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					                Tithe an Oireachtais
      An Comhchoiste um Ghnóthaí Eorpacha


                 An Séiú Tuarascáil

Tuarascáil maidir le tráchtaí an Chomhchoiste i ndáil
leis na moltaí ón nGrúpa Ardleibhéil ar Mhaoirseacht
                   Airgeadais san AE

                     Aibreán 2009

            _________________________


             Houses of the Oireachtas
       Joint Committee on European Affairs

                    Sixth Report

  Report of the Joint Committee’s comments on the
   recommendations of the High Level Group on
          Financial Supervision in the EU


                     April 2009
                                     INDEX



Introduction                                                          Page 3

Decision of the Joint Committee                                       Page 3

Report of the Joint Committee‘s comments on the recommendations of the Page 4
High Level Group on Financial Supervision in the EU



Appendices

A: Membership of the Joint Committee                                  Page 11

B: Orders of Reference of the Joint Committee.                        Page 12




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                   Joint Committee on European Affairs

Report of the Joint Committee’s comments on the recommendations
   of the High Level Group on Financial Supervision in the EU




Introduction
The Joint Committee on European Affairs as part of its Work Programme for 2009
agreed to consider the report of the High Level Group on Financial Supervision in the
EU. In this context the Joint Committee agreed to seek a presentation from the
Department of Finance on the matter.

At its meeting of 31st March 2009 the Joint Committee heard a presentation from
representatives of the Department of Finance and considered a paper prepared by the
Department on this topic. Following a comprehensive question and answer session
the Joint Committee agreed to consider sending comments to the European
Commission on the Report of the High level Group, the ―de Larosiére Report‖. The
Joint Committee wishes to thank the representatives of the Department of Finance for
their assistance with its work and for the very detailed and helpful presentation made.

The Joint Committee at its meeting of 9th April 2009 agreed that the following
comments be sent to the relevant EU Commissioner, Commissioner for the Internal
Market and Services, Mr Charlie McCreevy. The Joint Committee also agreed to lay
a report of its comments before both Houses of the Oireachtas and to call for a debate
in both Houses on the matter.

Decision of the Joint Committee.
This report and its appendices was considered and agreed at the meeting of the Joint
Committee on 16th April 2009.




Joint Committee on European Affairs
16 April 2009




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                 Joint Committee on European Affairs

 Report of the High Level Group on Financial Supervision in the EU

                                   Comments

1.   The Joint Committee on European Affairs welcomes the report of the High
     Level Group on Financial Supervision in the EU. The Joint Committee wishes
     to thank the group, and especially the Chair, Mr. Jacques de Larosiére, for the
     very good report. The report clearly highlights the failings of the current
     financial regulatory system in Europe. Its recommendations must be carefully
     considered and effectively followed-up if we are to succeed in restoring
     confidence in the financial institutions and markets which are so vital to the
     European economy.


2.   For the future it is clear that national regulators must work in a closely co-
     ordinated and integrated fashion on the basis of much greater trust and
     confidence within an EU system of financial regulation where a single rule
     book is in place and applied in a uniform way. It is also clear that current
     problems are not unique to Europe but are global in nature. Any actions at the
     EU level must be closely linked to global efforts at improving regulation and
     replicated in other regions of the world. If this does not occur, Europe could be
     left at a competitive disadvantage in the highly globalised capital market and
     open itself up to the risk of regulatory arbitrage. In the first instance, a much
     greater level of co-operation will be needed between the EU and the US.


3.   In the Joint Committee‘s opinion, the most important issues that arise are in
     relation to the report‘s proposals regarding micro and macro prudential
     supervisory structures which are outlined in Recommendations 16 to 24.
     Specifically, the recommendations to establish a European Systemic Risk
     Council (ESRC) with extensive new powers and to replace the current Third
     Level Committees with three new authorities in the banking, insurance and
     securities sectors are of particular importance.




                                                                                    4
4.   That said, all of the recommendations are important for the development of an
     effective EU financial regulatory regime. For instance, the Joint Committee
     attaches great importance to Recommendation 3. Reliance on the use of credit
     rating agencies has clearly been a major contributory factor in the current
     crisis. These agencies need to be subject to high levels of supervision and their
     ability to influence the markets should be controlled to a greater extent. To this
     end, the Joint Committee welcomes the fact that the Commission‘s proposal
     for the regulation of credit rating agencies is currently with the European
     Parliament and the Council for decision and is expected to be agreed shortly.


