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September 21, 2017

The EC Vice President Valdis Dombrovskis gave a Keynote Speech at the ESRB Second Annual Conference in Frankfurt. He focused on the issue of nonperforming loans (NPLs) and the micro- and macro-prudential aspects of the proposal for a review of the European System of Financial Supervision.

Mr. Dombrovskis highlighted that the current climate for international regulatory cooperation is unpredictable. “Only with a common approach to financial regulation can we ensure a level playing field for our financial institutions and minimize the risks of regulatory arbitrage.” He then focused on the high levels of NPLs in certain national banking systems such as Greece, Cyprus, Italy, and Portugal, with certain other member states also being affected. He highlighted the strategic importance of the ongoing public consultation on fostering secondary markets for NPLs and on a possible legislation on secured creditors. “We are working together with the ECB, EBA, and ESRB to develop, by the end of the year, a European blueprint for national Asset Management Companies,” he added.


In the coming weeks, EC will set out some ideas on the way forward for Banking Union, added Mr. Dombrovskis. He then moved on to discuss the EC proposal for financial supervision for the Capital Markets Union. In this proposal, EC has put forward targeted amendments to improve the ability of ESAs to monitor cross-border risk, ensure supervisory convergence, and adapt to new developments in the financial sector. The proposals fall under four categories:


The supervisory convergence tools of ESAs are being upgraded and new responsibilities are being given to the EU-wide supervisor for securities and capital markets, ESMA. The proposal would expand EU-level supervision in areas covering certain new prospectuses, EU-labeled cross-border investment funds, and services of systemic importance such as critical benchmarks and data reporting service providers.


The governance and funding of all three ESAs are being improved. The proposal would create new Executive Boards with permanent members for quicker and more EU-oriented decision making. It would make ESAs financially independent of national supervisors by introducing proportional contributions from the financial industry.


EC is proposing changes to improve the coordination of supervisory authorities and minimize the barriers to cross-border financial services. This would be achieved by having ESAs set EU-wide priorities for supervision and perform rigorous and independent reviews of the national supervisors. C is also reviewing supervisory relations with third countries, to ensure proper management of all financial-sector risks.


EC wants ESAs to promote sustainable and green finance and Fintech. “That is why we want to require them to take these areas into account in their work.”


In conclusion, he reinforced that this package of proposals seeks to make improvements, where necessary, without upsetting the balance of what proved to be functioning. It is ambitious in seeking to enhance the ability of European System of Financial Supervision (ESFS) and ESAs to play a key role going forward.


Related Link: Speech

Keywords: Europe, EU, Banking, Securities, Insurance, NPLs, ESAs, Supervisory Convergence, Capital Markets Union, EC

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