The new law, adopted on Tuesday by 521 in favor, 70 against, with 65 abstentions, consists of an upgrade of the EU financial supervisory authorities established in 2010. The law will be leading to three changes in the financial markets:
- More empowered finance watchdogs - The revision of the supervisory architecture will increase the responsibilities of the EU watchdogs, allowing them to keep up with the increasingly complex world of finance, thereby protecting consumers and taxpayers better, and settle disputes and breaches of EU law more effectively.
- Helping consumers and sustainable finance - Consumers will benefit from various new powers that will be given to the EU supervisory authorities: the power to coordinate competent authorities' mystery shopping activities, to measure compliance with regulation, and reinforcing powers to prohibit or restrict certain financial activities considered damaging to consumers. To ensure a uniform application of EU rules and promote a true Capital Markets Union, the reform also entrusts the European Securities and Markets Authority (ESMA) with direct supervisory power in specific financial sectors (such as markets in financial instruments or benchmarks).
- New powers to improve fight against money laundering - The new law strengthens the European Banking Authority's (EBA) mandate, tasking it with preventing the financial system from being used for money-laundering and terrorist financing. National authorities will be obliged to provide the EBA with information necessary to identify weaknesses in the EU financial system regarding money laundering.
- Governance - EIOPA's board of supervisors will remain the main decision-making body and the current Management Board is retained. This will ensure national supervisors have the final say in decisions that impact them directly. EIOPA will be able to directly set up panels to address breaches of EU law and cases of cross-border disputes.
- Internal models - It is positive that national supervisors remain responsible for the oversight of internal models. The close links between an insurer's model, its risk profile and governance mean that such oversight must remain with the actual supervisor. EIOPA can, if requested by a supervisor, provide technical advice and help resolve disagreements.
- Stress tests - The status quo is maintained and EIOPA has not been empowered to request disclosure of results at an individual level. This is welcome because the focus of the two-yearly insurance stress test exercise is to identify adverse market developments and not to create a new, and potentially confusing, basis for individual company solvency. Solvency II is designed and calibrated for solvency purposes and, being itself a stress test-based system, means individual company information is already published.
- Anti-money laundering - The role of the European Banking Authority is strengthened in relation to anti-money laundering (AML) supervision for all financial institutions, but EIOPA has been given a role in the decision-making of the internal AML committee.
- Funding - The current mix of funding from national competent authorities and the EU is maintained.