The European architecture of regulation, supervision and financial stability: A central bank perspective

In December 2002, the Council of Economic and Financial Affairs (ECOFIN), which comprises the ministers responsible for economic affairs and finance in the European Union, approved a fully-fledged reform of the institutional architecture of financial regulation and supervision in the EU. The main aim of this reform — which followed a similar reform conducted in the field of the securities markets — is to solve the problems which have been experienced with the EU legislative process in the past. Confronted with a rapidly growing and innovating financial sector, the European legislative process appeared to react in a slow, rigid and inefficient way, thus calling for a thorough overhaul. At the same time, the arrival of the euro and the ongoing process of financial integration in Europe required more attention to be paid to cooperation between regulatory and supervisory authorities, both across sectors and across countries, in order to obtain a better knowledge of European cross-border financial activity, allow for convergence towards the best supervisory practices and ensure financial stability. The reform approved by ECOFIN foresees a sectoral and decentralised model of financial regulation and supervision, which is neutral as concerns the institutional arrangements of such functions at national level and ensures the cooperation between the national regulators and supervisors of financial markets across countries.