Written evidence submitted by Jane Welch,
Visiting Research Fellow in European Financial Services Law
This paper focuses on two specific issues arising
out of the above proposals. It should not be read as an implied
endorsement of the other provisions contained in the draft regulations.
LEGAL BASIS
OF THE
DECISION ENTRUSTING
THE ECB WITH
SPECIFIC TASKS
The decision is based on Article 105(6) of the
EU Treaty which allows the Council to confer on the ECB "specific
tasks concerning policies relating to the prudential supervision
of credit institutions and other financial institutions"
but "with the specific exception of insurance undertakings".
This unambiguous wording makes it difficult, to say the least,
to see how the ECB can be entrusted by the ESRB with the task
of collecting information about insurance undertakings for the
specific purpose of improving macro-prudential supervision.
There is a second difficulty with the use of
Article 105(6) as a legal base for the ECB decision. Both the
ESRB and ESA regulations are based on Article 95 of the Treaty
which is designed to facilitate the establishment and functioning
of the internal market. As such, measures adopted under Article
95 are "EEA relevant" and would normally apply in due
course to the EEA EFTA states—Norway, Iceland and Lichtenstein.
But the EEA Agreement does not cover participation in economic
and monetary union and accordingly EEA states are not bound by
the monetary policy provisions of the EU Treaty (including Article
105).
Although the distinction between internal market
activities and other EU activities has become increasingly blurred
in recent EU legislation, the EEA Agreement relies unfortunately
on such a distinction being drawn. So while the draft ESRB regulation
and the draft ESA regulations are clearly relevant to the EEA
states, it is difficult, if not impossible, to see how the ECB,acting
on the basis of Article 105(6), can exercise any powers in relation
to the EEA states. This would be unfortunate, to say the least,
since the collapse of the Icelandic banks has highlighted the
importance of including EEA financial institutions in macro-prudential
oversight of the financial sector.
It seems that both problems could be solved
by using Article 95 as the legal base for the ECB decision.
CONFIDENTIALITY
Analysis of the confidentiality provisions in
the various draft proposals involves a balancing act between the
need to ensure that information is kept confidential and used
only for the purposes specified and agreed in the legislation
and, on the other hand, the need to ensure that the persons receiving
confidential information can use and disclose it legitimately
in the performance of their functions, both under the new arrangements
and under existing legislation.
If, for example, the FSA were to obtain, through
its membership of the ESRB, information about the activities of
a US bank operating in the UK and other Member States, it could
well want to raise issues of concern with the relevant US supervisory
authorities. It is not clear that Article 8(2) of the ESRB regulation
provides the necessary cover. It provides that information received
by "members of the ESRB" ( who are presumably the same
as "members of the General Board of the ESRB"—the
term used in Article 8(1)) may only be used in the course of their
duties and in performing the tasks set out in Article 3(2). If
the duties referred to are limited to those set out in Article
3(2), this would not protect a national supervisory authority
who wanted to discuss an individual institution with a third country
supervisor. On the other hand, if the intention is to allow members
of the ESRB to use confidential information in the course of their
duties under other EU legislation, this should be made clear.
The professional secrecy provisions in Article
8 are complicated by the unwieldy structure and size of the ESRB.
Given the sensitivity of the information likely to be generated,
it is essential that the professional secrecy provisions are sufficiently
robust to act as a credible deterrent, though this may seem a
somewhat vain hope in the context of a body containing over 50
members and covering 27 Member States.
Article 8(1) of the ESRB regulation imposes
a duty of professional secrecy on members of the General Board
of the ESRB and any other person who has worked "for or in
connection with" the ESRB (including the relevant staff of
Central Banks, the Advisory Technical Committee, ESAs and competent
national supervisory authorities). Members of the Steering Committee
are not expressly mentioned presumably on the grounds that they
are a subset of the General Board, nor are members of the ECB
secretariat. In the latter case this is presumably because the
Secretariat is subject to separate professional secrecy provisions
under the ECB decision, although the ECB President and Vice-President
will be covered by the ESRB professional secrecy provisions in
their capacity as members of the General Board.
The Secretariat is not part of the ESRB; instead
it is clearly part of the ECB and, as such, information gathered
by the ECB staff allocated to the secretariat will inevitably
be disclosed to other staff in the ECB, who may be involved in
processing and analysis of the information in accordance with
Article 2 of the ECB Decision, some of which may relate to individual
financial institutions. Article 6 of the Decision merely requires
the ECB to establish internal mechanisms and rules to protect
data collected on behalf of the ESRB and goes on to state that
the ECB staff "shall comply with the applicable rules relating
to professional secrecy". If this is intended to refer to
the internal ECB rules, it is clearly unsatisfactory, since it
would impose a much weaker and ill-defined duty of confidentiality
than that imposed by the ESRB regulation. Moreover, it is unclear
whether any sanctions would apply for breach.
13 November 2009
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