  The  ESAs  activities  will  contribute  to  achieving  supervisory  level  playing  field 
across the Single Market. 

The  European  Supervisory  Authorities  will  also  facilitate  functioning  of  the  colleges  of 
supervisors,  which  will  continue  to  play  a  pivotal  role  in  supervision  of  large  European 
financial groups. The ESAs’ representatives will have the right to participate in the meetings 
of  such  colleges,  with  the  power  to  mediate  and  settle  disputes  with  a  binding  effect.  The 
ESAs  will  also  run  central  databases  for  banking,  insurance  and  securities  sectors,  the 
development  of  which  will  be  a  paramount  undertaking.  The  members  of  the  colleges  will 
benefit  from  access  to  the  supervisory  data  and    information  aggregated  in  these  databases. 
The information may also be made available to the European Systemic Risk Board. 

To support cross-border cooperation and strengthen the European perspective on supervisory 
challenges  the  European  Supervisory  Authorities  will  organise  trainings  for  national 
supervisors  as  well  as  staff  exchanges  and  secondments.  This  will  contribute  to  enhancing 
supervisory skills and development of new competences of national supervisors. 

An important element of the ESFS will be a possibility for national supervisors (as well as for 
supervised companies) to bring appeals against decisions taken by the European Supervisory 
Authorities.  For  each  Authority  an  independent  Board  of  Appeals  will  be  established, 
composed of six individuals with expertise in the concerned sector. 

Most  national  supervisors  will  have  to  contribute  their  share  to  finance  the  European 
Supervisory Authorities, according to the agreed funding arrangements. 

The creation of the ESRB should help national supervisors to better understand the impact of 
their actions on the wider economic and financial system.  It should also help to draw together 
an  understanding  of  risks  building  across  the  whole  of  Europe  and  a  more  coordinated 
consideration  of  how  to  mitigate  those  risks.    National  supervisors  might  have  a  greater 
burden in terms of information provision and a requirement to 'act or explain' following the 
receipt  of  a  recommendation,  however,  this  will  be  minimised  as  much  as  possible  by 
channelling  information  requests  and  recommendations  through  the  European  Supervisory 
Authorities where this is possible and appropriate. 

National Finance Ministries 

The  ministers  of  finance  in  the  Member  States  will  benefit  from  the  positive  impacts  of 
enhanced financial stability across the EU: better business environment, enhanced consumer 
confidence  and  more  investment  attracted  from  3rd  countries  –  all  contributing  to  higher 
economic growth. The Ministries will have access to the analyses of systemic risks carried out 
by  the  European  Systemic  Risk  Board  and  will  receive  warnings  and  recommendations  if 
necessary. This will allow  the governments to  drive their economies towards a more  secure 
macro-economic environment. 

49 

 
 
 
 
 
 
 
 
 
As experienced in the recent financial crisis, solvency problems of financial institutions often 
entail government interventions and bail outs. The European System of Financial Supervisors 
will  include  safeguards  that  any  decisions  taken  by  the  European  Supervisory  Authority 
cannot  impinge  on  the  fiscal  responsibility  of any  given  Member  State.  National  authorities 
will have the right to refuse to follow decisions taken by European Supervisory Authorities in 
justified cases. 

While it is true that  depending on the Member State, the Treasuries may have to contribute 
their share to finance the European Supervisory Authorities, according to the agreed funding 
arrangements,  on  the  other  hand  the  improved  level  of  financial  supervision  may  well  save 
taxpayers' money in the Member States by leading to action which prevents the necessity of 
bank bail-outs..  

Level 3 and Level 2 Committees 

With establishment of the European Supervisory Authorities, the Level 3 committees: CEBS, 
CEIOPS  and  CESR,  will  cease  to  exist  and  their  functions  will  be  fully  taken  over  by  the 
ESFS.  However,  the  new  Authorities  will  as  much  as  possible  ensure  continuity  with  the 
Level 3 committees work and will draw on their experience. As for the location of the new 
Authorities, it is proposed to maintain the present place of residence of the existing European 
committees  of  supervisors  (i.e.  Frankfurt,  London  and  Paris),  as  this  allows  for  a  fast  and 
effective transition to the new regime. For the transformation of the existing committees into 
effective  Authorities  enhanced  resources  are  needed-  both  personnel  and  budgetary.  The 
status of the staff will change once the Authorities adopt the Staff Regulation of the European 
institutions.  The  Authorities  will  have  to  adjust  their  budgetary  procedures  to  the  Financial 
Regulation  of  the  Communities.  They  will,  for  example,  no  longer  be  allowed  to  receive 
grants from the Commission – this will be replaced by direct subsidies from the Community 
budget.  

The  Level  2  committees:  the  EBC,  EIOPC  and  ESC  will continue their  work in the current 
format, serving as the Commission's comitology committees adopting implementing measures 
to  the  Community  legal  acts  (i.e.  Level  1  Directives  and  Regulations  adopted  in  the  co-
decision). 

European Central Bank 

The European Central Bank will be involved in the new system of supervision both through 
the participation to the ESRB and through the provision of the Secretariat to the Board. Both 
activities will imply a limited additional burden since the European Central Bank can largely 
exploit  synergies  from  the  resources  deployed  to  pursue  its  monetary  and  financial  stability 
tasks.  Moreover,  the  European  Central  Bank  will  benefit  from  the  well  established  network 
with other EU Central Banks - including non-Euro Area Central Banks - and Supervisors. The 
ESRB related activities will enable the European Central Bank to progressively reinforce such 
links  with  positive  effects  also  for  the  other  tasks  included  in  the  European  Central  Bank 
mandate  

National Central Banks 

The participation in the ESRB and the input to the work of the Secretariat will not involve any 
significant additional costs for national central banks since they will be able to largely build 

50 

 
 
 
 
 
 
 
 
on existing organisational and infrastructural resources dedicated to their traditional role. On 
the other hand, as regards the positive impact, they will benefit from an enhanced cooperation 
and harmonisation of methodologies and working methods among themselves. 

Financial institutions 

As indicated in the first Impact Assessment, the reform of the system of financial supervision 
in  Europe  will  bring  many  benefits  for  financial  companies.  For  large  financial  groups,  the 
improved  cross-border  and  cross-sector  supervision  will  reduce  compliance  costs  thanks  to 
harmonised standards and supervisory practices and will also potentially prevent failures and 
bankruptcies.  The  work  of  the  ESRB  will  contribute  to  the  improved  business  environment 
thanks to enhanced financial stability and more effective crisis prevention in the EU, which 
will benefit all companies in the Internal Market.  

On  the  other  hand,  companies  may  be  subject  to  additional  reporting  requirements,  linked 
with  the  ESFS  task  of  collecting  and  managing  information  for  supervisory  purposes, 
especially  in  case  of  direct  request  for  access  to  information  from  an    ESA  to  a  company. 
Besides, some administrative burden may be caused to companies by possible adaptations of 
national reporting systems. As regards ESRB collection of information, as the ESRB would 
have  access  through  the  ESAs  to  existing  reporting  schemes,  there  should  be  no  impact  in 
terms of additional reporting burdens for financial institutions. 

Taking account  of  the  powers  to be granted to the ESFS, two more specific impacts can be 
singled  out.  First,  the  credit  rating  agencies  registered  in  the  EU  will  undergo  direct 
supervision by the European Securities Markets Authority. This will include full supervisory 
oversight, conducting on-site inspections and other relevant activities.  

Secondly,  the  establishment  of  the  Joint  Committee  for  three  European  Supervisory 
Authorities will be a basis for further strengthening of oversight of financial conglomerates at 
the European level. In the ESFS, each Authority will have to devote a due part of its resources 
for ensuring effective cross-sector cooperation on an on-going basis.   

Other stakeholders 

The  new  system  for  financial  supervision  will  bring  general benefits  to  various  stakeholder 
groups  in  Europe,  in  particular  the  users  of  financial  services.  A  better  organised  and 
functioning  supervision  will  help  the  EU  financial  sector  regain  its  classical  role  in  the 
economy:  to  channel  savings  into  most  productive  investments,  and  thus  support  the 
economic growth. More specifically, the benefits will above all be linked with the   increased 
confidence  of  consumers,  investors  and  entrepreneurs  resulting  from  the  enhanced  financial 
stability  in  the  Internal  Market.  The  new  supervisory  system  will  also  provide  better 
protection to users of financial services, including through greater convergence of conduct-of-
business  supervision.  It  will  also  facilitate  access  to  finance  by  strengthening  the  resilience 
and preventing failure of individual financial institutions. Last but not least, it will prevent job 
losses  and  support  job  creation:  in  the  EU  financial  services  sector  as  well  as  other  sectors 
through the spill-over effects. 

To ensure appropriate input of various stakeholders into the decision making process of the 
new Authorities, a dedicated stakeholder group will be created for each authority. Each group 
will count thirty members representing in balanced proportions the consumers and users, the 

51 

 
 
 
 
 
 
 
 
industry  and  its  employees.  The  groups  will  hold  regular  quarterly  meetings.  The  European 
Supervisory  Authorities  may  also  consult  them  on  an  ad-hoc  basis  on  any  relevant  matter. 
These bodies will provide the stakeholders, in particular the representatives of the consumer 
associations and the trade unions, with a structured way to provide their opinions on various 
aspects  of  financial  supervision  in  Europe.  The  ESRB  will  have  the  ability  to  consult 
stakeholders and utilise independent experts and academics where it is appropriate. 

7.3. Cost of the selected options. 

7.3.1. ESFS 

The  cost  of  setting  up  the  three  new  European  Supervisory  Authorities  has  been  estimated 
according to three cost categories: the staff costs, the infrastructure costs and the operations 
costs.  This  division  corresponds  to  the  general  cost  classification  used  in  accounts  of  the 
existing  EU  regulatory  agencies.  The  total  costs  of  creating  the  European  Supervisory 
Authorities  has  been  estimated  at  about  37  million  Euro  in  the  first  full  year  of  operations 
(2011), reaching over 68 million Euro after three years (2014) – see Table 24 below. 

