The enduring financial crisis in Europe has exposed a tremendous weakness in the supervision of financial markets. What supervision was actually exercised not only failed to prevent a crisis but may have precipitated it.
In September 2010, the European Parliament and Council reached a political agreement to adopt three Commission proposals to effect a substantial change in the way financial supervision is to be exercised at the European level: to set up a European Banking Authority, a European Market and Securities Authority and a European Insurance and Occupational Pensions Authority. This document released in September 2010 provides a very brief overview.
When these different regulations are finalized and come into effect on January 1st 2011, the changes will be profound.
Professor Eilis Ferran of the Law Faculty, Cambridge University, England, has written a wonderful overview of the new supervisory system that puts it in its historical context and explains its significance. Here's what the abstract states:
Most of the big decisions about the rules governing financial market activity in Europe are now taken at the EU level. This has not been matched by a simultaneous centralisation of supervisory responsibility. Yet, notwithstanding that frontline supervision remains mostly a Member State responsibility, with a layer of EU-wide structural co-ordination added on top, the longstanding process of step-by-step assumption of supervisory functions by bodies that have a pan-European remit has undoubtedly accelerated in the aftermath of the financial crisis. This article examines the recent EU institutional developments with respect to financial market supervision against the background of arrangements at Member State level, and assesses their significance. It contends that whilst the recent EU institutional reforms are at the boundaries of current legal, political and practical feasibility, they include some key breakthroughs that bring the prospect of the European scene becoming dominated by euro-authorities with direct supervisory power across significant swathes of financial market activity considerably closer.
You can download the entire article, which is highly recommended, here.