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 #Summary of the impact assessment {COM(2009) 499 final} {COM(2009) 500 final} {COM(2009) 501 final} {COM(2009) 502 final} {COM(2009) 503 final} {SEC(2009) 1234}
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

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 23.9.2009 
SEC(2009) 1235 

COMMISSION STAFF WORKING DOCUMENT 

accompanying document to the 

Proposal for a  

REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

on Community macro prudential oversight of the financial system and establishing a 
European Systemic Risk Board 

Proposal for a  

COUNCIL DECISION 

entrusting the European Central Bank with specific tasks concerning the functioning of 
the European Systemic Risk Board 

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 

SUMMARY OF THE IMPACT ASSESSMENT  
{COM(2009) 499 final} 
{COM(2009) 500 final} 
{COM(2009) 501 final} 
{COM(2009) 502 final} 
{COM(2009) 503 final} 
{SEC(2009) 1234} 

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1. 

INTRODUCTION 

In  its  Communication  "European  Financial  Supervision"  of  27  May  2009,  the 
European Commission proposed changes to European financial supervision in order 
to remedy failings revealed in the recent financial crisis. Specifically, it proposed the 
creation of:  

•  a  European  Systemic  Risk  Council  or  Board  (ESRB)  to  assess  risks  to  the 
stability of the financial system as a whole ("macro-prudential supervision"), and 
provide early warning of systemic risks  and, where necessary, recommendations 
for action.  

•  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  with  three  new  European 
Supervisory  Authorities  (ESAs),  for  the  banking,  securities  and  insurance  and 
occupational pensions sectors. 

These proposals were endorsed by the European Council of 18-19 June 2009, which 
however  also  emphasised  that  decisions  taken  by  the  ESAs  should  not  impinge  on 
the fiscal responsibilities of Member States. 

This Impact Assessment accompanies the proposals for legislative acts creating the 
ESRB  and  the  ESFS.  In  order  in  particular  to  define  the  scope  of  the  power  to 
propose  binding  technical  standards  conferred  on  the  ESAs,  amendments  to  the 
relevant community legislation will shortly be introduced.  

2. 

CONSULTATIONS AND PROCESS 

The Commission conducted a public consultation on the Communication of 27 May, 
with a closing date of 15 July. 98 submissions were received, the great majority of 
them  broadly  supportive  of  the  supervision  proposals  in  the  Communication.  An 
Impact  Assessment  Steering  Group  to  steer  the  preparation  of  this  Impact 
Assessment, comprising representatives from various DGs, met twice. 

3. 

PROBLEM DEFINITION 

Building on the general problems identified in the Impact Assessment accompanying 
the Communication, more specific problems were identified linked to the creation of 
the ESRB and the ESFS.  

For the ESFS these are: 

•  How  to  ensure  a  single  set  of  harmonised  technical  rules,  and  consistent 

application of those rules. 

•  How  to  ensure  the  good  functioning  of  colleges  of  supervisors,  particularly  in 

terms of supply of appropriate information to all members of the college.  

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•  How to achieve agreement between home and host supervisors on matters which 

require agreement. 

•  There is a need for better co-ordination between supervisors, and coherent action, 

in financial emergencies. 

•  How  to  avoid  impingement  of  Member  States'  fiscal  responsibility,  in  line  with 
the European Council conclusions, while not hindering the activity of the ESAs in 
areas which do not impinge on the fiscal responsibilities of Member States. This 
will  ensure  that  the  principle  of  subsidiarity  is  respected  in  the  activity  of  the 
ESAs,  because  the  area  of  direct  fiscality  is  an  exclusive  competence  of  the 
Member States.  

For the ESRB these are: 

•  How  to  make  the  ESRB  as  effective  as  possible,  given  that  it  cannot  be  given 
binding powers because a political decision has already been taken not to give it 
legal personality.  

•  The warnings and recommendations of the ESRB must reach the right addressees 
and  lead  to  the  desired  action,  but  without  having  the  self-fulfilling  effect  of 
helping to trigger a crisis.  

•  The  ESRB  must  receive  the  information  which  it  needs  to  carry  out  macro-

prudential assessments effectively. 

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

out its functions cost-effectively.  

•  Subsidiarity must be respected in the structuring and activity of the ESRB.  

4. 

OBJECTIVES 

The  specific  objectives  identified  in  the  Impact  Assessment  accompanying  the 
Communication of 27 May are considered as the general objectives for this Impact 
Assessment, as the level of analysis is more detailed in this case.  