Table 24. Estimated budget of three ESAs in 2011-2014 
In thousands € 

2011 

2012 

2013 

2014 

Title 1 - Staff costs 

Management 

Senior / expert staff: 

Temporary agents 

Seconded national experts 

Administrative and other support staff: 

Temporary agents 

Contract agents 

Staff benefits 

Staff training: general 

Staff training: enhancing supervisory skills 

Expenditure relating to staff recruitment 
Title 2 - Building, equipment and 
administrative expenditure 
Rental of buildings and associated costs 

Information and communication technology 

Movable property and associated costs 

Current administrative expenditure 

Postage / Telecommunications 

Meeting expenses 

Title 3 – Operations 

Powers 
Financial Services Stakeholder Group 

Participation in colleges of supervisors 

28.096

4.173

10.894

5.560

2.570

487

3.553

110

603

146

9.176

4.824

1.136

495

417

329

1.975

13.996

648

104

34.808 

4.423 

14.165 

7.180 

3.064 

546 

4.407 

137 

779 

108 

10.902 

5.494 

1.414 

599 

508 

407 

2.480 

14.929 

648 

104 

40.280

4.673

0

16.488

8.260

0

3.865

722

5.101

161

914

96

12.649

6.287

1.661

721

609

483

2.889

15.496

648

104

18.843 

2.553 

7.436 

3.880 

1.696 

286 

2.378 

74 

414 

127 

5.923 

3.014 

759 

325 

275 

226 

1.324 

12.496 

648 

104 

52 

 
 
 
 
 
 
 
 
 
 
 
  
 
Common training for supervisors and staff 
exchanges & secondments 
Collection of information: developing and 
managing the central European databases 
International relations 

Contacts with supervisory authorities from 
3rd countries 
Supervision on entities with a Community-
wide reach: on site inspections 
Governance 
Board of Supervisors 

Management Board 

Joint Committee 

Board of Appeal 

1.500 

9.000 

150 

180 

300 

250 

77 

29 

259 

3.000

9.000

150

180

300

250

77

29

259

3.933 

9.000 

150 

180 

300 

250 

77 

29 

259 

4.500

9.000

150

180

300

250

77

29

259

TOTAL 
Source: Commission and L3 Committees estimates and calculations 

37.263 

51.268

60.639 

68.426

The  staff  cost  estimates  are  based  on  the  assumption  that  each  European  Supervisory 
Authority will aim to double its staff as compared to the staff numbers in the existing Level 3 
Committees in the first year of its operation. This means an average increase from 20 to 40 in 
each of the three Authorities. It has been also assumed that the number of staff would increase 
relatively fast in the start-up phase. Each authority would hire on average 15 new employees 
per year. Afterwards, the Authorities would reach the "cruising speed" with about 80 – 100 
staff each.  

The need for increased staffing numbers reflects the significant number of new  tasks which 
the  Authorities  will  need  to  undertake  in  addition  to  their  previous  responsibilities.  They 
include,  but  are  not  limited  to,  developing  new  technical  standards  in  a  number  of  areas  of 
financial  services  legislation,  ensuring  consistent  application  of  Community  rules,  settling 
disagreements between national competent authorities, attending colleges of supervisors and 
facilitating peer reviews. Each of these activities will require significant new resources. The 
detailed breakdown of estimated staff numbers by various categories is presented in Table 25 
below. 

Table 25. Estimated staff of ESAs 

Total staff 
Management 

Senior / expert staff: 

Temporary agents 

Seconded national experts 

Administrative and other support 
staff: 
Temporary agents 

Contract agents 

Source: Commission estimates 

For three ESAs 

2012 

184 

19 

88 

46 

21 

10 

2013 

229 

20 

114 

59 

25 

11 

2014 

269 

21 

134 

69 

31 

14 

2011 

123 

11 

60 

32 

14 

6 

53 

 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Another assumption adopted for estimation of the staff costs is that the Staff Regulation of EU 
institutions  would  be  applied  in  all  the  Authorities.  This  is  reflected  –  with  some 
modifications – in per head rates used under Title 1 (see Annex 1 for details). The impact of 
the  locations  of  the  L3  Committees  has  also  been  taken  into  account  (through  the  cost-of-
living multipliers). 

The figures under Title 2 relating to the cost of infrastructure have been based on the input 
from the existing Level 3 Committees. The CEBS, CEIOPS and CESR provided estimates of 
their  respective  costs  in this  category,  based  on  extrapolation  of  their  real  costs  linked  with 
running  offices  and  administration  in  their  current  locations.  Given  that  London,  Frankfurt 
and Paris are financial centres and are among most expensive business locations in the world, 
the estimated costs naturally exceed the average levels for the EU regulatory agencies. 

The  operation  costs  are  specific  to  the  competencies  and  the  governance  model  of  the 
European Supervisory Authorities. Regarding powers, various types of activities foreseen for 
the ESFS have been considered in terms of generating operational costs apart from the general 
staff costs. It has been possible to attribute such costs to a number of activities, e.g. running 
the  stakeholder  groups,  developing  the  European  supervisory  databases,  participating  in  the 
colleges  of  supervisors,  organising  training  for  supervisors  from  the  Member  States  or 
carrying out on-site inspections of directly supervised companies. The specific costs for these 
operations are very often linked with missions and meetings, but can also include substantial 
expense on outsourced services, e.g. to create a database or organise trainings.  

On  the  other  hand,  it  has  been  judged  that  many  of  the  ESFS  activities  are  not  linked  with 
extra operational costs and are fully reflected in the general staff costs. These are for example 
the development of technical standards, guidelines and recommendations, ensuring consistent 
application of the Community law or the coordination in crisis situations. 

Regarding  the  governance,  the  operational  costs  will  stem  from  activities  of  various  bodies 
foreseen  to  ensure  proper  functioning  of  the  European  System  of  Financial  Supervisors  in 
general and the Authorities in particular: the Board of Supervisors, the Management Board, 
the Joint Committee and the Board of Appeals.  

The methods of calculating the costs are presented more in detail in tables for EBA, EIOPA 
and ESMA in Annex 1. 

7.3.2. ESRB 

As indicated above in section 6.2.3., regarding the costs of the ESRB, it has been not possible 
at this stage to obtain sufficient information to evaluate the staffing needs and costs, and other 
costs  of  the  ESRB,  such  as  IT  equipment  and  travel  expenses,  because  the  ECB  does  not 
envisage  setting  up  a  dedicated  structure  but  would  rather  leverage  the  staff,  resources  and 
expertise of various departments in the ECB, depending on the issues to be analysed. It was 
therefore not possible to determine upfront e.g. the number of full-time equivalent staff which 
would  work  in  relation  to  the  ESRB.  The  cost  of  the  option  could  consequently  not  be 
assessed. 

54 

 
 
 
 
 
 
 
 
8. Monitoring and evaluation 
The  Regulations  establishing  the  ESFS  and  the  ESRB  provide  for  evaluation  of  the  new 
system for European financial supervision 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  respectively.  The  evaluation  will  also  include  extensive  consultation,  in  particular  of 
the Financial Services Stakeholder Group in case of the ESFS and the European Central Bank 
for the ESRB. 
As  stated  in  the  first  Impact  Assessment  report,  specific  indicators  should  be  identified  and 
matched with the ESFS  and ESRB specific  objectives and – where possible – also with the 
specific powers or elements of the governance structure. These indicators will serve to assess 
the  performance  of  the  new  Authorities  and  the  new  Board  in  fulfilling  their  tasks.  The 
following table presents the specific objectives of the European Supervisory Authorities and 
matches them with some possible indicators: 

Objective 
The development of technical 
standards to build a single 
rulebook in the EU 

Proposed indicator 

•  Number  of  adopted  technical  standards  relative  to  those  required  to  be 

developed 

•  Number of standards proposed by EBA / EIOPA / ESMA and rejected by 

the Commission 

•  Number of adopted non-binding recommendations 

Ensure consistent application 
of EU rules 

•  Number of successful mediations without binding settlement 

•  Number of warnings on manifest breach of the Community law 

Ensure a common 
supervisory culture: 
participation in colleges of 
supervisors 

Ensure a common 
supervisory culture: other 
activities 

Carry out direct supervision 
of pan-European financial 
institutions  

Ensure coordinated decision 
making in emergencies 
Ensure a common 
supervisory culture: Collect 
and manage micro-prudential 
information 

•  Number of colleges with EBA / EIOPA participation 

•  Average  number  of  meetings  per  college  attended  by  EBA  /  EIOPA 

representatives 

•  Number of hours training for supervisors 

•  Number of staff participating in exchanges / secondments 

•  Number of peer reviews conducted 

•  Number of obstacles to convergence identified and removed 

•  New practical tools and instruments to promote convergence 

•  Number of on-site inspections by ESMA 

•  Number of complaints / appeals from supervised companies 

•  Effectiveness of mediation, decisions and coordination in crisis situations 

•  Progress  in  development  of  the  central  databases:  completeness  and 

timeliness of information 

The final set of indicators will be decided by the Commission at the time of conducting the 
required  evaluations.  Not  less  important  in  the  final  assessment  will  be  the  qualitative 
evidence gathered in the consultations. 
The evaluations will be repeated every three years. 

55 

 
 
 
 
 
ANNEX 1 

ESFS costing tables 

Table 1. Estimated budget of EBA in the first year of operation (2011) 
In thousands € 
Title 1 - Staff costs 

Average annual cost per head 
(based on DG BUDG 
guidelines and 3L3 advice) 

1,4 
233,8 

140,0 

140,0 

140,0 

58,8 

0,6 

4,5 

0,8 

Total staff: 

Multiplier cost-of-living 
Management 
Senior / expert staff: 
Temporary agents 
Seconded national experts 

Administrative and other 
support staff: 

Temporary agents 

Contract agents 

Staff benefits 

Staff training: general 

Staff training: enhancing 
supervisory skills 
Expenditure relating to 
staff recruitment 

Title 2 - Building, 
equipment and 
administrative 
expenditure 

Rental of buildings and 
associated costs 

Information and 
communication 
technology 

Movable property and 
associated costs 

Current administrative 
expenditure 

Postage / 
Telecommunications 

Travel and meeting 
expenses 

London 

40 

2 

17 

17 

2 

2 

15% of total staff costs 

Average amount per 
person (COM data) 

Advice from 3L3 

3 candidates interviewed 
per post on average 

CEBS data and estimates 

CEBS data and estimates 

CEBS data and estimates 

CEBS data and estimates 

CEBS data and estimates 

CEBS data and estimates 

1 

6 694

468

2 380

2 380

280

118
844

24

153

48

2 226

1 326

245

54

53

19

529

 
 
  
 
  
  
  
  
  
  
  
 
 
 
 
 
 
-  
 Assumptions 

4 095

 Total cost 

Title 3 - Operations 
Powers 

Consultations 

 Costed activity 

Financial Services 
Stakeholder Group 

Common supervisory 
culture 

Participation in colleges of 
supervisors 

One FFSG per each ESA. 30 
members meeting 4 times a 
year. Annual remuneration 
6000€ per person. Industry 
representatives to be 
reimbursed for travel but not 
remunerated. 
Approximately 40 colleges in 
the sector. Participating in 1 
two day meeting per year, 
one EBA rep. per meeting on 
average. 