5.   The Joint Committee strongly supports Recommendations 4 and 8 that deal
     with the supervision of complex financial products, including derivative and
     securitised products. There are derivatives worth multiples of the combined
     national incomes of the world. However, very few people understand how
     they work and how they are linked. There is a therefore an urgent need to
     accelerate the implementation of Recommendations 4 and 8 in order to
     discover the real value of these products and to better understand them.


6.   In relation to Recommendation 10, the Joint Committee agrees that the
     Commission and the Level 3 Committees should identify those national
     exceptions contained in current Directives and rules, the removal of which
     would improve the functioning of the single financial market, reduce
     distortions of competition and combat regulatory arbitrage. This will
     contribute immensely to establishing a truly harmonised set of core rules in the
     EU. However, the Joint Committee believes that it is important to maintain
     some element of national discretion but only when justified to enable national
     competent authorities to introduce or maintain stricter measures which take
     account of national circumstances and risks. Therefore, the Joint Committee
     supports the use of Directives rather than directly applicable regulations as
     proposed by the De Larosiére report.


7.   The Joint Committee strongly supports Recommendation 11, especially the
     principle that bonuses should reflect actual performance and not be guaranteed
     in advance and that their assessment should be set in a multi-year framework,


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      spreading bonus payments over the cycle. The Joint Committee agrees that
      compensation incentives should be better aligned with shareholder interests as
      well as longer term firm wide profitability. But there should also be broader
      considerations. Some financial institutions, in particular the main banks, are
      vitally important to the stability and functioning of not only the Irish economy
      but global economies. Therefore, mere consideration of shareholder value and
      interests in not enough – broader society and the stability of economies should
      be the paramount consideration. While shareholders are important, the wider
      economy should be the main concern.


8.    While the Joint Committee agrees with Recommendation 12, it believes it
      must be consistent with the Better Regulation principle. The proper
      management of risk within financial institutions is essential. However, the
      regulation envisaged should be proportional in order to ensure that undue
      burdens are not imposed on smaller institutions. Any proposals stemming
      from this recommendation should take account of the nature, scale and degree
      of complexity of those smaller institutions consistent with the level of risk
      inherent in their activities and the extent to which they contribute to systemic
      risk.


9.    With regard to Recommendation 28, the Joint Committee supports the concept
      of coordinated efforts to encourage jurisdictions to adhere to the highest
      international standards. Poorly regulated or ‗uncooperative‘ jurisdictions will
      only serve to undermine efforts towards more effective and coordinated
      regulation of financial institutions and markets. In this respect, the Joint
      Committee fully supports a better exchange of information in the tax area in
      line with OECD best practice as well as in the regulatory arena.


10.   The Joint Committee does not support Recommendation 30 of the report. The
      Committee welcomes the call for better EU coordination at the IMF and other
      international fora. However, the Committee is against any proposals for a
      change to the current constituency arrangements at the IMF or any radical
      changes to the EU‘s representation. Any proposals to this end should be
      carefully considered and fully discussed.


                                                                                    6
11.   The Joint Committee believes that Recommendations 16 to 24 are the most
      important of the report and have the potential to have the most tangible impact
      on financial regulation both in Ireland and across the EU. In principle, the
      Joint Committee supports the establishment of a European Systemic Risk
      Council (ESRC). However, the exact powers of the proposed ESRC need
      further clarification. It appears that the new body would be given significant
      powers over national supervisors – to step in if it felt that a national
      supervisor‘s response to a warning was judged to be inadequate. This would
      represent a significant change in the institutional balance and could raise
      questions in respect of the principle of subsidiarity. The legal basis for such
      sanctions also needs to be clarified.


12.   On Recommendations 18 to 24, and specifically the proposed establishment of
      three new European authorities in the banking, insurance and securities
      sectors, the Joint Committee would have some concerns. The Joint Committee
      agrees with the recommendations‘ objective of introducing a far more robust
      system of regulation but has doubts about whether the institutional structure
      proposed would deliver this. The proposals seem to be overly complex at a
      time when financial regulation requires clarity, coherence and transparency.


13.   The Joint Committee‘s understanding of much of the analysis regarding the
      regulatory failure in the financial markets is that there were too many
      regulatory actors, each of which had a small piece of knowledge but none of
      which were able to see the big picture. Therefore, the Joint Committee
      considers that the idea of one Europe wide regulatory body with the proper
      resources and required mandate could be further explored. Fewer regulatory
      bodies would make it easier to exchange and assess information order to get
      the complete picture and to ensure effective coordination. Effective
      communication and coordination is the key to identifying and responding to
      risks at an early stage.


14.   In addition, there is a shortage of regulators that can understand the complex
      financial markets and can match the technical expertise of those they are
      tasked with regulating. There is a small pool of people who are experienced


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      and expert enough to undertake the difficult role of regulator. Therefore, it is
      essential to harness their talents into as few bodies as possible.


