Martin Mansergh (Tipperary South, Fianna Fail)

On behalf of the Minister for Finance, I welcome the opportunity to debate the proposals put forward by the European Commission and the report thereon by the Joint Committee on European Scrutiny, details relating to which were very ably outlined by Deputy Perry. I thank the committee for its report, which, drawing on the lessons learned from the banking crisis, clearly highlights the importance of these measures for strengthening the supervisory framework for financial regulation in the EU. In overall terms, as described in the committee's report, the proposals aim to put in place an EU supervisory structure for financial services which will be significantly enhanced and better able to meet the challenges of effectively regulating and maintaining the stability of the single market in financial services in the EU.

The Commission's proposals are a direct response to the report of the high level group on financial supervision in the EU - the so-called de Larosiere report - which was published on 25 February 2009. This report made significant recommendations on the future direction of financial regulation in the EU in light of the global financial crisis. In June 2009, the European Council invited the European Commission to make proposals based on the recommendations set down in the report. This suite of five proposals, which were published on 25 September 2009, represents the Commission's response to the European Council's invitation.

These legislative proposals have the objective of creating a strong, robust and more uniform EU-wide system of financial supervision by developing a single rule book for financial regulation and securing better co-operation between the national supervisors in respect of the oversight and supervision of large, complex cross-border financial groups. For the benefit of the House, the proposals envisage the establishment of a European systemic risk board, ESRB, to monitor and assess risks to the stability of the financial system as a whole - what is referred to as "macro-prudential supervision" - and to provide early warning of systemic risks that may be building up in the financial system and, where necessary, recommendations for action to deal with these risks; and a European system of financial supervisors, ESFS, for the supervision of individual financial institutions - what is referred to as "micro-prudential supervision" - consisting of a network of national financial supervisors working in tandem with the new European supervisory authorities, namely, a European banking authority, EBA, a European securities and markets authority, ESMA, and a European insurance and occupational pensions authority, EIOPA, which will be created by the transformation of the existing committees for the banking, securities and insurance and occupational pensions sectors.

The establishment of the European systemic risk board will address what has been identified as a major priority in the strengthening of financial regulation internationally, by ensuring that there is a strong focus on the stability of the overall financial system alongside closely monitoring the soundness of individual financial institutions. The creation of the ESRB is in line with several international initiatives that have been put in place for this purpose, including the creation of the Financial Stability Board by the G20 countries. The heads of the European Central Bank, national central banks, the European supervisory authorities, as well as national regulatory bodies will participate in the European systemic risk board. To achieve its role, the ESRB will have the power to issue non-binding recommendations and warnings to member states, including the national supervisors, and to the European supervisory authorities, the response to which will be closely scrutinised by a "comply or explain" mechanism.

With regard to the proposed European system of financial supervisors, ESFS, the three authorities will take over all of the functions of the three existing EU committees of national supervisors for banking, securities and insurance which currently have advisory powers and aim to foster supervisory convergence, best practice and the convergence of regulatory outcomes. It is proposed that the new authorities will have significant additional competences, including resolving cases of disagreement between national supervisors where legislation requires them to co-operate or to agree; contributing to ensuring consistent application of technical Community rules through, for example, peer reviews; developing proposals for binding technical standards that respect better regulation principles; and a co-ordination role in emergency situations. Furthermore, the European securities and markets authority will exercise direct supervisory powers for credit rating agencies.

As Deputies may be aware, all these issues were the subject of consultation with key stakeholders in Ireland at the time of the publication of the de Larosière report and received largely positive feedback from stakeholders. The Government has been a very positive supporter of these proposed reforms, and particularly welcomes the closer involvement of the European Central Bank, especially with regard to monitoring possible instances of systemic risk.

A strong robust and credible framework for EU financial supervision will strongly underpin the Government's proposed reform to the existing legislative framework governing the structure of the Central Bank of Ireland and the Financial Regulator. The Minister for Finance will very shortly seek Government approval for the heads of a Bill to reflect these proposals. The intention is to have this Bill enacted by Easter or shortly thereafter.

The Commission's proposals were agreed by EU Finance Ministers at ECOFIN meetings late last year, and were endorsed by the European Council of 10 and 11 December 2009. This agreement at ECOFIN will form the basis for negotiations with the European Parliament as part of the co-decision process. It is likely that the negotiations with the European Parliament will continue until the middle of this year. The Commission plans to have the new regime in place by the start of 2011.

I welcome that the joint committee's report strongly supported the broad thrust of the EU proposals, recognising the need for a step-change in the capacity of the current nationally-based supervisory systems to work in concert to address threats to financial stability in the EU overall which in the context of the operation of the Single Market often cannot be contained within national borders. The committee's report does, however, raise some very important points on certain aspects of the proposals. One of the most valuable relates to the speed at which the reforms are being introduced and in the context the risk of insufficient parliamentary scrutiny at national level, a matter mentioned in Deputy Perry's speech. This assessment is clearly worthy of significant reflection. These reforms will determine the future shape of financial regulation and financial supervision across all EU member states. Ireland as a significant international centre for financial services in the EU has a particular interest in ensuring that the EU cross-border system works effectively and efficiency.

