Reform of the supervision of the financial markets and services in Belgium
Marc Fyon
Stibbe
Brussels
Marc Fyon (Bio)
An important reform of the supervision of financial markets and services in Belgium entered into force on April 1 2011. The purpose of this reform is to reflect the lessons drawn from the financial crisis in 2008 in the organisation and the functioning of this supervision in Belgium.
This crisis has indeed clearly established that the financial supervision structure needs to be materially adapted at both national and international levels. In its final report, the High-Level Group which analysed the financial supervision in the EU (the so-called 'de Larosière Commission') recommended that it should move forward towards:
(i) a new regulatory agenda to reduce risk and improve risk management; to improve systemic shock absorbers; to weaken pro-cyclical amplifiers; to strengthen transparency; and to get the incentives in financial markets right;
(ii) stronger coordinated supervision based on a deep analysis of both macro-prudential and micro-prudential;
(iii)effective crisis management procedures that can build confidence among supervisors.
Interestingly enough, this Commission did not arbitrate the choice between the two great financial supervision models, i.e., the integrated or 'twin-peaks' model on the one hand (where the national central bank is entrusted with both the macro-prudential and the micro-prudential supervision of the financial markets and services), and the cooperative model where two different national authorities take care of the macro-prudential and the micro-prudential supervision, respectively, on the other hand. Let us be reminded that in this respect, European law entitles the Member States to freely choose among these two supervision models and the supervisions' structures implemented in the Member States are indeed quite different from one country to another.
Another thorough analysis was conducted in Belgium by the Lamfalussy Commission. In its recommendations to the Belgian Government, this Commission pointed out that:
(i) the establishment of a European supervisory framework along the lines of the de Larosière Report is crucial, and the enforcement of information rights within this framework and provisions for emergency action for host country authorities is more important than ever;
(ii) the Belgian supervisory framework will need to be adapted to introduce a proper macro-prudential supervision, an element that was strikingly deficient in the then existing framework.
In order to prepare this reform of the Belgian supervisory framework, the Lamfalussy Commission also analysed the merits of the two great financial markets supervision models. After having been reminded that no supervisory framework-either in a specific country or at the international level-had appeared as invulnerable during the crisis in 2008, the Commission, however, did note that 'when assigning the central bank an explicit mandate to mitigate systemic risk, the integrated model may be more effective than having a single integrated regulator outside the central bank. It is therefore arguable that if the Belgian financial supervisory system were to be designed from scratch, micro-prudential supervision would unlikely be entrusted to an independent institution, outside the central bank.
Further to these reports, the Belgian Government prepared a substantial reform of the Belgian markets and services supervision. This reform is based on the following main guidelines:
(i) The financial supervision is to be organised along the lines of the integrated or 'twin-peaks' model; in other words, on top of its function as the Belgian central bank, the National Bank of Belgium (the NBB) has been entrusted with the micro-prudential supervision of the financial markets and services; as such, it has become the supervisor of all credit institutions, insurance and reinsurance companies, stock broking companies, settlement and clearing institutions, custody agents and payment institutions. The main goal of this reform is to make sure that the micro-prudential supervisor of these companies and institutions can rely on all adequate macro-prudential data that are gathered by the central bank.
(ii) As the financial crisis has underlined the systemic impact of the potential default of major banks, insurance companies and settlement and clearing institutions, the new legal framework authorises the Monarch to publish the list of the financial institutions to be regarded as being of systemic importance in Belgium; moreover, any strategic decision to be taken by any such systemic institution will be subject to the prior approval of the NBB; the latter may object to such a strategic decision for reasons related to the specific situation of the relevant financial institution, but also-and this represents a major development-for any other reason connected with the impact of this decision on the Belgian economic and financial system and markets.
(iii) The other main financial supervisor (which was previously called the Banking, Finance and Insurance Commission and has now been renamed as the Financial Services and Markets Authority, in short, the FSMA) remains competent for all matters regarding the information, transparency, and functioning of financial markets; this includes inter alia the information to be released by listed companies, the approval of listing or takeover prospectus, the market abuses and insider trading matters, the disclosure of transparency statements relating to the participation in the capital of listed company, etc. The FSMA also keeps its role as micro-prudential supervisor of some financial intermediaries, i.e., the undertakings for collective investment, the companies entrusted with the management of such companies as well as some banking and financial intermediaries.
(iv) The FSMA has received an extended mandate to supervise compliance with the rules protecting the interests of savers, policyholders, and investors. To this end, it is responsible for protecting the consumers from the illicit offer or provision of any financial product or service. It is also tasked with contributing to the financial information and education of these consumers. It is expected that in the near future, the FSMA will be entitled to oppose the distribution of financial products or certain categories of financial products on the Belgian markets that would be deemed too dangerous in view of this general goal of protecting investors.
The NBB will thus focus on financial institutions whereas the FSMA will mainly pay attention to financial investors.