15.   The Joint Committee is aware that the establishment of such a single EU
      regulator may not be possible under the current EU Treaties. However, under
      the current Treaties it is permissible that the European Central Bank could be
      appointed as a single European regulator for the banking area. The Joint
      Committee believes that this option should also be examined as a possible
      solution to establishing a robust regulatory system for the banking sector
      which is clear and coherent. This alternative will of course raise issues such as
      the reach of the ECB beyond the Eurozone, the level at which the ECB would
      regulate and its accountability. These issues would need to be thoroughly
      explored.


16.   In addition, the Joint Committee acknowledges that the ECB could not be
      appointed as a single European regulator for the insurance and securities
      sectors as this would require an amendment to the EU treaties. Another
      alternative, therefore, worth examining could be to establish the regulatory
      bodies proposed in the De Larosiére under an overarching institution. This
      integrated approach, rather then establishing four distinct standalone bodies
      (i.e. ESRC and the three new authorities), would allow for even more effective
      coordination and communication.


17.   The Joint Committee also believes that issues surrounding the legal basis of
      the proposed authorities need clarification, especially if they will have the
      ability to impose legally binding sanctions. It appears under the report‘s
      recommendations that the EU could be assuming new competences in the area
      of financial regulation and supervision. Therefore, the legal basis for the
      establishment of new EU wide authorities with enhanced powers to regulate
      must be carefully considered. It is important to be clear where the boundary
      between the activities of the proposed EU authorities and the responsibilities
      of Member States begin and end.




                                                                                     8
18.   The Joint Committee agrees that in order to have a level playing field across
      the EU when it comes to financial regulation, there should be a similar level of
      sanctions. A divergence in sanctions between Member States only creates an
      incentive for regulatory arbitrage. However, the proposed new powers of the
      three authorities, including the power to impose sanctions on national
      supervisors up to and including Commission infringement procedures, would
      entail a significant shift in competence from Member States to the authorities.
      Therefore, the Joint Committee believes that careful consideration must be
      given to the design of such proposed sanctions.


19.   For instance, if the proposed authorities had powers to overrule national
      supervisors and the use of such powers resulted in the failure of an institution,
      who would bear the cost of that failure. In addition, the proposed authorities
      would have the power to adopt interpretations of EU rules which would be
      legally binding for national supervisors. This could raise some legal doubts as,
      in principle, it would override the exclusive competence of the European
      Court of Justice to interpret EU law. Therefore, the binding nature of these
      proposed new powers is of concern and needs to be clarified.


20.   The Joint Committee assumes that the sanctions in mind only include
      administrative sanctions and not criminal sanctions. It is possible to achieve
      equivalence of administrative sanctions available to national supervisors but
      differences in the criminal justice systems in Member States will lead to
      different forms of criminal procedures and punishment. Therefore, criminal
      sanctions should not form part of any future proposals resulting from the
      report‘s recommendations.


21.   The Joint Committee also has concerns in relation to the accountability of the
      proposed authorities – to whom would these new authorities be accountable?
      Currently, the Level 3 Committees report to the Council and the European
      Parliament and they are obliged to take into account the broad comments of
      these institutions in respect of their work programme. Given the enhanced role
      envisaged in the report for the new authorities, the Joint Committee expects to



                                                                                     9
      see a deepening of accountability between the proposed new structures and the
      European Parliament as well as the national parliaments.


22.   The Joint Committee is aware that in its Communication of 4 March on the De
      Larosiére Report the Commission is seeking for the new authorities to be
      established as soon as possible, whereas the report recommends a two-stage
      process of approximately four years. While understanding the pressing
      economic need to restore confidence in the financial system, the Joint
      Committee would favour the two-stage approach as outlined in the report. We
      must get the key decisions ahead of us correct and what is required is
      evolution and not necessarily revolution. The Joint Committee is concerned
      that a too hasty decision on an EU-wide architecture could have unintended
      consequences and might cause more harm than good. A period to allow for
      considered debate and assessment of all the options is the most sensible
      approach. This period will allow for issues such as the correct structure, legal
      basis and lines of accountability to be properly considered and clarified.


23.   The Joint Committee feels that there is always scope to assess and re-assess
      structures and process at EU level but what really matters is the quality and
      intensity of regulation on the ground. In this respect, the key is to achieve a
      harmonised rule book in the first instance and then the regulatory structure
      capable of effectively enforcing those rules. A harmonised rule book would
      remove many of the discretions or exemptions that currently exist in EU law.
      It would also guard against differences in regulatory philosophies at national
      level leading to further divergence. A balance must be struck, therefore,
      between ensuring that there is the necessary convergence in the rule book and
      supervisory practice determined at EU level and, subsequently that those rules
      are implemented in a uniform way at national level which is consistent with
      the principle of subsidiarity.



