MNI EXCLUSIVE: MEP Warns ESA Governance Plan May Fall In Parlt

--MEP Tells MNI EC's Fin Supervisory Governance Reforms Won't Pass

--Expert Says Hopes Proposals Will Be "Significantly Improved"

By Tara Oakes

     BRUSSELS (MNI) - The European Commission launched its official proposal for

stronger supervision of financial markets Wednesday, in line with plans first

reported by Market News on Monday.  However, the plans immediately ran into

objections from legislators and industry experts particularly plans striping

lawmakers the powers of final appointments to senior positions on regulatory

bodies.

     For German MEP Sven Giegold, economics and financial spokesperson for the

Greens/EFA parliamentary group, this would a step too far in removing powers

from the European Parliament.

     "Losing the right of nominating the ESA chairs: I'm deeply convinced that

this will never have a majority in the parliament," he told MNI.

     Brexit has added fuel to the fire of an EU push for stronger financial

integration within the bloc, including the beefed-up powers for the supervisory

bodies.

     All three of the current micro-prudential bodies -- the European Securities

and Markets Authority (ESMA), the European Banking Authority (EBA) and the

European Insurance and Occupational Pensions Authority (EIOPA) -- are set for

changes under the proposals.

     The ESAs would all be fitted with an executive board with full-time members

to replace the management board, if the proposal passed. Members would be

appointed by compilation of a shortlist, to be submitted to the European

Parliament for approval. The EU Council would then have the ultimate say in

appointing them.

     The same process would be true of the Chairperson.

     The proposals for new governance structures also sat ill with one industry

expert, who spoke to MNI after the announcement.

     Nicolas Vernon, senior fellow at the influential think-tank Bruegel, agreed

with Giegold that the plans needed revisiting.

     "I think it would be appropriate for the parliament to insist on more

direct powers. There should be more direct accountability to parliament, that's

one thing," Vernon told MNI. He also warned that under current plans the

"executive board is too subordinated to the supervisory board", risking its

independence.

     Without reform of the proposal in the legislative process, this could

scupper plans. Parliament and member states will have to approve the draft

before it becomes law.

     Vice-President in charge of financial stability, Valdis Dombrovskis, told

journalists Wednesday that the EP would still "play an important role".

     ESMA PLUS

     If the plans pass, ESMA in particular would be granted further

competencies, including direct supervisory powers on critical benchmarks, data

reporting services, market abuse cases and company prospectuses.

     Investment funds carrying an EU label would also be directly supervised and

authorized by ESMA.

     The proposals stop short of the so-called "twin peaks" model which would

see market conduct supervision split from prudential supervision. Some have

suggested that this would best be achieved by merging the EBA, whose rehousing

currently up for grabs among member states due to the Brexit vote, with one of

the other supervisory arms.

     Dombrovskis would not be drawn on what the plans meant for the EBA's

relocation, but they certainly stop short of any merger at this stage.

     The Commission reaffirmed its view that "a single European capital markets

supervisor will ultimately be necessary".

     "What we are doing at this stage is a very modest step in that direction,"

Dombrovskis said.

     FUNDING

     Funding changes would be rolled out for ESMA and the other ESAs if the EC

has its way, involving tapping industry and market participants for the majority

of the cash.

     Currently 40% of funding for ESAs comes from the EU budget, topped up with

60% from national authorities. The EC believes this 60% would be better provided

by the financial sector itself, spread in a way to reflect the size and

importance of the players involved.

     But the EC is keen to stress that this would "not necessarily" mean

increased burdens on the sector, given that the contributions provided by

national supervisors at present are already financed by the financial sector.

     An EU official familiar with the proposal said that the ESAs will have more

expenditure, but denied it would give them "carte blanche" to increase budgets.

     "It will be more than today, but still subject to public sector controls

and accountability," he said.

     Giegold told MNI he worried that the new funding model risked too much

private sector influence.

     Stakeholders, including private financial institutions, will have the right

to "send a reasoned opinion" to the EC is they believe an ESA has exceeded its

competence.

     "You pay more private sector fees, but then the stakeholder groups where

you have many private sector representatives receive de facto decision-making

power. And that is unacceptable," Giegold told MNI.

--MNI Brussels Bureau; +44 203-865-3851; email: tara.oakes@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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