The European Parliament has successfully concluded negotiations with the European Commission and EU governments on the future shape of financial supervision in Europe. With the agreement reached on 2 September, the institutions agree on the setting of the new European Systemic Risk Board (ESRB) for risks to the stability of the financial system and three European Supervision Authorities (ESAs).

The architecture agreed by European Parliament, the Commission and Member states is for a new European Systemic Risk Board (ESRB) and three European Supervision Authorities (ESAs) for banking, insurance and financial instruments, one of the main priorities set by Belgian presidency to be reached in its semester.

Negotiations pursued centred on the powers of ESAs to impose action on financial institutions where risks to stability are identified. Some EU governments wanted a stronger role for national regulators, but Parliament safeguarded the ESAs' powers. However, the power to declare an "emergency situation" stays with European governments, though Parliament is formally empowered to request it to do so.

The ESRB requested by EMPs as part of EU joint efforts to fight against the effects of the economic crises, will be concerned with macro risks such as risks to the stability of the financial system as a whole whilst ESAs will be concerned with risks to the stability of particular markets such banking, insurance and financial instruments.

Main specific points agreed by European Parliament

• A broader range of skills and experiences, such as academics, will be represented in European Systemic Risk Board (ESRB), the lynchpin of the new system.
• The President of the ESRB will confidentially brief senior Members of the European Parliament responsible for economic matters on a regular basis.
• The European supervision authorities will be able to take decisions which are directly applicable to individual financial institutions in cases of manifest breach or non-application of law, and where there is disagreement between national authorities.
• The ESAs may temporarily prohibit or restrict harmful financial activities or products already covered by specific financial legislation or in emergency situations.

The agreement is now scheduled to be approved by the Council on 7 September and be put to an EP Plenary vote at the second session in September.  If the agreement is approved at both stages work will begin in earnest on completing the various practical steps necessary to establish the new system by January 2011.