Working Group: Stronger and more coordinated European financial supervision
Ministry of Finance The Ministry of Social Affairs and Health
Supervision of financial actors in the European Union needs to be made more effective and better coordinated, as proposed by the European Commission. Amendments also need to be made to national legislation to improve supervision of branches of foreign credit institutions operating in Finland.
The proposals are included in a report drawn up by a working group addressing the development needs of cross-border financial supervision. The working group report was presented today 27 October to Mari Kiviniemi, Minister of Public Administration and Local Government and Liisa Hyssälä, Minister of Social Affairs and Health.
Towards stronger and more coordinated supervision
Cross-border financial activities have increased in recent years. Today there are over 40 large financial groups in Europe operating across different countries and supervised by a number of different supervisory authorities. The financial crisis of 2008, which rapidly exacerbated and during which it became clear that the exchange of information between different supervisors was insufficient and supervision practices were uncoordinated, accelerated the discussion on enhancing the supervision of financial entities.
The purpose of the working group jointly set up by the Ministry of Finance and the Ministry of Social Affairs and Health was to evaluate in particular the recommendations provided by the De Larosière High-Level Group appointed by the European Commission and the related Commission proposals on improving European financial supervision.
The De Larosière Group has proposed setting up a supervisory body, a European Systemic Risk Council, in charge of pooling and analysing all information relevant for financial stability and of issuing risk warnings and defining appropriate action to be taken. In addition, the Group proposed replacing the existing committees of supervisors of banks, securities and insurance actors with new European-level supervisory authorities entitled to issue binding decisions on the transposition of Directives and to make binding technical decisions in individual supervisory cases. Existing national supervisors would continue to carry out day-to-day supervision.
The working group considers the proposals to be a good starting point for further developing EU-level financial supervision. However, when transferring executive powers from the national level to new supervisory authorities, it should be borne in mind that while supervision becomes more effective, each Member State is still responsible for any costs incurred by failures in supervision. The proposals would increase the tasks of the national supervisory authorities considerably while they would still remain responsible for concrete supervisory functions.
Besides reforms in supervision structures, more cohesion in legislation pertaining to the content of supervision is needed and binding information sharing procedures between national authorities are required. The working group's view is that to ensure macro-prudential supervision of overall financial markets stability, an adequate selection of instruments is also necessary.
While the proposed changes to insurance supervision are justified, the working group points out that the current crisis was not essentially one pertaining to insurance operations. Indeed, in developing supervision at the EU level, it is important to bear in mind the differing needs of various financial institutions.
The working group focussed on certain issues related to constitutional law, and particularly to questions related to ensuring the legislative powers of Parliament, which will have to be resolved before the proposals are implemented
Protection of Finnish customers essential
Credit institutions licensed to operate in one EU Member State are entitled to set up branch offices in other Member States. The operations of the branches are supervised by the home country that issued the license.
It is the working group's opinion that Finnish legislation should be amended in the case of the supervision of credit institutions' branch offices. The purpose of the amendments would be to protect Finnish customers.
The provisions should be revised so that branch offices of foreign credit institutions operating in Finland would not be permitted to use an auxiliary trade name, which might lead customers to believe that the service provider is a Finnish company.
In the working group's view, to enhance the supervision of branch capital adequacy, the Finnish Financial Supervisory Authority should be empowered to revoke the license of a branch if the legislative provisions of the home country do not include sufficient capital adequacy requirements.
Disruptions in the IT systems of credit institutions may also hamper customers. Hence the working group proposes that Finnish legislation should be elaborated so that it includes supervision of the reliability of IT systems in credit institutions' branch offices located in Finland.
Inquiries
Mr Erkki Sarsa,Legislative Adviser, Ministry of Finance, tel. 358 9 160 33064
Mr Antero Kiviniemi, Director, Ministry of Social Affairs and Health, tel. 358 9 160 73878
Developing cross-border financial supervision (in Finnish)