Last Updated on November 18, 2020 by LawEuro
Introduction
In the process of completing the formation of a single financial services market in the European Union, a question arose about the effectiveness of the existing model of banking regulation and banking supervision at the EU level, which for a long time was based on the autonomy of national authorities and on a system of cooperation and information exchange between them. Over the past ten years, many options have been proposed for deepening European cooperation in this area, and they all envisaged further harmonization of norms and rules and improvement of banking supervision methods in order to increase its efficiency. However, European legislators and national regulators for a long time did not consider the possibility of redistributing powers by transferring them to a supranational level.
The shortcomings of prudential regulation and banking supervision manifested themselves fully during the financial and economic crisis of 2008–2009, which was the main reason for the reform of the legal regulation and mechanisms for the functioning of the banking sector in the EU and the transition to a new stage of European integration through the creation of and monetary union) of the European Banking Union.
A brief overview of the main stages of the evolution of the organizational and legal structure of regulation and supervision in the EU banking sector gives an idea of the scale of the project.
Phase One: Regulatory Reform (Lamfalussy System) and Banking Supervision Cooperation
Reform in the EU financial sector began with a simplified and streamlined decision-making procedure. The developed procedure was called the “Lamfalussy Process” (Lamfalussy Process), which is expressed in the creation of a new organizational and legal structure in the field of financial services regulation [6]. The Lamfalussy process was introduced in 2001 as a result of the implementation of measures envisaged by the Financial Services Action Plan [7], whose main goal was to integrate the financial services market.
Initially, the new regulatory mechanism was applied only to the securities market, but later it was decided to expand its operation to the banking sector and insurance. The new regulatory system included four levels of decision making:
1. At the first level, the Parliament and the Council of the European Union adopt regulations and directives that contain the most general provisions. The development of draft regulations is the responsibility of the European Commission.
2. At the second level, regulatory acts are developed that specify the provisions of the first-level acts. At this level, legislative powers are vested with supervisory authorities created in each area separately: European securities market authority (European Securities and Markets Authority – ESMA) [4], European Banking Authority (EBA) [3] , European Insurance and Labor Pension Authority (EIOPA – European Insurance and Occupational Pensions Authority) [5]. The EU Council can take action when disagreements arise between the European supervisory authorities and the Commission.
3. The third level is represented by technical committees, which include representatives of the supervisory authorities of the banking sector, the securities market and the insurance industry. Technical committees provide the Commission with advice on the development of draft acts of the first and second levels and coordinate the oversight bodies to ensure uniform and consistent implementation of acts of the first and second levels. They also monitor the implementation of standards and contribute to the harmonization of surveillance methods.
4. At the fourth level, the European Commission verifies that EU member states comply with adopted acts.
The Lamfalussy process as a form of institutional development was positively perceived, but it was not without critical comments about each of the levels and their interaction. The reform of the regulation of the financial sector did not affect the distribution of responsibilities for the implementation of banking supervision, which as before remained in the competence of national authorities. The effectiveness of the developed institutional system was rapidly decreasing in the context of increasing integration in financial markets.
The second stage: the strengthening of interstate cooperation and the creation of European supervisory bodies (reform of Laroziere)
At the time of the most acute phase of the financial and economic crisis of 2008-2009. it became obvious that the current structure is not suitable for resolving large-scale banking crises. Discussions on the need for a reform of the legal regulation of the EU financial sector resumed with a new force. European legislators proposed two directions for its implementation – the harmonization of norms and a change in the organizational and legal structure of European supervision of financial markets. The reform project was developed by a working group chaired by Jacques de Laroziere (since 1978-1987 – Managing Director of the International Monetary Fund, from 1987-1993 – Chairman of the Bank of France, 1993-1998 – Chairman of the European Bank for Reconstruction and Development) [1] and outlined in special report of the group of February 25, 2009 [2]. This report defined a new approach to macro-prudential and micro-prudential supervision of banks engaged in cross-border activities.
In 2010, the European Parliament approved a new regulatory framework that established the European System of Financial Supervision / ESFS, including the European System Risk Board / ESRB and the European Supervisory Authorities ( European Supervisory Authority / EBA) [10].
The European System Risk Committee (hereinafter – the ECPR) is responsible for macroprudential supervision, which consists in risk analysis, prevention and emergency response. The main task of the ECPR is to identify the areas most exposed to systemic risks, namely, “the risks of disruptions in the functioning of the financial system with the possibility of serious negative consequences for the domestic market and the real economy” (Article 2 of Regulation 1092/2010) [8].
The activities of the European supervisory authorities cover three areas – banking, securities market and insurance. The European supervisory authorities work together in the framework of the Joint Committee, which is intended to strengthen cooperation and to ensure a continuous exchange of information and harmonization of supervision methods. The main task of the Joint Committee is to exchange information with the ECPR and to strengthen cooperation between the ECPR and the European supervisory authorities.
Within the banking sector, a European banking body has been established, whose structure includes:
1. The Council of Observers, including representatives of all EU member states (Board of Supervisors / BoS).
2. The Committee on Financial Recovery of Banks (Resolution Committee / ResCo).
3. The Management Board (Management Board / MB) is the administrative body responsible for the current activities of the European Banking Authority.