Common supervisory 
culture 

Common training for 
supervisors and staff 
exchanges & secondments 

 Based on the amount 
foreseen for action grants to 
the L3C for 2010-2015  

Collection of information 

International relations 

Supervision of entities 
with a Community-wide 
reach 

Developing and managing 
the central European 
database 

Contacts with third country 
authorities and other 
international bodies e.g. for 
equivalence advice 
On site inspections 

Governance 
Board of Supervisors 

 Costed activity 
Decision making 

Management Board 

Management 

 Joint Committee 

Cross-sector cooperation 

Board of Appeal 

Appeals 

 CEBS estimate 

11 missions outside EU per 
year for 2 persons.  

 Assumptions 
 26 members to be 
reimbursed - 4 meetings per 
year.  

 6 members including 4 
representatives of national 
supervisors. Meeting every 
month, when possible back to 
back with meetings of Board 
of Supervisors.  

Period meetings for 
chairperson from each ESA  

 6 members, assuming 8 
meetings per year, and 
annual remuneration 8000€ 
per person  

TOTAL 

Source: Commission and the L3 Committees estimates and calculations 

 Total cost 

2 

216

64 

500 

3 000 

110 

 0

83 

26 

10 

86 
13 015

  
 
  
  
 
 
Table 2. Estimated budget of EIOPA in the first year of operation (2011) 
In thousands € 
Title 1 - Staff costs 

Total staff: 

Multiplier cost-of-living 
Management 
Senior / expert staff: 
Temporary agents 
Seconded national experts 

Administrative and other 
support staff: 

Temporary agents 

Contract agents 

Staff benefits 

Staff training: general 

Staff training: enhancing 
supervisory skills 
Expenditure relating to 
staff recruitment 

Title 2 - Building, 
equipment and 
administrative 
expenditure 

Rental of buildings and 
associated costs 

Information and 
communication 
technology 

Movable property and 
associated costs 

Current administrative 
expenditure 

Postage / 
Telecommunications 

Travel and meeting 
expenses 

Title 3 - Operations 
Powers 

Consultations 

Frankfurt 

40 

2 

15 

15 

4 

4 

15% of total staff costs 

Average amount per 
person (COM data) 

Advice from 3L3 

3 candidates interviewed 
per post on average 

CEIOPS data and estimates 

CEIOPS data and estimates 

CEIOPS data and estimates 

CEIOPS data and estimates 

CEIOPS data and estimates 

CEIOPS data and estimates 

 Costed activity 

Financial Services 
Stakeholder Group 

3 

Average annual cost per head 
(based on DG BUDG 
guidelines and 3L3 advice) 

1,00 
167,0 

100,0 

100,0 

100,0 

42,0 

0,6 

4,5 

0,8 

-  
 Assumptions 

 Total cost 

One FFSG per each ESA. 30 
members meeting 4 times a 
year. Annual remuneration 
6000€ per person. Industry 
representatives to be 
reimbursed for travel but not 
remunerated. 

4 694

334

1 500

1 500

400

168
620

24

135

48

1 822

828

250

213

166

70

293
4 071

216

  
 
  
  
  
  
  
  
  
 
 
 
 
 
 
  
Common supervisory 
culture 

Participation in colleges of 
supervisors 

Common supervisory 
culture 

Collection of information 

International relations 

Supervision of entities 
with a Community-wide 
reach 
Governance 
Board of Supervisors 

Common training for 
supervisors and staff 
exchanges & secondments 

Developing and managing 
the central European 
database 

Contacts with third country 
authorities and other 
international bodies e.g. for 
equivalence advice 
On site inspections 

 Costed activity 
Decision making 

Management Board 

Management 

 Joint Committee 

Cross-sector cooperation 

Board of Appeal 

Appeals 

TOTAL 

Approximately 25 colleges in 
the sector. Participating in 1 
two day meeting per year, 
one EIOPA rep. per meeting 
on average. 
 Based on the amount 
foreseen for action grants to 
the L3C for 2010-2015  

 CEBS estimate 

11 missions outside EU per 
year for 2 persons. 

 Assumptions 
 26 members to be 
reimbursed - 4 meetings per 
year.  

 6 members including 4 
representatives of national 
supervisors. Meeting every 
month, when possible back to 
back with meetings of Board 
of Supervisors.  

Periodic meetings for 
chairperson from each ESA  

 6 members, assuming 8 
meetings per year, and 
annual remuneration 8000€ 
per person  

Source: Commission and the L3 Committees estimates and calculations 

 Total cost 

40

500

3 000

110

 0

83

26

10

86
10 587

4 

 
  
  
 
 
 
Table 3. Estimated budget of ESMA in the first year of operation (2011) 
In thousands € 
Title 1 - Staff costs 

Average annual cost per head 
(based on DG BUDG 
guidelines and 3L3 advice) 

1,27 
250,2 

127,0 

127,0 

127,0 

53,3 

0,6 

4,5 

0,8 

Paris 

Total staff: 

Multiplier cost-of-living 
Management 
Senior / expert staff: 
Temporary agents 
Seconded national experts 

Administrative and other 
support staff: 

Temporary agents 

43 

7 

28 

8 

Contract agents 

Staff benefits 

Staff training: general 

Staff training: enhancing 
supervisory skills 
Expenditure relating to 
staff recruitment 

Title 2 - Building, 
equipment and 
administrative 
expenditure 

Rental of buildings and 
associated costs 

Information and 
communication 
technology 

Movable property and 
associated costs 

Current administrative 
expenditure 

Postage / 
Telecommunications 

Travel and meeting 
expenses 

Title 3 - Operations 
Powers 

Consultations 

15% of total staff costs 

Average amount per 
person (COM data) 

Advice from 3L3 

3 candidates interviewed 
per post on average 

CESR data and estimates 

CESR data and estimates 

CESR data and estimates 

CESR data and estimates 

CESR data and estimates 

CESR data and estimates 

 Costed activity 

Financial Services 
Stakeholder Group 

-  
 Assumptions 

 Total cost 

One FFSG per each ESA. 30 
members meeting 4 times a 
year. Annual remuneration 
6000€ per person. Industry 
representatives to be 
reimbursed for travel but not 
remunerated. 

5 

7 455

1 751 

3 556 

- 

1 016 

- 
948 

26 

126

31 

1 876 

860 

264 

58 

57 

136 

502 
4 331

216

  
 
  
  
 
  
  
 
 
  
  
  
 
 
 
 
 
 
  
Participation in colleges of 
supervisors 

Common training for 
supervisors and staff 
exchanges & secondments 

 Based on the amount 
foreseen for action grants to 
the L3C for 2010-2015  

Common supervisory 
culture 

Common supervisory 
culture 

Collection of information 

International relations 

Supervision of entities 
with a Community-wide 
reach 
Governance 
Board of Supervisors 

Developing and managing 
the central European 
database 

Contacts with third country 
authorities and other 
international bodies e.g. for 
equivalence advice 
On site inspections 

 Costed activity 
Decision making 

Management Board 

Management 

 Joint Steering Committee  Cross-sector cooperation 

Board of Appeal 

Appeals 

 Total cost 

 CEBS estimate 

11 missions outside EU per 
year for 2 persons.  

CESR estimates 

 Assumptions 
 26 members to be 
reimbursed - 4 meetings per 
year.  

 6 members including 4 
representatives of national 
supervisors. Meeting every 
month, when possible back to 
back with meetings of Board 
of Supervisors.  

 Periodic meetings for 
chairperson from each ESA 

 6 members, assuming 8 
meetings per year, and 
annual remuneration 8000€ 
per person  

0

500

3 000

110 

300

83

26

10

86
13 662

TOTAL 

Source: Commission and the L3 Committees estimates and calculations 

6 

 
  
  
 
 
ANNEX 2 

Impact of the ESFS and ESRB on stakeholders 

Micro-prudential supervision 

Macro-prudential supervision 

Financial industry: cross-border 

ESRB 

+ 

Prevention of failure of financial 
institutions through systemic 
contagion from other financial 
institutions in difficulty. Improved 
business environment due to 
financial stability and crisis 
prevention in the EU 

ESFS (3 Authorities) 

+ 

Prevent failure of financial 
institutions through better co-
ordinated supervision. Ensure level 
playing field and reduce 
compliance costs thanks to 
harmonised standards and 
supervisory practices. Improve 
business environment thanks to 
financial stability and more 
effective crisis prevention in the 
EU. 

–  

Possible increase of administrative 
burden linked with reporting 
directly to ESAs or adapting to 
ESAs' format. 

Financial industry: local 

Financial industry: 3rd countries 

+ 

+ 

Improved business environment 
due to more effective financial 
stability and crisis prevention in the 
EU 

– 

Possible increase of administrative 
burden linked with reporting 
directly to ESAs or adapting to 
ESAs' format 

Prevention of failure of financial 
institutions through systemic 
contagion from other financial 
institutions in difficulty. Improved 
business environment due to 
financial stability and crisis 
prevention in the EU 

+ 

+ 

Attracting investments to Internal 
Market thanks to increased 
financial stability 

Attracting investments to Internal 
Market thanks to harmonised 
business environment and high 
quality supervision 

– 

Need to adapt to additional EU 
standards  

+ 

+ 

Consumers and users of financial 
services 
retail 
investors) 

(including 

Lower risk of failure of a financial 
institution.  Greater convergence of 
conduct-of-business supervision in 
Europe thought adoption of 
common supervisory practices 

Increase confidence by 
strengthening financial stability 

– 

7 

 
 
 
Employees 

Pensioners 

Corporations  from  non-financial 
sector and SMEs 

Supervisors 

Cost of creating the ESFS higher 
than that of previous L3 
Committees 

+ 

+ 

Preventing job losses in individual 
financial institutions by better 
detecting and remedying 
prudential-related difficulties 

Preventing job losses in the 
economy as a whole arising from 
spill-over of financial sector 
difficulties to the real economy 

– 

Cost of creating the ESFS higher 
than that of previous L3 
Committees  

+ 

+ 

Strengthened confidence of 
pensioners by strengthening 
financial stability. Improve 
stability of pension funds. 

