Comment on the Commission Communication of 27 May 2009 on European financial supervision

Transcription

1 Comment on the Commission Communication of 27 May 2009 on European financial supervision Prepared by Agata CAPIK, Martine KLOEPFER-PELESE, Ulrich SEGNA Assistant-researchers under the direction of Prof. André PRÜM Dean of the Faculty of Law, Economics and Finance of the University of Luxembourg The University of Luxembourg appreciates the opportunity to share its comments on the Communication of the Commission of 27 May 2009 on European Financial Supervision. The Commission s proposal to create an enhanced European financial supervisory framework which will be composed of two new pillars, the European Systemic Risk Council (ESCR) and the European System of Financial Supervisors (ESFS), affects many economic, legal and political aspects of considerable complexity. Our comment will concentrate on the composition and operational structure of the ESFS, in particular the relationship and cooperation between the three new European Supervisory Authorities on the one hand and the national supervisory authorities on the other hand. It should first be noted that this question is an acute one. Indeed, whilst the Lamfalussy process has since 2001 contributed to a closer cooperation between national supervisors (together with the colleges of supervisors which have started to be created for the larger financial institutions in the EU and the bilateral Memoranda of Understanding between respective supervisory authorities), the European Union is still in a situation where the supervision of the EU markets and financial groups is fragmented and exercised at the national level, both with respect to prudential and conduct of business supervision. So, the situation is not optimal, as the cooperation mechanisms just mentioned cannot completely remove the inefficiencies of the current supervisory structure by avoiding that national supervisors make decisions based on domestic considerations, even when the issue has a clear European dimension and would require coordinated decisions and actions. Besides, the different conflicts which might arise between two national

2 supervisors can be explained by the failure to challenge supervisory activities on a crossborder basis, the lack of consistent rules powers and sanctions across Member States, the differences in supervisory practices (e.g. in areas where the host supervisor of a branch has supervisory discretion such as in the area of liquidity supervision or in cases where supervisors take different perspectives, such as an accounting which induces a focus on reporting or a risk perspective which induces a focus on group risk assessments with supervisory risk methodologies) 1. Such a disagreement seemed to have occurred, for instance, regarding the prudential assessment of cross-border mergers of financial institutions in 2005 in the case of ABN AMRO/ Antonveneta, and in 2006 in the case of Unicredit/Bank BPH 2. In its report presented on 25 February 2009, the High Level Group chaired by Jacques de Larosière suggested that in relation to cross-border institutions the new European Supervisory Authorities should carry out a legally binding mediation role, allowing them to solve disputes between national supervisors, and that the authorities should be able to, when no agreement can be found between the supervisors of a cross-border institution, take certain supervisory decisions directly applicable to the institution concerned (e.g. approval of risk internal models, capital add-ons, licence withdrawal, resolving disputes about different legal interpretations relating to supervisory obligations ). In its communication of 27 May 2009, the Commission has taken up this suggestion and proposes that in the case of diverging opinions between national supervisory authorities, the European Supervisory Authorities should facilitate a dialogue and assist the supervisors in reaching a joint agreement. If, after a phase of conciliation, the latter have not been able to reach an agreement, the European Supervisory Authorities should, through a decision, settle the matter. Reacting to the Commission s communication, the European Council stated that it agrees that the European System of Financial Supervisors should have binding and proportionate decision-making powers 1 Commission Staff Working Document, Accompanying document to the Communication from the Commission European Financial Supervision, Impact Assessment, t_assessment_fulltext_en.pdf, p Ibid., p

