The European Financial Services Round Table (EFR) urges national and European authorities to start implementing a lead supervisory regime for financial institutions in the EU. The 17 Members of the EFR, chief executive officers or chairmen of major European financial institutions doing business in several Member States have presented a report with recommendations stressing not only the urgency, but also the feasibility of the lead supervisor concept.

The report proposes solutions for the extension of the 'home country control' principle within the EU through the concept of the lead supervisor. It describes the functions of the lead supervisor, the framework for co-operation between the lead supervisors and the local supervisors, and some legal aspects of the lead supervisor environment.

Anton van Rossum, Member of the EFR and CEO of Fortis, explained: "The lead supervisor should be one of the priorities for the new Commission. With the introduction of the euro and the Financial Services Action Plan, the EU is already delivering a huge effort to achieve integrated financial markets, a process which will bring more economic growth and more competition. But the key players in this integration process, the financial companies delivering services across the borders, are still confronted, not only with local market conditions, but also with a multitude of local supervisors. This is not only expensive but also ineffective, something which, in the area of supervision, is unacceptable. The introduction of the lead supervisor concept would be a major improvement."

The EFR report suggests identifying for each cross border financial institution in the EU a fully empowered lead supervisor who is clearly in the driver’s seat for all aspects of prudential supervision. This should apply both for the consolidated level and for branches or subsidiaries. The lead supervisor should be the only contact for the financial institution within the prudential supervisory framework.

The lead supervisor’s responsibilities should include: defining all reporting schemes, validate and authorize internal models, approve capital and liquidity allocation, and approve the cross border set-up of specific functions. Local supervisors should of course be involved in the process, based on specific agreements with the lead supervisor. We propose that the national supervisors should form a 'college of supervisors' in which they can exchange information and give advice to the lead supervisor. The college should not, however, be able to delay the decisions of the lead supervisor. In cases of disagreement the college should have the right of appeal.

Pehr G Gyllenhammar, Chairman of the EFR, remarked: "The proposals are simple and practical, but they can have an enormous impact! The introduction of the lead supervisor would accelerate the convergence of prudential supervision standards which is required to create a single European market for financial services. Today every Member State has a different approach towards supervision."

EFR’s first report on regulation and supervision 'Harmonisation of Regulation and Supervision of the European Financial Sector' was published in October 2003.

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