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The report with recommendations from the “de Larosière Group” – the Commission High Level Expert Group on European supervision in the finance sector – suggests a profound revision of the regulatory framework and supervisory structures. Though some elements could be more ambitious, the recommendations represent a step in the right direction.

The main single issue is how to design a new EU supervisory structure. The recommendations do not suggest a single European supervisory body to take over supervision from the EU member states, but an integrated structure enhancing coordination, cooperation and exchange of information between the national supervisors. The European Central Bank (ECB) is assigned a central role in the new structure, as are the so-called “colleges of supervisors”, bringing together supervisors from all countries that a big financial group is operating in, to ensure coordination and exchange of information between the countries.

The recommendations also suggest new regulation on Credit Rating Agencies, including registration and supervision of agencies operating in Europe. Furthermore, a fundamental review of the CRA’s business model is recommended looking at its financing, its oligopolistic structures and the scope for separating rating and advisory activities.

Another important element is the recommendations on compensation incentives, stating that compensation incentives must be long-term oriented and better aligned with shareholder interests. The report suggests that the assessment of bonuses should be set in a multi-year framework and that they should reflect actual performance and not be guaranteed in advance. Furthermore, the “colleges of supervisor” should oversee the suitability of financial institutions’ compensation policies to ensure that they do not encourage excessive risk taking.

The recommendations from the expert group deals with several important points raised by UNI Finance. However, the role of finance employees in the supervisory structures and principles for compensation structures for non-executive employees in sales and advisory functions are not taken into account in the recommendations.

A policy initiative from the Commission on the base of the recommendations is awaited within very short time. It is important to get the UNI Finance position forward in this process to impact the most possible the future supervisory and regulatory framework in EU.

It is also a question whether the suggested reforms will be carried forward all the way through the European decision making bodies. Some member states are likely to oppose any kind of intervention in national supervisory systems.

The report from the High Level Expert Group is attached in related files