After a year of negotiations, the European Parliament has given on 22 September its final approval to a series of legislative measures in order to reform EU financial supervision system. This package of reforms will make a fundamental change in the way banks, stock markets and insurance companies are policed as of 2011.

With the package of reforms of financial market supervision system which has been finally approved by the European Parliament, the current supervisory committees will be replaced by three European supervisory authorities (ESAs). These ESAs will gain further competences and have binding powers. They will be entitle to prohibit certain conduct and financial products that could endanger the integrity of the whole system, and solve disputes between national supervisory authorities. In addition, the European authorities will coordinate the work of national supervisors to strengthen control over cross-border financial institutions.

Following the agreement reached early September between the European Parliament, representatives of the Belgian Presidency and the Commission, Parliament has closed a process to reform financial supervision architecture started with the first tangible effects of the crisis. The competences now agreed may also increase in the future thanks to a strong review clause.

A number of Member States, particularly those with large financial centres, favoured the limited reform approach. This led to a significant reduction in the scope of the Commission proposals, themselves considered by the EP as not going far enough. Parliament's rapporteurs from the beginning argued that the system needed serious reform so that risk would be better understood, primarily through much improved communication between national supervisors.

During negotiations, MEPs also wanted to give priority to consumer protection in ESAs work. As proposed by the Parliament ESAs will have the power to investigate specific types of financial institution, financial products or financial activities to assess what risks they pose to a financial market and issue warnings where necessary.

European Systemic Risk Board (ESRB)

MEPs have introduced provisions to allow the European Systemic Risk Board (ESRB) to communicate quickly and clearly. The agency will develop a set of common quantitative and qualitative indicators to measure systemic risk and provide a colour coding system based on risk levels to be used in its warnings and recommendations.

The legislative texts also empower the Commission, the ESAs and the ESRB to ask the Council to declare an emergency.  But the Parliament will also be able to ask the Council to declare an emergency through resolutions and questions, in the same way as it has a right to make requests to the Council and the Commission in any other matter.