The European banking authority performs a large number of functions, which include:
1. Development of a comprehensive regulatory framework for the financial sector (Single Code of Financial Services Provisions (Single Rulebook for financial services)) and ensuring its implementation.
2. Ensuring the consistent application of the developed standards through the publication of manuals intended for national supervisory authorities in order to harmonize the methods of supervision.
3. Strengthen the supervision of banking groups engaged in cross-border activities, with the assistance of the Collegium of Observers from each EU member state.
4. Coordination of stress tests at the European level to assess the sustainability of financial institutions to negative trends in financial markets.
5. Ensuring the development of an agreed plan of action by national supervisors in a crisis situation.
6. Ensuring transparency, ease of use and availability of financial products and services for consumers.
The third stage: centralization of supervisory powers in the EU financial sector – creation
Single supervisory mechanism
Changes in the institutional structure proposed in the de Laroziere report have become an important stage in the development of integration in the field of EU financial regulation and supervision. However, they were only part of a large-scale reform, the main purpose of which was the creation of a single supervisory mechanism as one of the elements of the European Banking Union.
A single supervisory mechanism was introduced by Regulation 1024/2013 on October 15, 2013 [9]. The establishment of the Unified Supervisory Mechanism marked the transition from the traditional principles of cooperation and cooperation of national authorities to a centralized system of supervision in the Eurozone, which was based on the application of the principles of subsidiarity and proportionality, enshrined in Art. 5 of the EU Treaty. EU member states that are not members of the Eurozone can join the Common Supervisory Mechanism on a voluntary basis by signing an accession agreement.
A single supervisory mechanism does not have legal personality. The decision-making powers are entrusted to the European Central Bank and national supervisory authorities in accordance with the provisions of Regulation 1024/2013 of October 15, 2013. The European Central Bank supervises the largest banks in the Eurozone states and states that have joined the Common Oversight Mechanism, while national regulators monitor the rest of the banks. Within the framework of the new structure, the costs of exercising supervisory powers are imposed on banks that are part of the Unified Supervisory Mechanism.
A single supervisory mechanism is not only a redistribution of powers between European and national supervisory authorities. It is a new system of joint implementation of supervisory powers, based on the principles of European integration. The main objective of this system is the development of uniform methods and high standards for the work of supervisory authorities in the EU.
findings
The last decades in the European Union have seen a tendency to expand the cross-border activity of financial intermediaries. The existing mechanisms of banking regulation and banking supervision in the EU did not have time to adapt to the rapidly changing reality, and after the financial and economic crisis of 2008-2009. it became necessary to carry out a large-scale reform of the EU banking sector. The deepening of integration in world financial markets and the internationalization of financial intermediaries forced us to revise the institutional structure of banking supervision and the scope of powers of supervisory authorities.
Based on the above, the following conclusions can be drawn:
1. Disadvantages of prudential regulation and banking supervision manifested themselves fully during the global financial and economic crisis of 2008–2009, which was the main reason for the reform of the legal regulation of the banking sector in the EU.
2. As a result of the reform, part of the authority to supervise the banking sector has been transferred to a supranational level.
3. In 2010, the European Parliament approved a new regulatory framework that established the European System of Financial Supervision / ESFS, including the European System Risk Board / ESRB and the European Supervisory Authority. authorities (European Supervisory Authority / EBA). The activities of the European supervisory authorities cover three areas – banking, securities market and insurance. In the banking sector, there is a European Banking Authority, which is developing a comprehensive regulatory framework for the EU financial sector and ensuring the uniform application of the developed rules and regulations.
4. The single supervisory mechanism is a new system of joint implementation of supervisory powers, based on the principles of European integration. Within the framework of the Single Supervisory Mechanism, the European Central Bank was authorized to supervise the largest banks in the Eurozone and the acceding countries, the rest of the banks remained under the jurisdiction of national regulators.
5. A single supervisory mechanism – the first stage of the transition to a new stage of European integration – the formation of the European Banking Union.
BIBLIOGRAPHY
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INTERNATIONAL LAW AND COMPARATIVE LAWS
8. Regulation 1092/2010 of the European Parliament and of the Council of November 24. 2010 on the implementation of macro-prudential supervision of the EU financial system and the establishment of the European Council on Systemic Risks // Official Journal. – 2010.- L 331. – Dec. 15. – P. 1-11.
9. EU Council Regulation 1024/2013 of October 15. 2013 on the granting of authority to the European Central Bank to determine the policy in the field of prudential supervision of credit organizations // Official Journal. – 2013. – L 287. – Oct. 29. – p. 63-89. – Electron. text given. – Access mode: http://eur-lex.europa.eu/legal- content / EN / TXT /? Uri = CELEX% 3A32013R1024. – Title from the screen.
10. Topornin, N. B. Some aspects of the legal status and activity of financial assistance mechanisms in the European Union / N. B. Topornin // Money and Credit. – 2015. – № 10. – p. 58-61.
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