Providing incentives for 
development of cross-border 
occupational pension funds and 
strengthening their oversight. 
Improve stability of pension funds 

– 

Cost of creating the ESFS higher 
than that of previous L3 
Committees  

+ 

+ 

Facilitating access to finance by 
better preventing failure of 
individual institutions (e.g. 
European Authorities in oversight 
of credit ratings, approval of 
prospectuses) 

Preventing major financial crises 
with damaging impacts on 
corporate equity value. Preventing 
major economic recessions linked 
with reduction of trade and 
demand.  

– 

Cost of creating the ESFS higher 
than that of previous L3 
Committees  

+ 

+ 

Creating a framework linking 
micro-prudential supervision with 
macro-prudential supervision. 
Facilitating exchange of 
information and leading to 
creation of a common information 
pool. 

Ensuring more effective 
cooperation by clarifying the roles 
and responsibilities of supervisors 
at the national and Community 
level and establishing an effective 
framework for conflict resolution 
between supervisors. Indirect 
strengthening of supervisory 
independence and European 
programmes to enhance skills of 
supervisors 

– 

Need to invest financial and human 
resources in the new Authorities.  
Higher costs arising from increased 
participation and coordination 
requirements 

8 

National governments 

+ 

+ 

Establishing EU supervisory 
arrangements that are more 
consistent with European financial 
integration. Less risks of having to 
inject public money in the financial 
system. 

– 

Risk of needing to use the 
safeguards 

Providing governments with 
recommendations for actions 
needed to protect macro-economic 
stability in the EU and individual 
Member States 

– 

Risk of reputation damage in case 
of leak of ESRB warnings 

+ 

+ 

Establishing EU supervisory 
arrangements that are more 
consistent with European financial 
integration. 

Central banks 

Giving effectiveness to the 
analysis of macro prudential 
developments carried out in the 
central banks. Facilitating 
exchange of information and 
leading to creation of a common 
information pool. 

– 

Need to invest human and 
financial resources in the ESRB 
work 

Source: European Commission. Impact Assessment for the Communication 'European financial supervision' of 
27 May 2009 with modifications 

9 

 
 
 
 
Preliminary outline of possible sectoral legislation granting European Supervisory Authorities scope to develop draft technical 
standards 

ANNEX 3 

FINANCIAL CONGLOMERATES DIRECTIVE 
2002/87/EC 
Area 
Durable link 
criterion for 
identification - 
Article 2(11) 
Relevant competent 
authorities, i.e. 
membership of the 
core college - 
Article 2(17) 
Identification of a 
conglomerate by 
means of other 
criteria than balance 
sheet and solvency 
figures - Article 3(5) 
Method of 
calculation of capital 
at conglomerate 
level - Article 6(2) 

Supervision of risk 
concentrations - 
Article 7 

Description 
The detection of relationships of the conglomerate with entities that may pose 
additional risks to the group, also otherwise than through a control- or 
ownership-relationship 

The criteria for the determination of the "relevant competent authority", as 
different from the other "competent authorities" (all those who authorised one 
or more legal entities of the group) 

The basic identification method builds on two relative indicators and one 
absolute indicator: balance sheet ratios, solvency ratios, and balance sheet 
total. To enable the identification of other, less straightforward, complex and 
cross sectoral groups as financial conglomerates, also criteria such as income 
structure and off balance sheet activities may be used, but the legal provision 
does not prescribe how these alternative criteria should be applied 
There are two basic methods eligible for aggregating the capital figures of all 
the legal entities in a group and calculating available group capital, known as 
the consolidation method and the deduction-and-aggregation method, 
consistent with CRD and Solvency II. However, the inputs into these methods 
are not prescribed, leaving scope for significant variation 
The aspects which need to be checked by supervisors in order to detect 
whether the same risk adds up throughout the financial conglomerate 

Supervision of Intra 
group transactions - 
Article 8 
Supervision on 
internal control 

The aspects which need to be checked by supervisors in order to detect 
whether risks in one part of the conglomerate may spread to or affect other 
parts of the conglomerate 
Supervision on internal control mechanisms, such as risk management and 
internal governance.  Closely related to elements in the supervisory review 

1 

Rationale 
Currently no level playing field, nor legal certainty, in application 
of durable link criterion to detect participations 

Determination of which supervisor may be invited to the core 
college is not clear, important for consistent approach across 
colleges 

Use of other criteria than balance sheet total and solvency figures 
for the identification of conglomerates neither clear nor predictable 

Although the directive restricts the methods which can be used for 
the calculation of capital, many degrees of freedom remain, 
potentially causing unjustified different outcomes for similar 
conglomerates 

The directive allows for many approaches and potentially overlaps 
of supervision on risk concentrations within sector-silos. It is 
important to align application across directives applicable to 
conglomerates 
The directive allows for many approaches and potentially overlaps 
supervision on intra group transactions. It is important to align 
application across directives applicable to conglomerates 
As far as relevant for the cross sectoral elements of conglomerates' 
risk management and internal control, need for alignment of 

 
 
mechanisms - 
Article 9 
Appointment of 
coordinating 
supervisor - Article 
10 
Tasks of 
coordinating 
supervisor - Article 
11 
Information 
exchange 
requirements - 
Article 12 
Delegation of tasks - 
Article 15 

process, required by both the CRD and Solvency II. 

application across directives applicable to conglomerates 

The coordinator is determined following several criteria but the directive 
provides flexibility in case the involved supervisors would favour a certain 
choice. Article 10 should be read combined with articles 11, 12 and 15 

To limit the scope for disagreement over who should be the 
coordinator of the supplementary supervision 

The coordinator's tasks are clearly listed but the directive does not prescribe 
how these tasks should be carried out. Article 11 should be read combined 
with articles 10, 12 and 15 

Variation of practices and lack of clarity with respect to the 
application of the tasks listed can create uncertainty 

Supervisors on the same conglomerate are obliged to share information based 
on a prescribed list of items. Article 12 should be read combined with articles 
10, 11 and 15 

Variation of practices and lack of clarity with respect to the 
application of the information exchange requirements, including 
for emergency situations 

Supervisors on the same conglomerate can decide to delegate verification 
tasks to each other. Article 15 should be read combined with articles 10, 11 
and 12 

Variation of practices and lack of clarity with respect to the 
application of this provision 

2 

 
CAPITAL REQUIREMENTS DIRECTIVE  
2006/48/EC and 2006/49/EC10 
Area 
Pillar 2 – interest 
rate risk - Article 
150(2)(a) 
Temporary changes  
to requirements - 
Article 150(2)(b) 

Description 
Specification of the size of sudden and unexpected changes in the interest 
rates referred to in Article 124(5) 

Temporary modification of the minimum level of own funds and/or the risk 
weights in order to take account of specific circumstances in view of ensuring 
financial stability.  This will also extend to temporary modification of the 
disclosure framework (Pillar 3) 
Framework for supervisory disclosure 

Rationale  
Technical issue to strengthen supervisory convergence 

Flexibility required.  Technical standards would provide some 
flexibility to respond to financial stability developments 

Technical issue to strengthen supervisory convergence.  CEBS 
guidelines already exist in this area 

Supervisory 
disclosure - Article 
150(2)(d) and (e) 
and Article 144 
Authorisation - 
Article 6 
Prudential 
assessment of 
acquisitions - Article 
19-21 
Exercise of the 
passport - Articles 
25, 26, 28 
Information sharing 
- Article 42 
Hybrid instruments - 
Article 63a(6) 
Reporting – 
solvency and large 
exposures - Article 
74 and 110(2) 
Rating agencies 
(ECAI) – 
recognition - Article 
81(2) and 97 

Specification of requirements for a credit institution to be authorised in a 
Member State 
Specifications of procedure, assessment criteria and information exchange 
when making a prudential assessment of an acquisition 

Technical issue to strengthen supervisory convergence 

Technical/practical issue, to strengthen supervisory convergence.  
CEBS guidelines currently exist in this area 

Relates to the transmission of information between home and host authorities 
for the purpose of implementing the provisions relating to freedom to provide 
services/of establishment.  
List of information to be shared in the context of home/host cooperation 

Practical issue.  Supervisors best placed to deal with cooperation 
procedures.  CEBS guidelines are being developed in this area 

Technical/practical issue, to strengthen supervisory convergence 

CEBS are required to produce guidelines on Tier 1 hybrid instruments under 
the amended CRD due to come into force in 2011 
CEBS are required to develop a uniform reporting (format, frequency and 
dates) to be applied by 2012 for credit institutions and investment firms' 
minimum capital requirements and large exposures 

Standards regarding the recognition of ECAI's in relation to the credit rating 
agencies regulation 

Technical issue, to strengthen supervisory convergence 

Technical issue, to strengthen supervisory convergence 

Technical issue, to strengthen supervisory convergence, avoid 
duplication of work and reduce the burden of the recognition 
process where an ECAI is registered as a CRA. Further to the 
adoption of the CRA regulation, existing CEBS guidelines will 
need to be amended in this area  

10 Unless otherwise specified references are to Directive 2006/48/EC 

3 

 
 
                                                 
Model validation – 
IRB system - Article 
84 
Model validation – 
operational risk - 
Article 105 
Large exposures - 
Article 106(2), 113 

Securitisation - 
Article 122a(10) 

Pillar 2 - Article 
124, 129(3) 

Colleges - Article 
131a(2) 
Liquidity risk 
management - 
Annex V, points 15 
to 17 
Rating agencies 
(ECAI) – mapping - 
Annex VI, Part 2, 
points 12, 13 and 14 
Model validation – 
market risk - Annex 
V of 2006/49/EC 