Joint Committee on European Affairs
Dublin, 9 April 2009




                                                                                   10
                                                   Appendix A

                             Membership of the Joint Committee

Deputies:                 Pat Breen                                 (FG)
                          Thomas Byrne                              (FF)1
                          Joe Costello                              (Lab
                          Lucinda Creighton                         (FG)
                          Timmy Dooley                              (FF) Vice-Chairman
                          Bernard Durkan                            (FG) Chairman
                          Beverley Flynn                            (FF)**
                          Michael McGrath                           (FF)
                          Michael Mulcahy                           (FF)
                          Mary O‘Rourke                             (FF)
                          Billy Timmins                             (FG)
                          Noel Treacy                               (FF)
                          Joanna Tuffy                              (Lab)**


Senators:                 Maurice Cummins                           (FG)*
                          Déirdre de Búrca                          (GP)
                          Pearse Doherty                            (SF)*
                          Paschal Donohoe                           (FG) 2
                          John Hanafin                              (FF)
                          Terry Leyden                              (FF)
                          Rónán Mullen                              (Ind)*
                          Phil Prendergast                          (Lab)
                          Feargal Quinn                             (Ind)




1 Deputy Thomas Byrne (FF) replaced Deputy Barry Andrews (FF) (on appointment as Minister of State at the Department of
Health and Children), by Order of Dail Eireann on 26 June 2008
2 Senator Paschal Donohoe (FG) replaced Senator Maurice Cummins (FG) by way of report laid before Seanad Eireann by the
Committee on Selection on 5th December 2007
*by way of report laid before Seanad Eireann by the Committee on Selection on 7 October 2008
** by Order of Dail Eireann 2 October 2008




                                                                                                                     11
                                      Appendix B

                  Orders of Reference of the Joint Committee.

Dáil Éireann on 23 October 2007 ordered:

―(1) (a)    That a Select Committee, which shall be called the Select Committee on
            European Affairs, consisting of 11 Members of Dáil Éireann (of whom
            four shall constitute a quorum), be appointed to consider—
            (i)      such Bills the statute law in respect of which is dealt with by the
                     Department of Foreign Affairs;
            (ii)     such proposals contained in any motion, including any motion
                     within the meaning of Standing Order 159 concerning the
                     approval by the Dáil of international agreements involving a
                     charge on public funds; and
            (iii)    such other matters
            as shall be referred to it by Dáil Éireann from time to time.
      (b)   For the purpose of its consideration of matters under paragraphs (1)(a)(i),
            (ii) and (iii), the Select Committee shall have the powers defined in
            Standing Order 83(1), (2) and (3).
      (c)   For the avoidance of doubt, by virtue of his or her ex officio membership
            of the Select Committee in accordance with Standing Order 92(1), the
            Minister for Foreign Affairs (or a Minister or Minister of State
            nominated in his or her stead) shall be entitled to vote.
(2)   (a)   The Select Committee shall be joined with a Select Committee to be
            appointed by Seanad Éireann to form the Joint Committee on European
            Affairs to—
            (i)      consider such matters arising from Ireland‘s membership of the
                     European Communities and its adherence to the Treaty on
                     European Union, as it may select;
            (ii)     consider such—
                     (I)     programmes and guidelines prepared by the Commission
                             of the European Communities as a basis for possible
                             legislative action,
                     (II)    non legislative documents published by any Union
                             Institution in relation to EU policy matters,
                     (III)   acts of the institutions of the European Communities,
                     (IV)    regulations under the European Communities Acts 1972 to
                             2007,
                     (V)     other instruments made under statute and necessitated by
                             the obligations of membership of the European



