Draft report outlines future EU regulatory structure

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BRUSSELS – The European Parliament's Committee on Economic and Monetary Affairs has published a draft report containing recommendations to the European Commission on ‘Lamfalussy follow-up: future structure of supervision’. The recommendations, which are set out in the Annex to the draft report, include basic prerequisites for effective regulatory and supervisory arrangements, financial stability and systemic risk measures, and recommendations on the supervisory framework.

The basic prerequisites for regulatory and supervisory arrangements include measures on how to improve the capital adequacy framework and transparency, governance measures such as requiring originators to properly assess and monitor risks and retain a significant portion of the originated mortgage-backed securities or debt on their books, and measures addressing conflicts of interest for credit rating agencies and ensuring credit rating agencies apply differentiated symbols for the rating of complex debt, among others.

On the issue of financial stability and systemic risk measures, the European Parliament's proposals include requiring the European Central Bank to develop databases and forward-looking scenarios and policies in relation to key information from the prospective of macro prudential supervision and financial stability. It also suggests enhancing crisis prevention and management arrangements at the EU level, amending EU rules on deposit guarantees, and introducing similar EU legislation regarding insurance guarantees.

On supervisory framework issues, the European Parliament recommends that the European Commission present regulations providing for the creation of colleges of supervisors for the largest cross-border financial groups or holdings operating in the EU, and the creation of a permanent EU college co-ordination and mediation committee for the mandatory colleges. It should also transform the existing Lamfalussy Level 3 committees into a structure of EU supervision where the committees would be granted the status of supervisory agencies; and establish an EU financial stability oversight body able to gather and analyse micro and macro prudential information and act as a rapid reaction force in crisis situations.