The European System of Financial Supervision is a multi-level framework for financial sector supervision in the European Union that has been in operation since 2011. It consists of EU-level micro-prudential and macro-prudential supervisory authorities, as well as the national supervisory authorities of EU Member States.
Macro-prudential supervision
It involves the oversight of the financial system as a whole, and its main aim is to prevent or mitigate risks to the financial system. This responsibility lies with the European Systemic Risk Board. It identifies systemic risks to the stability of the financial system in the EU and issues recommendations and warnings concerning measures to enhance financial stability and to reduce risks. These recommendations and warnings may be addressed to the EU as a whole, one or more Member States, or the European or the national supervisory authorities.
The European Systemic Risk Board (ESRB) collects information on macro-prudential measures adopted by the Member States, communicates these measures to other EU institutions, and, where necessary, encourages the reciprocity of macro-prudential measures adopted by the Member States in other Member States. The scope of the ESRB's activities covers banks, insurers, asset managers, shadow banks, financial market infrastructures, and other financial institutions and markets.
The General Board of the ESRB is chaired by the President of the ECB. The General Board of the ESRB consists of the following members with voting rights:
- the President and the Vice-President of the European Central Bank (ECB);
- the Governors of the national central banks of the Member States;
- a Member of the European Commission;
- the Chairs of the European Supervisory Authorities (the European Banking Authority, the European Securities and Markets Authority, and the European Insurance and Occupational Pensions Authority);
- the Chair of the Advisory Technical Committee of the ESRB;
- the Chair and the Vice-Chairs of the Advisory Scientific Committee of the ESRB.
Representatives of Latvijas Banka also participate in the ESRB's sub-committees.
As a participant in the ESRB, Latvijas Banka is involved in the assessment and analysis of the stability of the EU financial system and in the drafting of the ESRB policy documents concerning EU financial stability.
Micro-prudential supervision
It concerns the supervision of market participants, with the aim of ensuring a consistent and harmonised regulatory and supervisory framework for the financial sector across the EU. This is carried out by three European Supervisory Authorities:
- for the banking and payment institutions sector – the European Banking Authority;
- for the capital market sector (including financial instruments and funds) – the European Securities and Markets Authority;
- for the insurance and pension sector – the European Insurance and Occupational Pensions Authority.
All three European Supervisory Authorities are agencies of the European Union with legal personality. These institutions operate independently, representing the common interests of the European Union. They are accountable to the European Parliament and the Council of the European Union for their activities. Within each authority, the main decision-making body is the Board of Supervisors, which is composed of the Chair of the respective European Supervisory Authority, the head of the competent supervisory authority of each EU Member State, and one representative from the European Commission, the European Central Bank (ECB), the European Systemic Risk Board (ESRB), and the other two European Supervisory Authorities. Representatives of Latvijas Banka participate in the work of the Board of Supervisors, as well as in various committees and working groups.
The main tasks of the European Supervisory Authorities are:
- to protect the public interest and help strengthen the stability and efficiency of the financial system;
- to contribute to the development of a single rulebook;
- to promote the consistent application of the EU regulatory framework, in particular by fostering a common supervisory culture and preventing regulatory arbitrage;
- to act as a mediator and resolve disputes between EU national supervisory authorities in cases of disagreement over the application of EU rules.
Cooperation among the European Supervisory Authorities
To ensure cooperation and cross-sectoral coordination, a Joint Committee of all three European Supervisory Authorities has been established. Within this framework, information is exchanged and cross-sectoral horizontal issues are examined, such as financial conglomerates, accounting and auditing, financial sector trends, risk analysis, consumer and investor protection, cybersecurity, digital finance, and sustainability, etc. The Joint Committee is also responsible for resolving disputes between supervisory authorities on cross-sectoral matters.