European Financial Supervision: The Long Road to Reform

The financial crisis has shown the inadequacy of financial market regulation and supervision in the EU. As the integration of Europe’s financial market progressed, market participants continued to be supervised nationally and the scope of regulation remained mainly limited to microprudential aspects. Leading experts therefore called for financial supervision to be integrated at EU level and for regulators to place a greater emphasis on systemic risk. Following lengthy negotiations, the Council of the European Union and the European Parliament have since approved a reform based on proposals made by the European Commission. The legislative process for implementing the reform – in fact a good example of how legislative decisionmaking procedures work under the provisions of the Lisbon Treaty – highlighted the political interests of the parties involved and the differences between them. The new supervisory architecture that came into force on January 1, 2011, was designed to sustain financial stability.