EU executive proposes raft of new financial rules

BRUSSELS Wed Mar 4, 2009 6:23pm GMT

European Commission President Jose Manuel Barroso speaks during a news conference at the EU Commission's Headquarters in Brussels March 4, 2009. REUTERS/Sebastien Pirlet

European Commission President Jose Manuel Barroso speaks during a news conference at the EU Commission's Headquarters in Brussels March 4, 2009.

Credit: Reuters/Sebastien Pirlet

BRUSSELS (Reuters) - The European Union's executive arm proposed a raft of measures on Wednesday to make financial markets and institutions safer for investors.

The worst financial crisis in decades has tipped the 27-country bloc's economy into a downturn and pushed up unemployment, sparking a radical global rethink of how markets and banks are regulated.

"We must send a strong signal to our citizens, businesses and the global community that there is a way out of this crisis," European Commission President Jose Manuel Barroso told a news conference.

The measures, to be presented to EU leaders later this month for broad endorsement, are in line with a draft of the plan obtained by Reuters on Tuesday.

They are also part of the EU's response to moves by the G20 group of industrial and big emerging countries toward a global approach to reforming financial rules.

Measures in the Commission's package range from tougher bank capital rules to streamlining supervision, more transparency in derivatives markets and proposals to penalizing banks whose remuneration policies encourage excessive risk-taking.

"There should be no financial entity that escapes from financial regulation, neither in Europe nor the rest of the world," Barroso said.

"All financial entities should be subject to a certain degree of regulation and supervision. No territory, state or individual can separate and work underground," Barroso said.

The measures will be formally proposed in draft law form over the rest of 2009 and need backing from the European Parliament and EU governments to become law.

The European Banking Federation (EBF) welcomed many of the measures on stricter capital requirements and new supervisory structures, but was disappointed there was no proposal for a pan-EU crisis management framework, or a measure for setting out burden-sharing, or outlining who bails out bust cross-border banks.

The EU's better regulation policy of public consultation before deciding if new measures were needed has been broadly overlooked in the recent moves to regulate, the EBF said.

"The EBF insists that the real test will be in the implementation of the proposals," the federation said.

ACCELERATED LAROSIERE

The centerpiece is a move to introduce pan-EU supervision so regulators can spot threats to financial stability more quickly and stop problems escalating.

A high-level group headed by a former Bank of France governor, Jacques de Larosiere, last week recommended setting up two new pan-EU supervisory bodies.

The first would be hosted by the European Central Bank to monitor system-wide risks, the second to monitor day-to-day supervision of banks, insurers and markets.

De Larosiere recommended introducing the system over three years but the Commission wants to skip the phase-in.

"We are suggesting this should be done immediately. If we don't do it now we will never do it. We cannot postpone the reform," Barroso said.

The EBF said certain aspects of the package needed clarification such as the way the two new bodies would interrelate and how they would determine the failure of an institution. The Commission's wish to speed up introduction of the structures may also be too optimistic, it said.

Although havens that allow EU citizens to dodge the taxman are not directly addressed in the Commission's package, Barroso hoped the G20 meeting in London next month would be able to adopt measures.

"I hope the EU will be in the avant-garde of the struggle with uncooperative tax jurisdictions," Barroso said.

(Editing by Dale Hudson and Sharon Lindores)