This UK Treasury Report is one of the most comprehensive and well balanced reforms of the financial supervisory system to have surfaced to date. It is particularly well adapted to a country that has retained full sovereignty over its monetary affairs in addition to economic and fiscal policies. It suggests a carefully balanced cross fertilisation between monetary policy, macro economic surveillance, prudential regulatory powers and consumer protection and market regulation/surveillance (including enforcement powers). Responsibilities are however clearly assigned (subject to finalisation after consultation). It is of course a pity that this model did not surface at an earlier stage when it could have served as a ten plate applicable to the EU. While the current 11 non EMU Members could readily adopt a similar structure (rather than each going its own way such as the Belgian proposals of the Lamfalussy report), it would be more difficult to adapt it to the Eurozone because in EMU only Monetary Policy and currency issuance is pooled sofar. In the UK model, the Monetary Policy, Financial Stability and Prudential Regulation are all under the umbrella of the Bank of England, with the Consumer Protection and Market Affairs being independent (but closely coordinated through compulsory MOUs). To overcome these difficulties at EMU level the ECB should consider creating a Financial Stability Committee in addition to its responsibility for Monetary policy. While Prudential Regulation and Consumer protection/market affairs would remain the responsibility of individual Member States, the ECB would chair a Prudential Regulatory Committee including the CEOs of the National Prudential Regulators and another EMU wide Consumer Protection/Market Affairs Committee to coordinate those matters. Such a structure would greatly facilitate the establishment of an EU level coherent regulatory/supervisory architecture in which: ECOFIN would consolidate the views of the National Treasury's. The ESRC would consolidate the work of the National Stability Boards of the 11 non EMU Members plus the ECB's Financial Stability Committee. The EFSF would be split between two separate authorities (instead of three) covering Prudential Regulation on the one hand and Consumer protection/Market affairs on the other. Cross representation between the various Committees/Authorities would mirror the UK model to ensure proper coordination. Though it is very late in the day considering the stage at which the legislative proposals stand at EU level, such a structure might usefully serve as a transition until such time that EMU is extended to the vast majority of Member States.
03 August 2010