A number of specific objectives are also defined, for the ESRB and the ESFS:  

ESFS 

a.  Assume all of the tasks of the current EU Committees of Supervisors; 

b. 

c. 

Ensure a set of common rules; 

Ensure a consistent application of EU rules; 

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

ensuring colleges of supervisors develop successfully and consistently; 

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e.  Determine  whether/how  to  grant  full  supervisory  powers  for  certain 

institutions; 

f. 

g. 

Determine how to co-ordinate and effectively manage crisis situations; 

Ensure access to necessary information; 

h.  Define  safeguards 
responsibilities; 

to  avoid 

impact  on  Member  States’ 

fiscal 

i. 

Ensure the independence of the ESAs. 

ESRB 

a. 

b. 

c. 

Establish  adequate  procedures  to  obtain  information  about  macro-
economic risks for financial stability; 

Identify macro-prudential risks in Europe; 

Issue  warnings  to  the  relevant  actors  and  recommend  the  appropriate 
actions; 

d.  Determine 

how 

to 

achieve 

effective 

follow-up 

to 

warnings/recommendations; 

e. 

Ensure the independence of the ESRB. 

Furthermore, a system-wide objective is to ensure that both levels (ESRB and ESFS) 
work together coherently to identify and react to cross-cutting elements which impact 
both micro- and macro-level stability (such as remuneration policies). 

5. 

ANALYSIS AND COMPARISON OF POLICY OPTIONS 

For both the ESFS and the ESRB, options were considered in the following areas: 

a. 

Powers and competences 

For the ESFS, the areas considered under this heading were: 

•  Powers to ensure a single set of harmonised rules. Here, two types of powers are 
envisaged: firstly the power to propose binding technical rules for endorsement by 
the Commission, in areas to be defined by forthcoming modifications to sectoral 
legislation;  secondly,  powers  to  intervene  in  case  of  disagreement  between 
national  supervisors  on  matters  where  agreement  is,  for  example,  required 
regarding a cross-border group, by mediating, and adopting a binding decision if 
necessary.  

•  Powers  to  bring  about  consistent  application  of  EU  rules.  Where  a  national 
supervisor seems to be breaching applicable rules, an ESA would be able to issue 
a  recommendation,  which  could  be  made  binding  by  a  Commission  decision  in 
case  of  non-compliance.  As  an  ultimate  resort,  and  on  the  basis  of  directly 

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applicable  Community  rules,  an  ESA  could  address  a  decision  to  a  financial 
institution if the Commission decision were ignored by the national supervisor. 

•  Ensure a common supervisory culture and consistent supervisory practices. ESAs 
should  continue  and  expand  the  role  of  the  level  3  committees  in  this  area, 
including  training,  and  also  contribute  to  the  functioning  of  colleges  of 
supervisors, including by defining the information to be distributed and managing 
a database. 

•  Full  supervisory  powers.  It  was  decided  to  place  in  each  Regulation  creating  an 
ESA an article making it possible to grant it direct supervisory powers for certain 
types of institution, but only by further modifications to sectoral legislation.  For 
the moment, this is only envisaged for Credit Rating Agencies. 

•  Powers in crisis situations. On this point, it was considered that the ESAs should 
be  able  to  adopt  decisions  addressed  to  national  supervisory  authorities  over  the 
full scope of relevant sectoral legislation, once the Commission has declared the 
existence of an emergency.  

•  Powers  to  collect  and  manage  micro-prudential  information.  The  ESAs  must 
have access at the minimum to the information currently received by the Level 3 
committees  (anonymised  and  aggregated  data).  In  order  to  carry  out  their 
functions,  it  would  be  effective  and  coherent  for  them  to  be  able  to  request 
national  supervisors  to  provide  the  information  needed,  on  the  basis  of  a 
motivated 
financial 
information 
institutions. 

individual 

regarding 

including 

request, 

•  Safeguard  for  fiscal  responsibilities  of  Member  States.  Rather  than  have  just  a 
declaratory provision, or to allow Member States discretion as to when their fiscal 
responsibilities are impinged upon, it was considered appropriate for the Council 
to decide by QMV, when a Member State and an ESA disagree as to whether the 
fiscal  responsibilities  of  the  Member  State  concerned  are  at  stake  in  an  ESA 
decision. 

