A plan being driven by Europe’s largest economies would see powers to oversee financial markets centralised at EU rather than national level, a proposed shift that would cause serious concern to Ireland and Luxembourg.
A coalition of the bloc’s big players, Germany, France, Italy, Spain, the Netherlands and Poland, known as the E6 group, are co-ordinating their positions in an attempt to break a years-long logjam, which has held up reforms of Europe’s financial and capital markets.
A draft paper sketching out one aspect of the proposed changes, seen by The Irish Times, envisages a significantly expanded role for the Paris-based European Securities and Markets Authority (ESMA).
The plan would see the European regulator gradually take over more and more responsibility for oversight currently carried out by central banks and other national authorities.
Ireland and Luxembourg have traditionally resisted any move towards a single, powerful, supervisory authority, for fear the position of Dublin and Luxembourg city as financial hubs will be threatened by companies and funds relocating to the French capital to be near the ESMA.
An early draft of the internal working paper, dated April 30th , calls for ESMA to be turned into “a true European supervisor”.
The paper is being drafted by the Dutch and Italian governments and has not been officially circulated to all European capitals for their views.
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The idea would be to “centralise” the supervision of big players in the financial markets at EU-level, as a way to pare back national barriers that often stop capital and investment cash flowing across borders within the 27-state bloc.
It is hoped the reforms would make it easier for European companies to raise money and expand, without having to look to the US for investment funding.
Most of the changes only require the backing of a qualified majority of EU states, rather than the unanimous agreement of all 27 governments.
Ireland and Luxembourg will come under significant pressure to get on board with some version of the proposed reforms. However, it would be politically difficult for the group of big member states to trample over the concerns of the two small countries.
The Department of Finance did not respond to questions about the proposed reforms.
Speaking at a financial conference in Frankfurt this week, Central Bank governor Gabriel Makhlouf said centralising more powers was not necessarily the answer.
There was “broad agreement” the same rules should be applied in the same way across the EU, he said.
The head of the Central Bank said that could be achieved through closer collaboration between national and European-level regulators, an approach that would likely be “more effective and more durable than any institutional restructuring”.
The Dutch-Italian proposal would ultimately give the ESMA the job of overseeing “significant” central securities depositories and clearing houses, two important cogs in the financial services ecosystem.
National authorities would retain oversight of “less significant” bond depositories and financial clearing houses, the draft document states.
The paper, which has the backing of France, proposes a transition period while responsibility is shifted from national authorities to the EU regulator.
There would also be a greater role for supervisory “colleges” in the asset management field, where representatives from several national regulators and the ESMA would meet to discuss decisions. Central banks would remain in charge of “day-to-day supervision”, the paper outlines.
A diplomatic source from one of the E6 group of countries said the proposals were still being refined.
Discussions are at an early stage, but there is political momentum to kick forward and unblock the stalled capital market reforms by the end of this year.