3 [ ] in the case of disagreement between the home and host state supervisors, including within colleges of supervisors 3. It seems therefore that a broad consensus has been reached regarding the mediation powers which the new Authorities could exercise should a conflict occur between two national supervisors. What is of course particularly striking and of a very sensitive nature is the fact that those Authorities will be granted the power to make legally binding decisions and impose them on the concerned supervisors should the first phase (i.e. the conciliation / mediation phase) fail. We completely agree with the High Level Group and the Commission that a mechanism is needed to deal with cross-border supervisory problems. However, we perceive that two questions should more particularly draw the attention: further thoughts should be given to (i) the voting mechanisms that the Commission suggest for decisions to be eventually taken by the new European Supervisory Authorities on matters where no agreement can by found between national supervisors; (ii) if such decisions should really be taken by the new European Supervisory. The Commission s Communication is not entirely convincing on these points. According to the Commission, two different mechanisms of adoption of the decisions of European Supervisory Authorities have been suggested 4. There is a distinction made between qualified majority and simple majority. Indeed, the Commission suggests that the European Supervisory Authorities decisions on technical rules should be taken, through the board structure, by qualified majority based on the Treaty weighting for Member States, while separate arrangements should be considered for dealing with other functions of the European Supervisory Authorities, e.g. decisions on the application of existing laws, which should be taken by simple majority on the basis of one person, one vote. One should mention at this point that the line dividing the issues falling under the qualified majority and these which shall be decided under simple majority has not been 3 Council of the European Union, 11225/09, 19 June 2009, Data/docs/pressdata/en/ec/ pdf, p COM(2009) 252 final, to be found at supervision/communication_may2009/c-2009_715_en.pdf, p.13 [30 June 2009]. 3

4 drawn very clearly. As this distinction may itself lead to discussions, decisions should by default be taken by a qualified majority. It could be problematic if the Boards of Supervisors of the European Supervisory Authorities would take decisions on settling disputes between national supervisors either by simple majority or by a qualified majority based on ordinary rules of the Treaties, as the smaller member state involved in that specific conflict might be afraid that the dispute would not be solved in a well-balanced way. This might be even the case if the European players should succeed in ensuring the independence of the European Supervisory Authorities. There is in fact no serious ground for referring to the specific considerations and motivations underlying the Treaties qualified majority rule to solve disagreements between member states with regard to special cross-border supervisory problems. Therefore, one could consider to adapt the special majority rule applicable to the Governing Council of the ECB (Art. 10 Statute of the European System of Central Banks and of the European Central Bank), as this mechanism better reflects the factual importance of the member states for the European financial sector. Should such a mechanism not be given further thoughts, it would seem more appropriate for binding decisions regarding cross-border supervisory disputes to be taken by a qualified majority of, for instance, ¾ of the votes expressed on the basis of one person, one vote. Since it is rather difficult to find a convincing majority, it seems not to be self-evident that the Boards of Supervisors of the three new European Supervisory Authorities would be the right bodies for solving disputes between national supervisors. Furthermore, the new European Supervisory Authorities may lack both the moral authority and the independence to impose a solution on a national supervisor. This may be the case despite the fact that the chairpersons of the new authorities shall be nominated after an open competition for a period of 5 years and that all appointments shall be confirmed by the European Parliament, it should be secured that the chairpersons will have a high degree of professional competence, independency and legitimation. The suggestion made in its report, by the De Larosière Group that decisions on mediation cases could also be taken by the chairpersons and general directors does therefore not seem very convincing at least for all disputes an substantial matters. In addition, this solution could only work in a case 4

5 of a conflict between national supervisory authorities and would not be sufficient to deal with a dispute between two European Authorities. Other solutions should therefore be seriously considered where the decisions are not taken by one of the new European Supervisory Authorities. Two suggestions may be made in that respect : (i) the establishment of an independent arbitration panel; (ii) the creation of a special judicial panel within the Community Courts system. As the number of disputes may well be limited, the establishment of an independent arbitration panel, which would be detached both from the three new European Supervisory Authorities and the European Court of Justice, appears to be the most realistic alternative. The main objective of the arbitration process would be to reach rapid, effective and balanced solutions in cases of disputes between national supervisory authorities or possibly between two of the new European Supervisory Authorities. Questions such as the number of members, who should appoint them, which criteria should prevail when appointing them and what the procedure rules of the independent body would be would of course need serious consideration. It is thought that it would be efficient and logical for this panel to be set up in an environment where widely recognized expertise can be found. The members of the panel could be chosen from current or previous judges of the European Court of Justice, Advocates-General, practitioners and academics who possess the qualifications required for appointment and whose independence is beyond doubt. The procedural framework should be unambiguous, and provide strict deadlines to be adhered to, in order to ensure rapid decisions. One crucial question is whether disagreements between national supervisors should be solved directly by the arbitration panel or the latter shall serve as an appeal instance for decisions taken by the European Supervisory Authorities. Considering the above mentioned difficulties in finding an adequate majority rule for decisions of the Boards of Supervisors of the European Authorities, and taking into account that the main objective of the arbitration process is to reach rapid solutions, it seems to be consequent to recommend this independent arbitration panel for settle a dispute in the first instance. 5