The pace at which these detailed proposals have been developed and agreed stresses the priority afforded by all member states to responding to the serious weaknesses disclosed by the financial crisis in existing EU supervisory and regulatory arrangements. The swift progress in advancing these reforms communicates a clear signal internationally that Europe is responding very actively and energetically, focusing on what is a major element of the very extensive programme of financial sector reforms identified by the G20. This will help copper-fasten the reputation of the EU financial services on the international stage and has therefore a significant benefit for confidence in and the development of international financial services in Ireland. It is important to stress that, notwithstanding the speed at which these proposals have moved forward, significant time and attention has been devoted in individual member states and at EU level to ensure that the package of measures is equipped to meet the challenging set of objectives they are designed to meet.

As indicated earlier, work on finalising the proposals is now entering a new phase as the European Parliament commences its scrutiny of the Council's proposals and I would certainly expect - and all the indications are - that in line with the joint committee's recommendation the European Parliament is ready "to apply the full rigours of its scrutiny process to this legislative package".

Clearly, as indicated in the committee's report, in ideal circumstances there would have been more opportunities for further parliamentary scrutiny at national level. The urgency with which these proposals need to be progressed to underpin confidence in EU financial regulation has constrained what has been feasible. However, accepting these constraints, it is important to stress that very substantial work has been carried out by our committee system - and in particular by the Oireachtas Joint Committee on European Scrutiny, as manifested in its report and the debate we are having today - to assess the Commission's proposals. These proposals have now been examined by three Oireachtas joint committees - the Joint Committee on European Affairs, the Joint Committee on Finance and the Public Service, as well, of course, as the Joint Committee on European Scrutiny. This examination has helped contribute to Ireland's participation in the negotiations carried out at Council level.

I also note what Deputy Joe Costello said on the Order of Business this morning with regard to scrutiny, following the implementation of the Lisbon treaty, of the transposition of the EU directives by way of statutory instrument with specific mention among others of the floods directive, which falls under my OPW responsibilities. I noted, as he did, the broadly positive response of the Minister for Finance.

To revert to the immediate matter in hand, in terms of finalising the proposals, the ongoing negotiations between the European Parliament and the Council will determine the ultimate shape of the proposed new bodies and agreement by both institutions is required before the reforms can proceed. Negotiations with the European Parliament will be conducted under the usual protocols for such discussions, whereby the Council as a whole, represented by the Presidency, at present Spain, discusses the proposal with the relevant European parliamentary committee. We have given our full support to the Council position, and will continue to do so.

In reviewing the detailed content of the report's conclusions and recommendations there are two issues in particular that are important to comment on, and which the Chairman of the joint committee might consider as part of today's debate. First, the report notes that the size of the proposed entities might be too unwieldy. It is important to recall that the membership of the new bodies has been balanced in such a way as to protect the interests of all member states. Indeed, the committee itself in its report recommends that the Central Bank of Ireland and the Financial Regulator should play an active role in the new bodies in order to protect Irish interests - a recommendation the Government would strongly support.

In another recommendation, it is suggested that the merits of a single European financial supervisory authority should be explored, before the proposed structures are finalised, but the following recommendation welcomes the fact that the principle of subsidiarity is being respected by means of the day-to-day supervision of individual firms remaining with national regulators. If a single European regulator was established, under whatever title, it would inevitably lead to a diminution of national authority and would impact on the principle of subsidiarity. This is a very significant issue to consider, but it is for another time in the future.

The report also recommended that the possibility of establishing an EU-funded, public and independent, non-profit credit rating agency should be explored. I remind the House that an EU regulation on credit rating agencies has been agreed, and will come into operation later this year on 7 December 2010. This regulation will transform the way, in which credit rating agencies operate in the EU. This regulation will transform the way in which credit rating agencies operate in the EU.

The proposal from the committee regarding the possibility of creating a publicly-funded rating agency has not been discussed by the Government. However, in view of the imminent introduction of an EU-wide supervisory regime, there is unlikely to be much appetite among member states to examine this issue before the impact of the new regime has been assessed.

In conclusion, the proposed new EU supervisory system is another important element in the EU's ongoing response to the international financial crisis. These institutional changes are complemented by a broad range of important regulatory measures designed to address the main factors that contributed to the major disruption of the financial system. They will require changes to the Irish regulatory structures and these are being addressed by the Government, and will be announced by the Minister for Finance in the period ahead. I would like to conclude by expressing my thanks to the committee, Chairman and members for their report and I look forward to their contributions on this motion.

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