Agreement Reached on EU Financial Supervisory Framework

On September 22, the European Parliament approved legislation (the “Core Regulations”) creating a new European System of Financial Supervision (the “ESFS”) consisting of a European Systemic Risk Board (the “ESRB”) and three European Supervisory Authorities (the “ESAs”). The Council of Ministers had previously approved the Core Regulations on September 7. The new system is intended to be operational in January 2011. With the introduction of the ESFS, for the first time the supervision of EU financial institutions will be carried out to a significant extent at an EU level, with the ESAs in particular having strong supervisory powers and in certain circumstances rule-making powers and the ability to take direct action against national authorities and financial institutions. It is likely that, over time, the supervisory role of the ESAs and ESRB will increase along with greater EU harmonization of financial regulatory rules, possibly at the expense of Member State authorities.