For the ESRB, the areas considered under this heading were: 

•  Regarding follow up to warnings and recommendations, obligatory compliance is 
not possible, since a body without legal personality cannot issue binding acts, and 
no  follow-up  at  all  would  undermine  effectiveness,  so  a  "comply  or  explain" 
obligation was considered to be the best option. 

•  On  access  to  information,  the  ESRB  could  not  issue  credible  warnings  and 
recommendations  without  access  to  aggregated  data,  at  the  EU  or  country  level. 
This could be channelled through the ESAs. Furthermore, allowing the ESRB to 
access data on individual institutions on reasoned request would also improve its 
effectiveness. 

•  Regarding  publicity  of  warnings  and  recommendations,  it  was  considered  that 
systematic publicity could be counter-productive by potentially triggering crises, 
while  publicity  could  on  occasion  be  useful  in  case  of  non-compliance.  Fixed 

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criteria  for  publication  or  non-publication  would  be  difficult  to  set,  so  it  was 
considered best to allow the ESRB discretion as to when to publish on an ad hoc 
basis. 

b.  Organisation and structure 

For the ESFS, the areas considered under this heading were: 

•  Joint  Steering  Committee.  A  joint  committee  with  legal  personality  could  adopt 
legal  acts  obliging  coherent 
three  ESAs,  and  on 
conglomerates. However a joint Committee with legal personality could engender 
extra costs such as for a secretariat. Overall, it is considered more prudent to have 
a  flexible  joint  Committee  with  no  legal  personality,  pending  the  first  review  of 
ESFS functioning. There will be a sub-committee on conglomerates. 

interventions  by 

the 

•  Voting  procedure.  It  was  considered  that  a  simple  majority  of  voting  Board 
members would be the most effective option for acts of ESAs in individual cases, 
with qualified majority voting used for horizontal matters such as the proposal of 
binding  technical  standards,  recommendations  and  guidelines,  and  financial  and 
budgetary decisions. 

•  Involvement  and  role  of  relevant  stakeholders.  The  lack  of  any  stakeholder 
consultation  other  than  ad  hoc  public  consultations  would  lead  to  poor  quality 
interventions. Holding open public consultations on every act of the ESAs would 
also  be  inefficient.  A  single  stakeholder  consultative  group  would  be  incoherent 
given  the  varying  nature  of  the  work  of  the  three  ESAs.  Therefore,  separate 
consultative groups for each ESA are considered optimal. 

For the ESRB, the areas considered under this heading were: 

•  Size of board and scope of expertise. For the effectiveness of the ESRB, the board 
must  ensure  adequate  representation  of  expertise  and  views.  The  Commission 
proposal endorsed by the European Council suggests a board comprising: 

* 

* 

* 

* 

* 

* 

The President and Vice President of the European Central Bank; 

Governors of each of the EU's National Central Banks; 

One representative of the European Commission; 

Representatives of each of the European Supervisory Authorities; 

One non-voting supervisory representative from each Member State; 

One  non-voting  representative  from  the  Economic  and  Financial 
Committee. 

•  Addressees  of  warnings.  It  seems  that  the  most  effective  option  to  meet  the 
objectives of the ESRB would be a range of addressees (Member States, national 
supervisors, European Supervisory Authorities and the Commission). It would be 
ineffective and inefficient to limit the scope of potential addressees. For a macro-

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prudential body,  it seems  unnecessary  to include individual financial institutions 
as possible addressees. 

•  Stakeholder involvement and consultation. A Technical Advisory Group, putting 
together  experts  from  the  different  institutions  participating  to  the  ESRB  was 
considered  useful  to  refine  the  analysis  of  the  Secretariat  when  appropriate.  Ad 
hoc wider consultations should also not be ruled out. 

c. 

Financing 

For the ESFS, the options considered ranged from 100% financing from the Member 
States  to  100%  financing  from  the  Community  budget.  60%  financing  by  Member 
States  and  40%  Community  subsidy  has  been  selected.  This  balance  will  ensure 
independence of ESAs both from Member States and the Community, give stability 
of funding, and reflect the important Community dimension of the ESAs' objectives.  

Regarding  the  ESRB,  the  options  evaluated  regarded  the  provision  and  location  of 
the secretariat: whether this should be done by the Commission, a virtual network of 
Central  Banks  or  the  European  Central  Bank.  It  was  considered  that  the  most 
appropriate  option  for  the  ESRB  secretariat  was  that  it  should  be  provided  by  the 
European Central Bank. 

