December 02, 2008

European Union states clashed on Tuesday over how far they should overhaul financial supervision to apply lessons from the worst market turmoil in 80 years.The bloc's 27 finance ministers endorsed a compromise that watered down two sets of European Commission plans that would have radically overhauled oversight of insurers and banks.The draft Solvency II insurance reform and banks Capital Requirements Directive (CRD) both involved the setting up of colleges of supervisors for cross-border groups, with regulators from each country they operate in and giving the home watchdog the biggest say.Poland and about 10 other EU states, however, blocked the move, fearing their regulators would play second fiddle to watchdogs in London, Paris and Frankfurt, where many big groups are based.The countries which forced the changes were worried that, in difficult times, they would not be able to force a branch of a big foreign bank or insurer active in their country to top up capital.EU finance ministers endorsed on Tuesday a compromise brokered by EU president France that diluted the power of a home supervisor in the colleges, to the dismay of Britain and others.

"When we consider banking problems, there is general consensus that group support [the colleges of supervisors] could be helpful," said British Finance Minister, Alistair Darling."To take it out of this particular industry does not make sense," Darling said, referring to the decision to lessen the power of the home regulator.The compromise would also lead to lower capital requirements for insurers that fall "well below" what is accepted by UK supervisors, Darling said.Many EU states have called for a revamp of financial supervision on a global as well as European level.