Conditions under which supervisors permit credit institutions to use their own 
models for calculating credit risk – known as the IRB Approach 

Technical issues, to further specify existing requirements to 
strengthen supervisory convergence. CEBS guidelines already exist 
in these areas 

Technical issue to strengthen supervisory convergence 

Technical and practical issue to strengthen supervisory 
convergence 

Practical issue.  Supervisors best placed to deal with cooperation-
related issues, and group risk assessments 

Practical issue.  Supervisors best placed to deal with cooperation 
procedures 
Technical issues to strengthen supervisory convergence in these 
areas 

Conditions under which supervisors permit credit institutions to use their own 
models to calculate operational risk – known as Advanced Measurement 
Approaches 
CEBS are required in the amended CRD to clarify exemptions in points c) 
and d) relating to money transmission, and other exemptions provided in 
Article 113 
Standards to specify due diligence and retention requirements for institutions 
involved in securitisation activity, in particular regarding the measures that 
can be taken to deal with breaches of due diligence requirements. CEBS 
guidelines are required under the amended CRD 
Standards regarding the joint decision process for assessing a groups overall 
risk profile and capital requirements, and the application of Pillar 2 (internal 
capital adequacy assessment process, supervisory review process, and 
decision to require additional own funds). Guidelines are required under the 
amended CRD 
Requires that operational functioning of Colleges of supervisors be based on 
written arrangements, underpinned by CEBS guidelines  
Standards relating to the application of certain principles relating to liquidity 
risk management 

Standards regarding the mapping of ratings external ratings into risk weights.  
CEBS guidelines already exist in this area 

Conditions under which supervisors permit credit institutions to use internal 
models to calculate their market risk. This includes specification of the 
requirements regarding the validation of internal models for incremental risk 
and migration risk and specification of the calculation of the stressed value-
at-risk 

4 

 
 
Description 
There are persistent differences with regard to the amount of information that 
has to be submitted to the supervisory authority, as well as on the 
interval/frequency and the institution /party on which the reporting obligation 
lies 

INSTITUTIONS FOR OCCUPATIONAL RETIREMENT PROVISION DIRECTIVE 
2003/41/EC 
Area 
Information to be 
provided to 
competent 
authorities - Article 
13 
Cross-border 
activities and 
cooperation between 
competent 
authorities - Article 
21 

The prudential requirements are supervised by the competent authorities of 
the home Member State, while the national social and labour law relevant to 
the field of occupational pension schemes is supervised by the competent 
authorities of the host Member State. In practice, however, for cross-border 
activity as referred to in Article 20 it is difficult to know for each Member 
State which rules fall within the scope of prudential law and which rules fall 
within the scope of national social and labour law. This, in turn, acts as a 
barrier to cross-border business. Moreover, the cooperation between 
competent authorities as referred to in Article 21 should be facilitated 

Rationale  
Technical  issue,  to  strengthen  supervisory  convergence.    Standards 
will enhance the level of transparency and comparability 

The prudential matters refer to aspects dealt with in the Directive, 
such as the maximum interest rates or the biometric tables used. The 
technical standards should specify more clearly the rules falling 
under the mutual recognition principle and supervised by the 
competent authorities of the home Member State 

5 

 
 
 
Description 
Supervisory authorities are accountable for how they enforce compliance with 
prudential regulations. Therefore, appropriate disclosure by supervisory 
authorities on supervisory approaches and their legal basis is necessary 

SOLVENCY II 
The Solvency II directive is yet to be finalised and therefore will not be included in the October package of legislative changes described in the introduction 
Area 
Transparency and 
accountability of 
supervisory 
authorities - Article 
30 (a)-(e) 
Supervisory 
reporting and public 
disclosure - Article 
35 and 55 
Prudential 
assessment of 
acquisitions11 - 
Article 56-62 
Technical Provisions 
- Article 85 (a)-(h) 

Information to be provided by insurance and reinsurance undertakings to 
supervisory authorities and information to be disclosed to the public in the 
Solvency and Financial Condition report.  The public disclosure requirements 
aim to enhance market discipline and transparency 
Specifications of procedure, assessment criteria and information exchange 

Rationale  
Standards on the format and structure of the disclosures to further 
specify the key elements set out in the implementing measure could 
further improve transparency and accountability and strengthen 
supervisory convergence 

Standards could contribute to enhanced convergence by further 
specifying the principles set out in level 2, in particular in relation to 
reporting and disclosure templates 

Technical/practical issue.  To promote supervisory convergence 

Technical provisions are the main component of an insurance undertakings' 
liabilities.  Implementing measures will be developed to underpin the 
valuation of technical provisions 

Standards  which  further  specify  the  requirements  set  out  at  level  2 
could  contribute  to  ensuring  the  necessary  flexibility  whilst  at  the 
same time maintaining a level playing field 

Own funds - Article 
92, article 97 and 
article  99 
Solvency Capital 
Requirement (SCR) 
- Article 109, 112 
and 125 

Eligible own funds are classified into three tiers. The characteristics and 
criteria to do so need to be interpreted in the same way in order to ensure 
harmonisation 
The SCR represents the level of capital insurers are expected to hold. Insurers 
will be able to use either the Standard Formula or an internal model to 
calculate the SCR. Implementing measures will be developed for both 
methods 

Information - Article 
253 

Disclosure - Article 
260 

Information to be gathered and disseminated systematically by the group 
supervisor to other supervisory authorities or to be transmitted to the group 
supervisor by other supervisory authorities 
Information which must be disclosed and the means by which this is to be 
achieved as regards the single solvency and financial condition report 

Standards which further specify the principles set out at level 2 could 
contribute to ensuring the necessary flexibility whilst at the same 
time maintaining a level playing field 
If the standard formula is to remain truly risk sensitive over time, it 
may  need  to  be  regularly  reviewed  and  if  necessary  updated  to 
ensure  that  its  calibration  remains  appropriate.  Given  each  internal 
model will be tailored to the undertaking, it will also be difficult to 
be  too  prescriptive  at  level  2  particularly  as  practice  is  likely  to 
evolve over time 

The  directive  sets  out  the  general  principles  and  the  future  level  2 
measures could be complemented with standards in order to ensure 
the  obligatory  character  of  certain  technical  details  such  as  the 
reporting and disclosure templates 

11 Directive 2007/44 

6 

 
 
 
 
 
                                                 
INSURANCE MEDIATION DIRECTIVE 
2002/92/EC 
The IMD is currently under review and these issues will be covered in its revision and the resulting legislative proposal due by the end of 2010 
Area 
Professional 
indemnity insurance 
- Article 4(3) 

Rationale  
The amounts are subject to regular review. Technical standards 
might establish a mechanism for carrying out these updates and 
consequently introduce a higher clarity for (especially) supervisory 
purposes, including the precision of methods of calculation 

Description 
This requirement is part of the professional requirements for insurance 
intermediaries (IIM).  It obliges insurance and reinsurance IIM to hold 
Professional Indemnity Insurance covering the whole territory of the 
Community or some other comparable guarantee against liability arising from 
professional negligence, for at least EUR 1000000 applying to each claim and 
in aggregate EUR 1500000 per year for all claims (certain exemptions to this 
rule are contained further in the article) 
Art. 12 contains a list of (minimum) information to be provided by the IIM to 
the customer prior to the conclusion of any initial insurance contract, and if 
necessary, upon amendment or renewal thereof 

The current Art. 12 will be thoroughly reviewed during the prepared 
revision of the IMD as the current minimum harmonisation does not 
represent the necessary guarantee for effective consumer protection. 
Technical standards in this area might further strengthen the 
harmonisation of these standards across the Single Market 

Information 
provision - Art. 
12(1), (2) and (3). 
Additional legal 
basis: Art. 13 on 
information 
conditions 

7 

 
TRANSPARENCY DIRECTIVE 
2004/109/EC 
Area 
Notification of 
major holding of 
voting rights - 
Article 12(8)(a), 
13(2)(c) 

Description 
Standard form for the notification of major holdings of voting rights and of 
financial instruments giving access to voting rights 
Standards could establish a standard form to be used throughout the 
Community when notifying required information on holdings of voting rights 
to the issuer and when filing this information with the competent authority 

Rationale  
Relates to practical implementation of provisions of the Directive 
which is best left to supervisors. Standards could strengthen 
supervisory convergence 

Supervisory 
convergence - 
Article 24(4)  

Standards as regards supervisory practices and exercise by competent 
authorities of their powers in order to ensure compliance with directive's 
obligations. 

Relates to the coordination and consistent exercise by competent 
authorities of their powers. This is an area where CESR already can 
adopt non-binding guidelines. However, standards in future could 
strengthen convergence. 

8 

 
MARKETS IN FINANCIAL INSTRUMENTS DIRECTIVE 
2004/39/EC 
Area 
Requirements for 
authorisation - Art., 
7, 9, 10, 12  

Description 
MiFID sets out various requirements that  must be met before an investment 
firm can be authorised 

Specifications  of  procedure,  assessment  criteria  and  information  exchange 
[There is currently 3L3 guidance on cross border mergers and acquisitions] 

Rationale  
Technical Standards specifying certain requirements for 
authorisation (e.g. the 'fit and proper' requirement) could help to 
ensure uniform application of authorisation process and strengthen 
convergence 
Technical/practical issue.  To further specify existing requirements 
to promote supervisory convergence 

Prudential 
assessment of 
acquisitions - 
Articles 10- 10b  
Information 
exchange - Art 56-
58, 60  

Requires  supervisory  authorities  to  cooperate  with  each  other.    Standards 
could  encompass  templates  to  facilitate  cooperation/information  exchange 
between  home  andhost  (e.g.  such  as  the  standard  notification  template 
referred to above)  

Supervisors may benefit from a more standardised process.  Will 
also strengthen convergence 

9 

 
 
 
MARKET ABUSE DIRECTIVE 
2003/6/EC 
Area 
Information 
exchange - Art. 16  

Description 
Under the MAD regime, supervisory co-operation – a prerequisite for 
effective cross-border enforcement – is expected to take place by way of 
exchanging information, alerting about suspected abuses and acting upon 
such notifications, seeking and offering assistance as well as collaborating in 
investigations and inspections. Templates/standards could facilitate 
cooperation/information exchange between supervisors (e.g. standard 
notification template) 

Rationale  
Competent authorities are likely to engage more willingly and more 
effectively into supervisory co-operation if some of the co-operation 
aspects are standardised and/or formalised.  

