Reforming the financial system

In this Communication, the Commission presents the reforms that are envisaged by the European Union in the financial sector. These reforms aim at improving the transparency, supervision and stability of financial markets. They are also directed at increasing the protection of investors and consumers. Furthermore, these reforms supplement the reforms that were already initiated following the 2008 financial crisis.

ACT

Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the European Central Bank of 2 June 2010 – Regulating financial services for sustainable growth [COM(2010) 301 – Not published in the Official Journal].

SUMMARY

The reforms undertaken by the European Union (EU) in the financial sector are aimed at making the financial system safer and more responsible in order to foster the development of sustainable economic growth.

The proposals made in this Communication supplement the reforms that were already initiated following the 2008 financial crisis and the G20 summits. The proposals pursue four main objectives:

• enhancing the transparency of financial markets;
• establishing effective supervision and enforcement in the financial sector;
• enhancing the resilience and stability of the financial sector;
• strengthening the responsibilities of financial actors and improving consumer protection.

Enhancing transparency

The Commission notes that the lack of transparency in the financial sector was one of the main triggers of the 2008 financial crisis. It therefore intends to enhance transparency in terms of transactions, products and the actors in financial markets.

Supervisory authorities, investors and consumers will thus have access to more reliable information about markets.

The Commission also intends to improve the reliability and quality of financial ratings. They are produced by credit rating agencies that are responsible for giving an appreciation of risk as regards financial solvency. The first Regulation on credit rating agencies was adopted following the 2008 crisis.

Establishing effective supervision and enforcement

The Commission plans to set up several financial supervision organisations:

• a European Systemic Risk Board tasked with detecting the macro-economic risks which might lead to crisis situations;
• a European Supervisory Authority for the banking market;
• a European Supervisory Authority for the insurance market;
• a European Supervisory Authority for the securities market.

The Commission also intends to combat excessive and irresponsible speculation through an effective system of sanctions. In particular, it plans to harmonise the practices of national financial authorities in order to improve their effectiveness.

Enhancing the resilience and stability of the financial sector

The Commission intends to regulate the capital held by banks more effectively. Banks’ capital guarantees their solvency in the event of difficulties. It is essential to encourage banks to increase their capital under favourable economic conditions so that they are able to withstand crisis situations.

The Commission will also present an action plan for crisis management. This plan should lead to a series of proposals for a complete set of tools for prevention and resolution of failing banks.

Strengthening the responsibilities of financial actors and improving consumer protection

The reforms aim to restore the confidence of investors and consumers in financial markets.

To this end, in July 2010 the Commission proposed a review of the regulations on deposit-guarantee schemes, in order to protect depositors effectively throughout the EU. The Commission is also to prepare proposals to improve investor compensation and the compensation offered to insurance policy holders in case of a failing insurance company.

Last updated: 10.09.2010