European supervisors said on Monday they may need cross-border powers to oversee the single market in financial services, raising the possibility of a Europe-wide Securities and Exchange Commission.
The comments were made in a consultative paper from the Committee of European Securities Regulators (CESR), the Paris-based organisation that groups regulators from European Union member states.
The issue of whether Europe needs an SEC-style transnational watchdog has been hotly debated for several years, with some experts seeing it as inevitable for a single market of 25 states to function effectively.
The setting-up of an SEC-type organisation would probably need a major crisis to trigger such a radical step, said Harald Benink of the European Shadow Financial Regulatory Committee, a group of academics that makes regulation policy recommendations.
"We are all interested in the European dimension but if we lose too much national power then it is a problem," Benink said.
The emergence of a pan-European exchange Euronext highlights the need for close co-operation among regulators.
Euronext comprises markets in Britain, France, Belgium, the Netherlands and Portugal, with supervision based on a memorandum of understanding among national supervisors in those countries. "So far there has not been a crisis breaking the continuity of functioning of the markets (as experienced on 9/11), or other event that could expose visible legal gaps in the supervisory arrangements or create an inability to act rapidly and efficiently," CESR said of the Euronext MOU.
More streamlined supervision would make it easier for pan-European securities houses. For example, pan-European clearing house LCH. Clearnet is currently overseen by more than 10 regulators.
But some leading regulatory officials have said it may be difficult to introduce a pan-European regulator as there is no true pan-European legal system.
So far CESR has been confined to giving technical advice to the European Commission to flesh out financial directives agreed by EU member states and the European Parliament.
On Monday it said it was launching the consultation to see what supervisory tools will be needed in future as the 42 financial measures and directives contained in the EU's Financial Services Action Plan (FSAP) are implemented.
CESR said EU regulators should develop an "adaptive" strategy to face the progressive integration of markets.
"One of the preconditions for CESR members to carry out effectively their new obligations to co-operate under the FSAP is that supervisors should be given equivalent legal and functional capacity to act," the statement said.
CESR said the need to consider supervisory tools of a "transnational dimension" is closer now than it was four years ago when the FSAP was being put together.
"CESR believes that these options should be considered only if it is very clear that the present system cannot be developed to provide proper solutions to the question of supervisory convergence," CESR said.
In its report outlining the consultation, CESR sought to distance itself from major changes and reassure its critics in the European Parliament and elsewhere.
"It is not proposed to create new institutions embedded in the (EU) Treaty with no precise idea of their role but rather to pragmatically adapt the EU supervisory arrangements to what will occur in the European securities markets," CESR said.
CESR noted there has been criticism about the possible lack of democratic accountability concerning the watchdog's role in implementing EU measures and the "weak EU legal basis of CESR".
In developing new supervisory tools, CESR said it was "determined to enhance democratic and political accountability links" with the European Parliament and the European Commission.
CESR's consulatation period ends on January 31, 2005 and the watchdog group will then present a report to EU institutions.
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