The European Parliament, as it begins a new five-year term, will be tasked with approving two crucial European Commission proposals on financial supervision: the directive on alternative investment fund managers and the as yet unreleased plan for a new financial supervisory structure. MEPs are already saying that the mooted package on financial supervision will provoke strong debate, and if Council talks on the 27 May communication - the non-legislative forerunner - are anything to go by, they are right.

Party and national lines have already been drawn around one central argument: how much regulation should be centralised in the EU?

SUPERVISION

Although politicians have yet to see the details of the Commission’s proposal for a new system of financial supervision, it will be largely based on the report of Jacques de Larosière, which recommended a two-tier macro and microprudential framework. The microprudential side is to be made up of three authorities, with binding powers to mediate in disputes between cross-border banks, while the macro side will see the creation of a European Systemic Risk Board to issue risk warnings ahead of future crises.

While receiving broad political support, the de Larosière report and the ensuing Commission communication have come under fire from the Socialists - who are afraid the text will be watered down by member states - and more recently by the ALDE, which is “sceptical” that the three microprudential authorities will be capable of operating in a coordinated way. The group’s outgoing leader, Graham Watson, has gone so far as to say that it might be better to set up one pan-European regulator to simplify matters and avoid what he calls a “bureaucrat’s dream” of proliferating committees. The final consideration is what kind of legal instrument - a regulation or directive - will be employed by the Commission to get the package through.

The Commission’s proposal for a directive on alternative investment fund managers has provoked more caustic criticism from the Socialists, mainly because it regulates managers rather than hedge funds themselves. Its main provisions are that all hedge funds above €100 million in value and all private equity funds of €500 million or more not using leverage will have to register with the member state in which they are based. But the Socialists are adamant that the proposals, released on 29 April, will push managers to operate unregulated from outside the EU.

CAPITAL REQUIREMENTS

On 24 June, the Commission was also expected to come out with amendments to the Capital Requirements Directives (2006/48/EC and 2006/49/EC), following earlier changes already agreed by Parliament, in April. The changes will take into account a recent communication on executives’ pay, and look at how banks should report complex resecuritisations and positions held on the trading book.