                                                                                        12
                           Communities, and
                    (VI)   any other document relating to European Union matters
                           deposited in both Houses of the Oireachtas by a Member of
                           the Government or Minister of State,
                    as it may select;
            (iii)   consider such other matters as may be referred to it from time to
                    time by both Houses of the Oireachtas; and
            (iv)    represent both Houses of the Oireachtas at the Conference of
                    Community and European Affairs Committees of Parliaments of
                    the European Union (COSAC) jointly with the Joint Committee
                    on European Scrutiny;
            and shall report thereon to both Houses of the Oireachtas in consultation
            with the Joint Committee on European Scrutiny.
      (b)   The Joint Committee shall have:
            (i)     the powers defined in Standing Order 83(1) to (9) inclusive;
            (ii)    the power to refer a proposal for EU legislation which has been
                    considered by it (and which has been concluded to be of sufficient
                    importance to require additional scrutiny) to a Joint Committee on
                    which has been conferred the power defined in Standing Order
                    83(4) to consider such proposals;
            (iii)   the power to request the attendance of Members of the
                    Government (or Ministers of State nominated in their stead) (or,
                    in the case of the European Council, the Taoiseach or Minister for
                    Foreign Affairs) before the Joint Committee and provide, in
                    private session if so desired by the Member of the Government or
                    Minister of State, oral briefings in advance of Council meetings to
                    enable the Joint Committee to make known its views; and
            (iv)    the power to make recommendations to the Minister for Foreign
                    Affairs (or Minister of State) on European Union matters.
      (c)   The following persons may attend meetings of the Joint Committee and
            may take part in proceedings without having a right to vote or to move
            motions and amendments—
            (i)     Members of the European Parliament elected from constituencies
                    in Ireland (including Northern Ireland);
      (b)   (ii)    members of the Irish delegation to the Parliamentary Assembly of
                    the Council of Europe; and
            (iii)   at the invitation of the Joint Committee, other Members of the
                    European Parliament.
      (d)   The quorum of the Joint Committee shall be five, of whom at least one
            shall be a Member of Dáil Éireann and one a Member of Seanad Éireann.
(3)   The Chairman of the Joint Committee, who shall be a Member of Dáil Éireann,



                                                                                     13
     shall also be Chairman of the Select Committee.‖.




Seanad Éireann on 24 October 2007 ordered:

―(1) (a)   That a Select Committee consisting of 6 members of Seanad Éireann
           shall be appointed to be joined with a Select Committee of Dáil Éireann
           to form the Joint Committee on European Affairs to—
           (i)     consider such matters arising from Ireland‘s membership of the
                   European Communities and its adherence to the Treaty on
                   European Union, as it may select;
           (ii)    consider such—
                   (I)     programmes and guidelines prepared by the Commission
                           of the European Communities as a basis for possible
                           legislative action,
                   (II)    non legislative documents published by any Union
                           Institution in relation to EU policy matters,
                   (III)   acts of the institutions of the European Communities,
                   (IV)    regulations under the European Communities Acts 1972 to
                           2007,
                   (V)     other instruments made under statute and necessitated by
                           the obligations of membership of the European
                           Communities,
                           and
                   (VI)    any other document relating to European Union matters
                           deposited in both Houses of the Oireachtas by a Member of
                           the Government or Minister of State,
                   as it may select;
           (iii)   consider such other matters as may be referred to it from time to
                   time by both Houses of the Oireachtas; and
           (iv)    represent both Houses of the Oireachtas at the Conference of
                   Community and European Affairs Committees of Parliaments of
                   the European Union (COSAC) jointly with the Joint Committee
                   on European Scrutiny;
           and shall report thereon to both Houses of the Oireachtas in consultation
           with the Joint Committee on European Scrutiny.
     (b)   The Joint Committee shall have:
           (i)     the powers defined in Standing Order 70(1) to (9) inclusive;



                                                                                      14
            (ii)    the power to refer a proposal for EU legislation which has been
                    considered by it (and which has been concluded to be of sufficient
                    importance to require additional scrutiny) to a Joint Committee on
                    which has been conferred the power defined in Standing Order
                    70(4) to consider such proposals;
            (iii)   the power to request the attendance of Members of the
                    Government (or Ministers of State nominated in their stead) (or,
                    in the case of the European Council, the Taoiseach or Minister for
                    Foreign Affairs) before the Joint Committee and provide, in
                    private session if so desired by the Member of the Government or
                    Minister of State, oral briefings in advance of Council meetings to
                    enable the Joint Committee to make known its views; and
            (iv)    the power to make recommendations to the Minister for Foreign
                    Affairs (or Minister of State) on European Union matters.

      (c)   The following persons may attend meetings of the Joint Committee and
            may take part in proceedings without having a right to vote or to move
            motions and amendments—
            (i)     Members of the European Parliament elected from constituencies
                    in Ireland (including Northern Ireland);
      (c)   (ii)    members of the Irish delegation to the Parliamentary Assembly of
                    the Council of Europe; and
            (iii)   at the invitation of the Joint Committee, other Members of the
                    European Parliament.
      (d)   The quorum of the Joint Committee shall be five, of whom at least one
            shall be a Member of Dáil Éireann and one a Member of Seanad Éireann.
(3)   The Chairman of the Joint Committee, shall be a Member of Dáil Éireann,
      shall.‖.




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