10 

 
PROSPECTUS DIRECTIVE 
2003/71/EC 
Area 
Cooperation 
between authorities - 
Art. 22.2  

Description 
Obligation of the competent authorities to exchange information and 
cooperate with each other.  Standards could facilitate information 
exchange/cooperation between home/host   

Rationale  
Supervisors may benefit from a more standardised process.  Will 
also strengthen supervisory convergence 

11 

 
 
  
 
UNDERTAKINGS FOR COLLECTIVE INVESTMENT IN TRANSFERABLE SECURITIES DIRECTIVE 
85/611/EEC (work on level 2 implementing measures is ongoing. The Commission intends to adopt the measures by 1 July 2010) 
Area 
Content of the 
application for the 
authorisation of 
UCITS. – Art. 5(8) 

Description 
The UCITS Directive requires UCITS to be authorised by its home competent 
authority. The authority has to approve (i) the application of the management 
company to manage a common fund (or the investment company, where 
relevant), (ii) the fund rules or the instruments of incorporation, and (iii) the 
choice of the depositary. Once a UCITS is authorised in one Member State, it 
can market its units in another Member State – subject to the notification 
procedure of Article 93 – without going again through the same process of 
authorisation.  
UCITS management company and the self-managed investment company 
have to meet the conditions required by the Directive in order to be 
authorised. Once authorised, both entities can operate on a cross border basis. 

Conditions for the 
authorisation of the 
management 
company and the 
investment 
company. – Arts. 
7(6) and 29(5) 

Organisational 
requirements to 
minimise conflicts 
of interests – 
Art.12(3) 

Management companies are required to adhere to some minimum prudential 
and organisational requirements.  Level 2 provisions will set out the 
requirements in more detail.   

Rules of conduct  for 
management 
companies – Art 
14(2) 

Merger of UCITS - 
information to be 
provided to unit-
holders - Art. 43(5) 

Clarification of 
UCITS investment 

UCITS Directive requires management companies to (i) act honestly, fairly 
and with due skill, care and diligence in the best interest of the UCITS; (ii) 
employ its resources effectively and performs its business activities properly; 
(iii) identify, prevent, manage or disclose conflicts of interests. These general 
principles will be complemented be Level 2 implementing legislation. 
UCITS involved in a merger have to provide their unit-holders with 
appropriate information (listed in Article 43(3)) about the merger, so that 
investors can make an informed judgement in advance of the operation. The 
specification of the content, format and method for providing the information 
will be implemented at level 2.  
Article 50 of the Directive enumerates the categories of assets that UCITS 
can acquire and criteria according to which UCITS can invest. It is essential 

12 

Rationale  
Since UCITS benefit from the EU "passport", the authorisation 
process should be consistent throughout the Community. 
Competent authorities should require similar documentation, no 
matter in which Member State the authorisation is filed. In order 
to develop consistent supervisory practices and to ensure legal 
certainty, standards could specify the precise information that 
promoter of a UCITS has to submit to competent authorities to get 
the authorisation. 
Since both entities benefit from a "passport" in the EU, the 
competent authorities should interpret these conditions in a 
consistent way. In order to develop consistent supervisory 
practices and to ensure legal certainty, standards could further 
specify the information to be provided in the application for the 
authorisation, the content of the programme of activities and 
operations and the description of the organisational requirements 
and conduct of business rules. In addition, the standards could 
further specify the criteria for assessing the suitability of the 
persons conducting the business and of qualified shareholders. 
Technical standards could further specify level 2 provisions to 
contribute to a common understanding and consistent application 
of the rules on organisational arrangements on internal control 
functions, complaints handling, personal transactions, electronic 
data processing, record keeping, accounting and organisational 
arrangements for minimising conflicts of interest. 
In order to promote the common understanding and consistent 
application of conduct of business rules, technical standards could 
complement level 2 measures by further specifying due diligence 
requirements and criteria for identifying and managing conflicts of 
interest. 
In order to strengthen supervisory convergence and to promote the 
same level of investor protection in the Community, technical 
standards could clarify certain elements related to the content, 
format and method of delivery of the information. 

In order to ensure consistent supervisory practices throughout the 
Community and respond to market innovation, standards could 

 
criteria as referred to 
in Article 50 – Art. 
50(4) 

Criteria for assessing 
the adequacy of the 
risk management 
process employed by 
a management 
company – Art. 
51(1) and 51(4) 

that UCITS and the competent authorities share a common understanding of 
the investment criteria of UCITS. Due to the constant innovation in the 
financial sector, new financial instruments are very often launched in the 
financial markets and traditional assets are further developed or present new 
features.  
The risk management requirements laid down in the UCITS Directive will be 
further developed at Level 2. Level 2 measures should define the main 
principles governing the risk management process, in particular (i) the 
organisational arrangements, (ii) requirements on risk measurement that will 
allow fund managers to identify and manage properly the risk, (iii) report on 
derivative instruments.  

Master-feeder 
structures – Arts. 
60(6),  61(3)(a) and 
(b), 62(4),  and 
64(4)(a) and (b) 
Specification of the 
content and format 
of the prospectus, 
the annual report 
and the half-yearly 
report – Art. 69(2) 
and (3) and Art. 73 

Key investor 
information (KII) – 
Art 78 

Conditions for 
suspending the re-
purchase or the 
redemption of the 

The recast of UCITS Directive has introduced a new and detailed legal 
framework for master-feeder structures. The Commission will adopt 
implementing measures specifying the regime applicable to master-feeder 
structures. 

UCITS have to keep investors and markets periodically informed by 
publishing a prospectus, an annual report and a half-yearly report. The 
information items that should be displayed in these documents are listed in 
Annex I of the Directive. Where a UCITS is marketed in a host Member 
State, investors should receive these documents in the way prescribed by the 
laws of that host Member State. Hence, the different competent authorities 
should interpret in the same way the information requirements. In particular, 
competent authorities should share a common understanding of the 
accounting requirements for UCITS. 
The manager of UCITS is obliged to draw up a short document containing 
key investor information (KII). The KII shall include appropriate information 
about the essential characteristics of the UCITS, so that investors can make 
informed investment decision and can understand the nature and the risk 
related to investment in a UCITS. Level 2 measures will define the detailed 
content and form of the KII.  
UCITS are obliged to repurchase or to redeem their units at the request of any 
unit-holder. In exceptional cases, if justified, a UCITS may temporarily 
suspend the repurchase or redemption of its units, taking into account the 
interests of the unit-holders. The UCITS should inform without delay the 

provide for a common understanding of the investment criteria of 
UCITS. Standards would represent the technical specifications of 
the categories of assets and criteria enumerated in Article 50 of the 
Directive and would not modify the content or scope of such 
Article. 
In order to develop a common supervisory approach to risk 
management built on mutual trust between supervisors and to 
ensure a high standard of investor protection, technical standards 
could further specify technical aspects of risk management 
process. Technical standards would ensure the flexibility 
necessary to react to market developments and address particular 
cases or situations. Technical standards can further specify the 
requirements for the risk-measurement process and the content, 
form and frequency of communications to the management 
company's home Member State required under article 51(1).  
In order to strengthen supervisory convergence as well as be able 
to respond to market developments, technical standards could 
further specify elements of the level 2 implementing measures on 
the relationship between master and feeder UCITS and their 
depositaries and format and process for providing information. 
In order to ensure the same level of investors' protection 
throughout the Community and to promote consistent supervisory 
practices, standards could further specify the content and format of 
the prospectus, the annual report and the half-yearly report and the 
accounting obligations for UCITS. They will consist of technical 
clarifications of the elements listed in Annex I of the Directive.  

Technical standards could usefully complement these definitions, 
contributing to common understanding and consistent application 
of provisions, in particular to the preparation, presentation and 
calculation of the information to be provided in the KII. Such 
standards would contribute to ensure a consistent level of investor 
protection throughout the Community. 
In order to ensure the same level of investor protection and 
consistent supervisory practices throughout the Community, 
standards could further specify the conditions for the temporary 
suspension of the re-purchase or redemption of the units decided 

13 

 
 
units of UCITS – 
art. 84 
Notification of  
marketing of UCITS 
in host Member 
States – Art. 95 

Procedures for 
exchange of 
information between 
authorities and on-
the-spot 
verifications and 
investigations – Art. 
105 and 101(9) 

supervisors of the Member States where it markets its units. 

by the UCITS. 

When a UCITS intends to market its units in a host Member State it must 
inform the competent authorities of its home Member State by submitting a 
notification letter. The process of the cross-border marketing of units involves 
the competent authorities of both UCITS home and host Member States. The 
notification letter is a piece of information addressed to competent authorities. 
The exchange of information between home and host authorities is crucial in 
order to allow supervisors to discharge their duties properly in relation to the 
cross-border activity of UCITS and their managers. Standards and procedures 
for handling requests for information should be defined in a consistent 
manner and the exchange of information should be subject to the 
confidentiality rules of Articles 102 to 104 of the Directive. In addition, 
UCITS Directive requires competent authorities to cooperate among them 
when needed to carry out on-the-spot verifications and investigations. 

In order to promote an efficient cooperation between supervisors, 
standards could further specify technical arrangements of this 
obligation, in particular the form and content of the notification 
and the attestation, conditions for the electronic transmission of 
documentation and cooperation between supervisors.  
Standards may further specify the procedures for exchange of 
information between competent authorities in order to organise an 
efficient and adequate information flow. In addition, in order to 
ensure consistent supervisory practices throughout the Community 
and to develop an efficient cooperation between the competent 
authorities, technical standards could further specify the practical 
arrangements for cooperation between supervisors when carrying 
out on-the-spot verifications and investigations. These provisions 
are of direct concern to supervisors 

14 

CRA Regulation 

Area 
Registration process, including on 
the information set out in Annex II, 
and language regime for 
applications submitted to the 
ESMA - Art. 21(2)(a) empowering 
provision12 
Information that the credit rating 
agency must provide for the 
application for certification and for 
the assessment of its systemic 
importance to the financial stability 
or integrity of financial markets 
referred to in Article 5 - Art. 
21(3)(d) empowering provision13 
Presentation of the information, 
including structure, format, method 
and period of reporting, that credit 
rating agencies shall disclose in 
accordance with Article 11(2) and 
point 1 of Part II of Section E of 
Annex I - Art. 21(2)(d) 
empowering provision14 

Description 
CRAs are required to submit their applications for registration including necessary 
information set out in Annex II. Further in the registration process they may be required 
to provide additional information and documents to support their application for 
registration.  

