BRUSSELS, March 21 (Reuters) - European Union governments and lawmakers agreed on Thursday a watered-down reform of the bloc’s financial supervisors that will slightly strengthen the EU watchdogs but will leave large powers in the hands of national authorities.
The plan, initially proposed by the EU executive Commission in 2017, was meant to beef up EU-wide supervision in a bid to increase investor protection and reduce loopholes that allow EU states to offer regulatory sweeteners to financial firms.
But divisions among EU governments and lawmakers forced negotiators to vastly reduce the scope of the overhaul, leaving open some loopholes that could benefit financial firms from countries outside the bloc, including British asset managers after Britain leaves the bloc.
Under the reform, EU supervisors will have more powers to tackle the misselling of toxic financial products to investors, and will acquire direct monitoring competences over some markets operators, such as critical benchmarks.
They will also be given new competences to monitor environmental and social risks in investments.
But the oversight of other financial actors such as asset managers will remain in national hands, allowing smaller states with oversized industries, such as Luxembourg or Ireland, to maintain broad regulatory leeway - in spite of initial proposals to narrow these loopholes.
The reform gives also more powers to the EU banking watchdog, the European Banking Authority, to counter money laundering, but supervision will mostly continue to be carried out by national authorities despite a series of cross-border scandals at the bloc’s banks that showed weak oversight in many EU states.
Negotiators expressed satisfaction for the overhaul that faced the risk of being scrapped altogether if no deal was reached before European Parliament elections in May.
“This is an important step towards our goal to have not only a single rule book, but also a consistent supervisory approach across the EU,” EU Financial Services Commissioner Valdis Dombrovskis said.
“Today’s conclusion of the negotiations brings relief for a reform that was on the edge of the abyss. However, it is irresponsible that EU governments blocked a true European restart for common financial supervision,” said EU lawmaker Sven Giegold, who was part of the parliament’s negotiating team. (Reporting by Francesco Guarascio; Editing by Alison Williams)