6 A more sophisticated but also more burdensome solution would be to create a special judicial panel within the Community Courts. The body could be established by Council, acting unanimously on a proposal from the Commission and after consulting the European Parliament and the Court of Justice, by making use of the provisions of Article 225a EC 5 within the area of financial services. Similarly to the already existing Civil Service Tribunal [CST], 6 such a judicial panel [Financial Services Tribunal] would be composed of seven judges, appointed by the Council for a period of six years which may be renewed, following a call for applications and after taking the opinion of a committee of seven persons chosen, inter alia, from among former members of the European Central Bank, experts and lawyers of recognized high level of professional competence. This [Financial Services] Tribunal would usually sit in Chambers of three Judges. However, whenever the difficulty, complexity or importance of the questions of law raised justifies it, a case may be referred to the full court. Furthermore, in certain cases to be determined by its Rules of Procedure, the Tribunal would sit in a Chamber of five Judges or as a single Judge. Moreover, in line with the Rules of Procedure of the ECJ, the Judges would appoint a Registrar for a term of six years. Similarly to the CFI and to the CST, the judicial panel set up for financial services, would have its own Registry, but would make use of the services of the Court of Justice for its other administrative and linguistic needs. This mechanism would be mainly based on the classical infringement procedure, legitimating the Commission upon the provisions of Article 226 EC on its own initiative or upon request from one or more European Supervisory Authorities and/or from one or more national supervisors [upon the Rules of Procedure of this Tribunal]. From the formal point of view, with regard to the workload and efficiency of fulfilling the tasks within the financial services area it should be pointed out that such introduction of the mechanism of judicial control of the compliance with the Community law in the area of financial services would need neither to change nor to 5 Consolidated text, OJ EU 2006 C 312E. 6 Council Decision of 2 November 2004 establishing the European Union Civil Service Tribunal, OJ EU 2004 L 333/7. 6

7 amend the existing Rules of Procedure of the Court of Justice. 7 Following the Council decision, such a judicial panel [FST] shall establish its own Rules of Procedure in compliance with the Rules of Procedure of the Court of Justice. 8 Subsequently, it would open also the way to specify the complexity of competences of the Tribunal in area of European financial services. Finally, in order to ensure the need of fast treatment of the upcoming issues the procedure before the judicial panel would be drawn in line with recently introduced paragraph 104b 9 Rules of Procedure of the Court of Justice of European Community, 10 taking into consideration the specific procedural regime foreseen for direct actions. Bearing in mind that such a judicial panel, created upon the provisions of Article 225a EC, would have to establish its own Rules of Procedure, it might be of high importance to equip the body with the competences ensuring the possibility of rapid action in emergency cases. It has been therefore thought that, differently to the competences of the existing CST, a competence of acting as a ad hoc panel would ensure a possibility of coming up with the fast-track settlement of the conflict matters while faced with an emergency situation and, thus, a need of immediate action [i.e. actual financial crises]. Finally, we are aware of the fact that the Commission has suggested the creation of a steering committee which should ensure mutual understanding, cooperation and consistent supervisory approaches between the three new European Supervisory Authorities. It is unclear if the steering committee s competences also encompasses the resolution of disputes between the European Supervisory Authorities. In addition, it does not seem that the committee would have to settle disagreement between national supervisors linked to two different European Supervisory Authorities. Therefore no specific mechanism which would ensure sufficient independence to resolve those 7 Which is an important factor while considering the need to act fast, as underlined in the De Larosiere Report, to be found at [30 June 2009]. 8 See Council Decision of 2 November 2004 establishing the European Union Civil Service Tribunal, OJ EU 2004 L 333/7. 9 Settling the urgent preliminary ruling procedure. The specific, non-binding supplement to the Rules of Procedure can be found at [30 June 2009] 10 To be found at 25_ _904.pdf [30 June 2009]. 7

8 disputes seems to exist. We consequently suggest that one could resort either to a special judicial panel within the Community Courts system or to an independent body of experts detached from the three new European Supervisory Authorities and the Community Courts system. 8