Rationale/explanation  
Technical issue which could strengthen 
convergence, expertise with supervisors 

A CRA from a 3rd country that seeks to operate under the certification regime is 
proposed to register with the ESMA.  The ESMA may take a decision on registration 
only after it establishes that specific conditions are met, on the basis of information 
provided by the overseas CRA in accordance with Article 5. Not being of systemic 
importance to the financial stability or integrity of financial markets is one of the 
preconditions for such certification.  

Technical issue which could strengthen 
convergence, expertise with supervisors 

A CRA to make available in a central repository established by CESR information on its 
historical performance data including the ratings transition frequency and information 
about credit ratings issued in the past and on their changes. In future, ESMA could make 
that information accessible to the public and shall publish summary information on the 
main developments observed on an annual basis. (Art. 11(2), Annex I.E.II.1) 

Technical issue which could strengthen 
convergence, expertise with supervisors 

12 Under existing text of the CRA Regulation to be developed as guidance by CESR 
13 Under existing text of the CRA Regulation to be developed as guidance by CESR 
14 Under existing text of the CRA Regulation to be developed as guidance by CESR 

15 

 
 
 
 
                                                 
ANTI MONEY LAUNDERING DIRECTIVE 
2005/60/EC 
Area 
AML consolidated 
group approach - 
Article 31(1) + 34(2) 

Description 
Sets out the high level principle requiring EU financial institutions to 
establish adequate and appropriate policies and procedures of customer due 
diligence, reporting, record keeping, internal control, risk assessment, risk 
management, compliance management and communication equivalent to 
those defined by the Directive in their branches and majority-owned 
subsidiaries located in third countries. Non-cooperative countries and 
jurisdictions constitute a specific subset of third countries that deserve 
peculiar attention. 
Standards  as  regards  supervisory  practices  and  exercise  by  competent 
authorities of their powers in order to ensure compliance with the directive's 
obligations 

Rationale/explanation  
Technical standards could be developed to establish minimum 
criteria and practices for the supervision of compliance by EU 
credit and financial institutions with AML consolidated group 
approach and the "know-your-structure" principle in Articles 
31(1) and 34(2) in connection with non-cooperative countries and 
jurisdictions 

Relates to the coordination and consistent exercise by competent 
authorities of their powers. In this area, CESR already can adopt 
non-binding guidelines. However, binding standards may be 
needed in future in this area to strengthen convergence. 

Supervisory 
convergence - 
Article 37 

16 

 
 
 
ANNEX 4 

Summary of replies received to the public consultation on the Commission 
Communication of 27 May 2009 

Submissions received 

The  total  number  of  submissions  received  to  date  in  reply  to  the  public  consultation  on 
financial supervision is 98 (including those which arrived after the deadline of 15 July 2009). 
The breakdown is as follows: 

EU Member States (finance ministries, central banks and supervisors): 
   8 
Other public bodies (including EFTA/EEA, 3L3 committees, international bodies):  5 
 66 
EU and national associations of undertakings, individual undertakings 
   7 
Consumer and other user associations: 
   7 
Trade Unions:  
   5 
Private citizens: 

A full list of contributors is provided in annex.  

General remarks 

Most  contributions  welcome  the  Communication  and  broadly  support  its  conclusions,  while 
several  request  more  information  or  details  and  ask  the  Commission  to  allow  for  sufficient 
time in the process following the Communication. Moreover, many of the submissions cover 
not only issues related to the supervisory framework from the Communication but also other 
supervisory and regulatory issues. 

EU Member States (finance ministries, central banks and supervisors) 

Submissions  were  received  from  public  authorities  in  7  Member  States  (for  some  Member 
States more than one submission was received from different public bodies – see annex). It 
should  be  noted,  however,  that  in  addition,  Member  States  have  reached  conclusions  in  the 
Ecofin  and  European  Council  of  9  June  and  18-19  June  2009  respectively,  in  which  they 
recommended that a European System of Financial Supervisors (ESFS), comprising three new 
European  Supervisory  Authorities  (ESAs),  is  established  combined  with  a  single  European 
rule  book  applicable  to  all  financial  institutions.    They  also  supported  the  creation  of  a 
European Systemic Risk Board to monitor systemic risks. 

With regard to micro-supervision, all submissions from Member States strongly or cautiously 
support the establishment of the ESFS, with the exception of the Czech Central Bank and the 
Czech  Senate's  EU  Committee,  which  among  other  things  made  a  number  of  comments 
the  Commission 
regarding 
Communication.  Contributions  generally  make  suggestions  or  express  concern  on  specific 
issues concerning the structure and the powers of the ESAs, such as the voting procedures, the 

impact  assessment  accompanying 

the  quality  of 

the 

1 

 
 
 
 
 
 
 
 
 
     
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
independence;  several  submissions  stress  the  need  to  clarify  the  scope  of  the  Authorities' 
powers to settle disputes and to act in emergency situations. 

On macro-supervision, some replies strongly support the creation of the ESRB while others 
support  it  conditionally  upon  further  details  being  provided.  Two  submissions  favour  an 
elected Chair of the ESRB, while another one supports the ECB as Chair. Further comments 
suggest  that  warnings  and  recommendations  should  not  be  channelled  to  the  relevant 
addressees via the Council, but rather through the new ESAs.  

Other public bodies (including EFTA/EEA, 3L3 committees, international bodies) 

The EFTA Authority and the Norwegian Ministry of Finance request observer representation 
of EFTA-EEA countries on both the ESFS and the ESRB. The EFTA Authority argues that, 
since  EEA  supervisors  participate  in  many  colleges  of  supervisors,  they  should  also 
participate in ESA board discussions on individual institutions. 

The joint response of the Level 3 Committees is supportive of the Communication (the Czech 
representatives  have  not  subscribed  the  response).  On  micro-prudential  supervision,  the 
Committees  emphasise  the  need  for  regulatory,  supervisory,  institutional  and  financial 
independence  of  the  Authorities,  and  request  that  the  Commission  should  only  endorse  or 
reject, but not amend any technical standard developed by the new Authorities.   

The IMF supports binding decision making powers of the three ESAs. It underlines the need 
for the ESRB to  obtain  prudential  information also  on  individual  systemic  financial  groups. 
The  IMF  also  points  out  that  representatives  of  central  banks  and  supervisory  authorities, 
which are among the main potential recipients of ESRB risk warnings and recommendations, 
constitute a majority on the ESRB Joint Committee, and is concerned that this may undermine 
the ESRB's ability to come to clear and appropriate warnings and recommendations to those 
bodies. 

Sectoral associations and individual undertakings 

This category of submissions, with 66 responses, forms the bulk of the contributions received, 
and views are diverse. 

In  terms  of  the  Commissions  proposed  timetable,  some  submissions  support  the  time  table, 
while others consider it too ambitious and underline the need for time to apply principles of 
better regulation. Several submissions stress that the reforms primary objective should be to 
improve  the  quality  of  supervision  and  ensure  that  it  is  in  line  with  developments  at  the 
international level so as to foster global supervisory convergence. Many submissions request 
that  additional  reporting  burdens  for  industry  should  be  either  avoided  or  strictly 
proportionate, and request sufficient safeguards to be in place regarding the confidentiality of 
data on individual firms.  

Most submissions concerning micro-prudential supervision support the proposals for an ESFS 
with varying degrees of caution, while some submissions request that the proposals should not 
undermine  the  role  of  the  Commission  and  the  achievements  in  the  single  market,  such  as 
passporting  regimes.  Several  submissions  suggest  strengthening  the  independence  of  the 
Authorities, questioning for example whether the Commission should participate in the ESAs, 
and  underlining  the  importance  of  financial  independence  and  adequate  staffing;  others 

2 

 
 
 
 
 
 
 
 
 
however  stress  the  need  for  adequate  political  accountability.  Many  submissions  stress  the 
need for private sector consultation.  

Turning to decision making powers, submissions mostly support that the Authorities should 
develop  technical  standards.  Many  submissions  stress  that  day-to-day  supervision  should 
remain at the national level; a number of replies request that colleges of supervisors should be 
the  heart  of  supervision  for  cross-border  groups,  with  a  primary  role  for  the  home  country 
supervisor  (i.e.,  lead  supervisor),  counter-balanced  by  the  possibility  for  other  authorities  to 
request  settlement  by  the  Authorities  (and  EU  level  oversight);  some  also  advocate  a  single 
European  supervisor  for  cross-border  groups  in  the  medium  term.  Other  submissions  are 
however  opposed  to  binding  dispute  settlement.  On  the  question  of  direct  EU-level 
supervision  of  cross-border  groups,  several  submissions  support  such  powers  over  Credit 
Rating  Agencies  (CRA),  while  submissions  are  divided  on  similar  powers  over  Central 
Counterparties (CCP).  

Several contributions point to the differences between the banking sector on the one hand and 
the  occupational  pensions  and  the  insurance  sector  on  the  other,  with  one  suggestion  to 
include pensions in the mandate of the European Securities and Markets Authority (ESMA), 
and another to have a specific consultative panel on occupational pensions. 

Submissions  concerning  the  macro-prudential  proposals  support  the  Communication  either 
cautiously or more openly. A number of replies emphasise the importance of avoiding double 
reporting  requirements  and  of  confidential  treatment  of  information  received,  with  some 
submissions opposing the transfer of disaggregated data to the ESRB altogether, or only after 
prior  consultation  of  the  industry.  Submissions  request  adequate  industry  consultation,  and 
representatives  from  the  insurance,  occupational  pensions,  and  securities  industry  are 
concerned that the ESRB's focus may be skewed towards banking and their views may not be 
adequately  represented.  Other  submissions  suggest  that  independent  personalities  should  be 
part  of  the  ESRB  board,  that  ESRB  warnings  should  remain  confidential,  and  question 
whether the comply-or-explain mechanism will be sufficient to ensure effective follow-up to 
ESRB recommendations, suggesting a mandatory follow-up.  