6. 

IMPACT OF THE SELECTED OPTIONS  

The  specific  impacts  on  various  entities  directly  concerned  by  the  establishment  of 
the ESRB and ESFS can be analysed as follows: 

•  National  supervisors.  The  ESAs  will  contribute  to  harmonisation  of  financial 
supervision  in  the  EU,  by  proposing  binding  technical  rules  and  monitoring 
application  of  EU  rules  by  national  supervisors.  They  will  also  facilitate 
functioning of colleges of supervisors, and run information databases of benefit to 
supervisors  participating  in  colleges.  National  supervisors  will  be  able  to  bring 
appeals  against  decisions  taken  by  the  European  Supervisory  Authorities.  The 
ESRB  should  help  national  supervisors  to  better  understand  the  impact  of  their 
actions  on  the  wider  economic  and  financial  system.  National  Supervisors  may 
however  have  a  greater  burden  in  terms  of  information  provision  and  a 
requirement  to  "comply  or  explain"  following  the  receipt  of  an  ESRB 
recommendation. 

•  National Finance Ministries. These will benefit from enhanced financial stability 
across  the  EU,  and  reduced  risk  of  expensive  bail-outs  of  financial  institutions. 
They will have access to the analyses of systemic risks carried out by the ESRB, 
and  will  receive  warnings  and  recommendations  if  necessary.  The  fiscal 
responsibility  of Member States will be protected by the safeguard clause in the 
ESA  Regulations.  On  the  other  hand,  Member  States  may  have  to  contribute  to 
finance  the  European  Supervisory  Authorities,  according  to  the  funding 
arrangements to be determined. 

•  Level  2  and  3  Committees.  With  the  establishment  of  the  ESFS,  the  Level  3 
committees will cease to exist and their functions will be fully taken over by the 

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ESAs. However, the new Authorities will as far as possible ensure continuity with 
the  Level  3  committees.  Maintenance  of  current  staff,  and  growth  in  staff 
numbers, is foreseen. The Level 2 committees will continue as at present. 

•  European  Central  Bank.  The  European  Central  Bank  will  be  involved  both 
through participation in the ESRB and through the provision of the Secretariat to 
the ESRB.  

•  National Central Banks. Participation in the ESRB and the input to the work of 
the  Secretariat  should  not  involve  any  significant  additional  costs  for  national 
central banks.  

•  Financial institutions. For large financial groups, the improved cross-border and 
cross-sector  supervision  will  reduce  compliance  costs  thanks  to  harmonised 
standards  and  supervisory  practices.  The  ESRB  will  contribute  to  an  improved 
business environment through effective crisis prevention in the EU. Credit Rating 
Agencies  registered  in  the  EU  will  be  able  undergo  direct  supervision  by  the 
European  Securities  Markets  Authority,  ensuring  greater  coherence  and  cost 
reduction. The establishment of the Joint Steering Committee for three ESAs will 
be a basis for further strengthening of oversight of financial conglomerates.  

•  Other stakeholders. To ensure appropriate input of stakeholders into the decision 
making  process  of  the  ESAs,  a  dedicated  stakeholder  group  will  be  created  for 
each  authority,  with  thirty  members  representing  in  a  balanced  way  consumers, 
industry  and  employees.  The  ESRB  will  have  the  ability  to  consult  widely  as 
appropriate, and have access to a technical advisory group. 

The costs of the ESFS have been estimated according to three cost categories: staff 
costs,  infrastructure  costs  and  operations  costs.  The  total  costs  of  creating  the 
European Supervisory Authorities has been estimated at about 36 million Euro in the 
first  year  of  operations  (2010),  reaching  over  67  million  Euro  after  three  years 
(2013). The staff cost estimates are based on the assumption that each ESA will aim 
to  double  its  staff  as  compared  to  the  staff  numbers  in  the  existing  Level  3 
Committees  in  the  first  year  of  its  operation,  an  average  increase  from  20  to  40  in 
each of the three Authorities. 

Regarding  the  ESRB,  as  its  secretariat  will  be  provided  by  the  European  Central 
Bank  and  the  European  System  of  Central  Banks,  no  direct  cost  will  accrue  to  the 
Community budget nor to the budgets or Member States, except as regards seconded 
staff. 

7. 

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 final set of indicators will be 
decided by the Commission at the time of conducting the required evaluations. 

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