An agreement has been reached. The Union will have three regulatory agencies – for banks, insurers, and securities. However, two clauses, one regarding the possibility of rejecting decisions that affect the budget and the right of member states to decide what constitutes a crisis situation, demonstrate a reluctance to truly empower bodies at the level of the entire European Union.
Written by: Vanja Figenwald
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The news that the European Union has tentatively agreed on its version of financial regulatory reform has not particularly shaken the business world, judging by the reactions of global media. The American financial revolution has evidently not left enough excitement to celebrate the revolutionary shift of the ‘old lady’, especially since the changes of old men are usually only revolutionary to them. September 3 will thus go down in history as the day when the governments of EU member states reached an agreement with European parliamentarians and gave the green light to new regulations that will oversee banks and financial markets somewhat more carefully and rigorously than was customary before. After two years of swearing in the new regulation and months of pushing and whispering, the Union is expected to have three regulatory agencies divided by area of interest, for banks (EBA), insurers (EIOPA), and securities (ESMA), but the new guardians of financial stability will not directly supervise companies or markets, except for credit agencies that evidently did not have enough friends, but will rely on existing national regulators. The idea is for them to be the brains of the operation, while national bodies would be the hands, although it is not excluded that in the meantime they will also roll up their sleeves and get their hands dirty in crisis situations. What constitutes a crisis situation, however, will not be assessed by the European Parliament or the Commission, but by the member states. Agencies can thus intervene directly if rules are violated, order national agencies to act in the mentioned crisis, resolve disputes between national agencies, and temporarily ban trading in certain products.
British Fears
There are also some limitations here, not at all insignificant or formal. The new agencies are limited in their actions by infringing on the budgets of member states, meaning they cannot make decisions that would affect national budgets (for example, to save a bank from collapse). Such a broadly defined definition will undoubtedly leave room for various interpretations, but also allow for all sorts of maneuvering by member states that may not like certain decisions. Moreover, national budgets and the sovereignty of member states over them have been a burning issue for the Union for more than a year. If everything goes according to plan, the new supervisory system should be up and running by the beginning of next year, but it has already stirred spirits from the start, especially in London where they are not too happy. First, on principle, because they are never happy when powers are transferred to a supranational level, and second, because they have long built an image as one of the financial centers of the world, which the new regulations could significantly complicate.
The basic fear of the British lies in the possibility that the tentative agreement will open Pandora’s box of new regulations that would scratch the very fabric of the financial world, and their fears are not entirely far from the truth. The French have been trying for some time to subtly bridge the hurdles that the British regularly throw under the feet of the Union, precisely in the hope that the operationalization of the agreement will enable some significant changes. European Commissioner for the Internal Market Michel Barnier immediately announced the expansion of oversight to hedge funds and private equity companies, among other things stating that ‘this is just the first step’ and that the Commission will continue to build the framework ‘brick by brick’. Key issues include third-country problems and waivers for hedge funds, i.e., the possibility for funds outside the EU to obtain a waiver to manage and sell funds within the EU, and the example excellently illustrates the division among member states. France and Germany are on one side, Britain on the other, so it is easy to guess who holds which side based on the aforementioned logic. The British would not want much control, while the first two would.
