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EU eyes new rules to supervise financial giants

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The European Union’s executive arm proposed on Monday to give national supervisors more power to oversee financial conglomerates as part of efforts to prevent any new crisis.

The new rules would give authorities the ability to get better information at an earlier stage when large financial groups “run into trouble” and be better equipped to intervene, the European Commission said. The proposed rules would affect complex financial groups — such as Germany’s Allianz — which operate both in the banking and insurance sectors and are often active in more than one country in the 27-nation EU.

“Due to their size, financial conglomerates are often of systemic importance to our economy — either for one or more Member States or even for the EU as a whole,” the commission said. Under current rules, national authorities must choose between either banking or insurance supervision when a group acquires a significant stake in another sector and when the parent entity is a holding company. The new rules, an amendment to a 2002 directive, would allow them to apply supervisory regimes.

“Drawing lessons from the (global) financial crisis, the Commission proposes to equip national financial supervisors with new powers to better oversee the conglomerates’ parent entities, such as holding companies,” the commission said. “This would allow supervisors to apply banking supervision, insurance supervision and supplementary supervision at the same time, thereby remedying to unintended loopholes identified in the context of the financial crisis.”

The proposed rules must be agreed by the 27 EU states and the European parliament. The commission said it hoped they could come into force in 2011. The move comes amid tough negotiations between EU states and the European parliament on a proposal to create pan-European financial watchdogs which have dragged on due to disagreements over how much power to give them. The creation of the EU-wide agencies is part of efforts to prevent a repetition of the financial crisis, which was blamed in part on the excessive risk taking of banks and investment funds.

Brussels, Aug 16, 2010 (AFP)