Consumer bodies 

Of the 7 submissions from consumer and end-user associations, most express cautious support 
on  the  Communication  but  also  concerns  regarding  the  level  of  ambition  in  particular  with 
regard  to  various  aspects  of  consumer  protection,  pointing  for  example  to  the  consumer 
protection agency proposed in the US and arguing that a similar body should be established in 
the EU. One submission criticises that the impact assessment is too superficial on effects on 
stakeholders.  With  regard  to  governance  aspects,  several  replies  request  stakeholder 
representation in the ESFS Supervisory Board and Joint Committee and the ESRB board and 
request obligations to consult stakeholders and a user panel. Other proposals are to introduce a 
right  for  consumers  and  investors  to  refer  cases  of  non-compliant  financial  products  to  the 
Authorities for decision, and to make the proposed micro-prudential database available to the 
market.  Several  submissions  support  the  proposed  decision  making  powers,  including  the 
powers over CRAs and CCPs. 

Trade Unions 

3 

 
 
 
 
 
 
 
Most  of  the  submissions  of  7  trade  unions  support  a  stronger  coordination  at  the  European 
level,  but  some  argue  that  the  Commission  should  go  much  further.  They  request  frequent 
consultation of employees by both micro- and macro-level supervisors and at least one union 
requested  the  establishment  of  formal  'whistle  blower'  procedures.  Submissions  vary  on  the 
political  accountability  of  the  ESFS  and  the  ESRB.  On  micro-prudential  supervision, 
submissions  stress  the  importance  of  staffing.  One  submission  requests  that  host  authorities 
should be able to refer issues of inadequate supervision of products by home authorities to the 
ESAs  for  decision,  and  several  submissions  welcome  that  the  ESAs  should  have  decision 
making  powers,  while  views  are  divided  on  the  suggested  powers  over  entities  with  a 
Community-wide  reach.  On  macro-prudential  supervision,  one  submission  suggests  to 
publish all ESRB warnings and recommendations. 

4 

 
Annex - List of public submissions received 

EU Member States  (finance ministries central banks  and supervisors) and 
other public bodies 

1.  Swedish Central Bank/Supervisor 
2.  Czech National Bank 
3.  Finnish Ministry of Social Affairs and Health 
4.  Polish Financial Supervision Authority 
5.  Romanian government 
6.  Austrian government 
7.  Czech Senate EU Committee 
8.  NL Government 

Total: 8 

Other public bodies (including EFTA/EEA, 3L3 committees, international 
bodies) 

1.  EFTA/EEA Standing committee 
2.  Norwegian Minister of Finance 
3.  3L3 Committees joint response 
4.  Jersey Financial Services Commission 
5. 

IMF Staff 

Total: 5 

Industry – sectoral associations 

1.  Af2i 
2.  Alternative Investment Management Association Limited (AIMA) 
3.  Association Française de la Gestion financière (AFG)* 
4.  Association of British Insurers ABI 
5.  Association of German Banks (BDB)* 
6.  Association of International Life Offices (“AILO”) 
7.  Associazione Bancaria Italiana 
8.  Austrian Federal Economic Chamber 
9.  Austrian Insurance Association (VVO) 
10.  British Bankers' Association (BBA)* 
11.  BVI Bundesverband Investment und Asset Management 
12.  CGPME* (in French) 
13.  City of London 
14.  Comité Européen des Assureurs (CEA)* 
15.  Confederation of british Industry (CBI) 
16.  Danish bankers Association 
17.  EFAMA (European Fund and Asset Management Association)* 
18.  EFRP (European Federation for Retirement Provision)* 
19.  European Association of Central Counterparty Clearing Houses* 
20.  European Association of Cooperative Banks (EACB) 
21.  European Association of Public Banks (EAPB) 
22.  European Banking Federation (EBF) 
23.  European Federation of Insurance Intermediaries (BIPAR)* 
24.  European Financial Services Round Table* 
25.  European Savings Banks Group 
26.  European Issuers 
27.  Fédération Bancaire Française* 

5 

 
 
 
 
 
 
 
 
 
 
28.  Fédération Française des Sociétés d'Assurances (FFSA)* 
29.  Federation of Finnish Financial Services* 
30.  FEE - Federation des Experts comptables Europeens 
31.  Futures and Options Association 
32.  German Insurance Association * 
33.  German public savings- and giro-banks (BVR, VÖP, VDP, DSG) 
34.  ICAEW (Institute of Chartered Accountants in England and Wales) 
35.  ICMA (International Capital Market Association)* 
36.  International Financial Services London (IFSL) 
37.  International Training Centre for Bankers* 
38.  International Underwriting Association (IUA)* 
39.  Investment & Life Assurance Group (ILAG)* 
40.  Investment Management Association 
41.  l’AMAFI, Association française des marchés financiers* 
42.  Law Society of England & Wales 
43.  LIBA, SIFMA, and ISDA 
44.  Luxembourg Bankers' Association's (ABBL)* 
45.  MEDEF - Mouvement des Entreprises de France* 
46.  Pan European Insurance Forum (PEIF) 
47.  Polish Bank Association 
48.  Quoted Companies Alliance 
49.  Swedish Bankers' Association 
50.  Swedish Securities Dealers Association* 
51.  XBRL Europe* 

Total: 51 

Industry – individual undertakings 

ING Group* 
Intesa Sanpaolo* 

1.  Aviva 
2.  BNP Paribas 
3.  Bolsas y Mercados Españoles (BME) 
4.  Crédit Agricole* 
5.  Deutsche Börse Group* 
6.  Goldman Sachs International 
7. 
8. 
9.  MAF, MACSF, SMABTP and SHAM (insurers) 
10.  NasdaqOMX 
11.  Nordea 
12.  NYSE Euronext 
13.  PriceWaterhouseCoopers 
14.  Standard Chartered Bank 
15.  UniCredit* 

Total: 15 

Consumers/investors organisations 

1.  UK Financial Services Consumer Panel 
2.  CFA Institute Centre for Financial Market Integrity* 
3.  Verbraucherzentrale Bundesverband* 
4.  FINUSE 
5.  Association fédérative internationale des porteurs d'emprunts russes 

(AFIPER)* 

6.  La Voix des Emprunts Russes* 
7.  BEUC* 

6 

 
 
 
 
 
 
 
Total: 7 

Trade unions/Social partners 

1.  Standing Committee of European Central Bank Unions* 
2.  Nordic Bank, Finance and Insurance Unions (NFU)* 
3.  Financial Sector Union of Sweden 
4.  German Trade Union Confederation (DGB) (NB in German) 
5.  Unite the Union 
6.  Bundesarbeitskammer Austria (BAK)* (in German) 
7.  UNI Europa Finance Union 

Total: 7 

Private Individuals/academics/others 

1.  Paul Goldschmidt 
2.  Antonio Lambe 
3.  University of Luxembourg 
4.  Adam Smith Institute* 
5.  Godfrey Bloom MEP (UKIP) 

Total: 5 

ANNEX 5 

European Council Conclusions of 18/19 June 2009 

19. 

The  communication  presented  by  the  Commission  on  27  May  2009  and  the  Council 

conclusions  of  9  June  2009  set  the  way  forward  to  the  establishment  of  a  new 

framework  for  macro-  and  micro-prudential  supervision.  The  European  Council 

supports  the  creation  of  a  European  Systemic  Risk  Board  which  will  monitor  and 

assess potential threats to financial stability and, where necessary, issue risk warnings 

and  recommendations  for  action  and  monitor  their  implementation.  The  members  of 

the  General  Council  of  the  ECB  will  elect  the  chair  of  the  European  Systemic  Risk 

Board. 

20. 

The  European  Council  also  recommends  that  a  European  System  of  Financial 

Supervisors,  comprising  three  new  European  Supervisory  Authorities,  be  established 

aimed at upgrading the quality and consistency of national supervision, strengthening 

oversight  of  cross  border  groups  through  the  setting  up  of  supervisory  colleges  and 

establishing a European single rule book applicable to all financial institutions in the 

Single Market. Recognizing the potential or contingent liabilities that may be involved 

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for  Member  States,  the  European  Council  stresses  that  decisions  taken  by  the 

European  Supervisory  Authorities  should  not  impinge  in  any  way  on  the  fiscal 

responsibilities  of  Member  States.  Subject  to  this  and  supplemental  to  the  Council 

conclusions of 9 June 2009, the European Council agrees that the European System of 

Financial Supervisors should have binding and proportionate decision-making powers 

in  respect  of  whether  supervisors  are  meeting  their  requirements  under  a  single  rule 

book and relevant Community law and in the case of disagreement between the home 

and host state supervisors, including within colleges of supervisors. ESAs should also 

have  supervisory  powers  for  credit  rating  agencies.  The  European  Council  further 

emphasizes  the  importance  of  ensuring  that  the  new  framework  supports  sound  and 

competitive EU financial markets. 

21. 

The  European  Council  welcomes  the  Commission's  intention  to  bring  forward,  by 

early  autumn  2009  at  the  latest,  the  legislative  proposals  to  put  in  place  the  new 

framework  for  EU  supervision,  fully  respecting  the  balance  of  competences  and 

financial responsibility and  taking full account of the Council conclusions of 9 June 

2009. These proposals need to be adopted swiftly in order for the new framework to 

be  fully  in  place  in  the  course  of  2010.  The  European  Council  will  take  stock  of 

progress at its meeting in October 2009 and will if necessary provide further direction. 

22. 

It  is  equally  important  to  further  advance  work  on  building  a  comprehensive  cross-

border  framework  for  the  prevention  and  management  of  financial  crises.  The 

European  Council  invites  the  Commission  to  make  concrete  proposals  for  how  the 

European  System  of  Financial  Supervisors  could  play  a  strong  coordinating  role 

among  supervisors  in  crisis  situations,  while  fully  respecting  the  responsibilities  of 

national  authorities  in  preserving  financial  stability  and  in  crisis  management  in 

relation  to  potential  fiscal  consequences  and  fully  respecting  central  banks' 

responsibilities,  in  particular  with  regard  to  the  provision  of  emergency  liquidity 

assistance. 

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