The European Banking Authority (EBA) replaced the Committee of European Banking Supervisors (CEBS) on 1st January 2011 and last week announced that Andrea Enria, formerly of CEBS would be the chairman from 1 March 2010.
CEBS, together with the other committees, were only entitled to adopt non-binding guidelines and recommendations and as such, had little relevance to individual firms. EBA, alongside the other replacement European supervisory authorities, will be able to issue binding technical standards on member states, leading the way for a single EU rule book. In addition, they will be able to take decisions to ensure a consistent application of EU supervisory rules and to act in settlements or in emergency situations. They will for example be able to ban products. Unlike the European committees, the European supervisory authorities will be able to bind individual institutions and enforce EU supervisory rules.
The EBA and the other European supervisory authorities, will be increasing their resources but they will not have the resources to supervise and enforce against individual firms. It is questionable even whether they will have the resources to write and carry out the negotiations which will inevitably be required with member states regarding the interpretation of a common set of EU rules.
Day to day supervision of banks will remain at national level. EBA, in respect of banks, will effectively delegate to national regulators the supervision of its EU banking rules, the ability to act in emergency situations, including the ability to ban of products and the ability to enforce its EU rules. This is why the FSA (going forwards the Prudential Regulatory Authority (PRA) and the Financial Conduct Authority(FCA) will have power to ban products, which has caused concern in the industry.
The FSA (PRA and FCA) will eventually lose its ability to make UK specific rules. This has already been happening progressively, as we have been moving steadfastly towards full harmonisation, with implementation Directives becoming more detailed, leaving the scope for different interpretations limited. The FSA has been using a “copy out approach” to EU Directives for a long time.
In order for the interests of our UK banks and other financial institutions to be fully protected, our UK supervising authorities need to be powerful and have gravitas at the EU level. They need to ensure that the common set of rules, when they are issued by the European Authorities, work in the interests of UK institutions. They need to ensure that the rules are applied and interpreted correctly and to ensure that decision taken by the European supervisory authorities do not have a negative impact on our budget. Once issued, it will be too late – the rules will be binding.
Only a representative from the PRA will have a seat on the EBA and therefore there will be a weakness on representation regarding conduct issues. It is imperative that the the PRA and FCA work closely together to ensure that UK banks and other financial institutions are not adversely affected by this.