the debate on financial reform. the crisis which began in the summer of 2007 has developed over time into one of the most disruptive and costly crises for our economies and societies that the world has experienced in many decades. therefore, both public authorities and the financial market participants have a collective responsibility to do whatever is needed to address weaknesses in the i am very grateful to katri mikkonen for valuable inputs and to fatima pires, fabio recine and panagiotis strouzas for useful comments. fundacion de estudios financieros ( 2009 ), observatorio sobre la reforma de los mercados financieros europeos, papeles de la fundacion n. 34. albert o. hirschman ( 1991 ), the rethoric of reaction : perversity, futility, jeopardy, cambridge ma ; harvard university press. regulatory and supervisory framework in order to provide sounder foundations to our financial systems. let me now stress some of the areas in which substantial work has been achieved to design and implement reforms. three key areas of reform : credit rating agencies, hedge funds and compensation practices as i mentioned earlier, substantive progress has been made in the regulatory and supervisory reform as a response to the financial crisis. a remarkable amount of technical work has been undertaken in a demanding timeframe. all relevant initiatives have been coordinated globally, and the european union has been a frontrunner in a number key areas. three areas in which much progress has been made are : credit rating agencies, hedge funds and compensation practices. • as regards credit rating agencies, a new eu regulation subjecting such agencies to mandatory registration and oversight in order to increase transparency and reduce conflicts of interest in the rating process has already entered into force in december 2009. • as for hedge funds, the european commission has proposed a directive on alternative investment fund managers. this proposal, which is currently under debate, provides that alternative investment fund managers be subject to authorisation and harmonised regulatory standards, including minimum capital as well as disclosure requirements. • on compensation practices, the european commission was among the first to incorporate in a directive proposal the principles developed by the financial stability board ( fsb ) for sound compensation practices, with a projected implementation date of end - 2010. in this context, the eu was leading the international agenda in developing further guidance to align compensation practices with long - term value creation and discourage excessive risk - taking in the short - term. to recall, the g20

participants. in particular, the crisis demonstrated that the nature and magnitude of the systemic risk in the financial sector is related not only to the potential illiquidity or insolvency of large banks or other major regulated financial institutions, but it also depends on the close intertwining between financial institutions, markets and infrastructures. the financial stability framework needs to be able to identify and assess systemic risks corresponding to the degree of “ interconnectedness ” i just mentioned. in this context, macro - prudential oversight would focus on factors and risks that can affect the stability of the financial system as a whole and therefore would complement micro - prudential supervision, which looks at the stability of individual financial institutions. macroprudential supervision in the euro area : the european systemic risk board macroprudential oversight will be the key task of the european systemic risk board ( esrb ), which is built on the proposals of the high level group chaired by jacques de larosiere. the european commission ’ s legislative proposals for the establishment and functioning of the esrb have received the support by the ecofin and the eu council. the european parliament is currently considering the proposals in its turn. let me also mention that the ecb / eurosystem expressed its stance in the opinion adopted on 26 october. 2009 it welcomed the broad agreement reached by ecofin on the draft legal texts regarding the establishment of the esrb and the involvement of the ecb in supporting the esrb. as stated in its opinion, the ecb has decided that it stands ready to provide the analytical, statistical, administrative and logistical support to the esrb, including the secretariat of the esrb. what will be the activities of the esrb and what is its value added? the esrb will be expected to actively monitor the various sources of risk to financial stability in the eu – across countries and across financial sectors, and also taking into account global developments. as a result of this monitoring, the esrb can identify the risks and analyse indepth how they could impact the financial system. stress - testing and other methodologies could assist the risk prioritisation exercise. the value - added to be provided by the esrb is to link, in particular, macro - economic conditions, structural developments, and key vulnerabilities of financial institutions. this will permit to identify system - wide risks for the benefit of regulatory and supervisory policies. the monitoring, assessment and collection of information on sources of risk to