EU to vote in new financial watchdogs

A vote in Strasbourg marks the end of months of negotiations to create what George Osborne has called a "new financial supervision architecture for the EU".

The Chancellor backed the idea but insisted British fiscal sovereignty remained intact, with day to day control over banks and other financial institutions staying with the Financial Services Authority.

But the new accord, approved by EU finance ministers and to come into force at the start of next year, centres on the setting up of three new financial watchdogs to tighten surveillance of the banking, securities and markets, and insurance sectors.

The banking watchdog, the European Banking Authority, will be based in London.

The pan-European system is designed to establish close co-operation and co-ordination between national and European authorities to ensure the stability of the EU's financial system, and close gaps in between national regimes.

A board made up of heads of European central banks will monitor and act against macro-economic risks as they emerge across Europe.

Labour MEP Peter Skinner, one of five MEPs who negotiated the final deal on behalf of the 736-strong Parliament, said: "This is good news for consumers, who can now be confident that the full force of EU law is there to support them, wherever a financial services provider may base its headquarters. The new rules will also benefit the financial services industry.

"It is not in their interests to have national regulators applying 27 different interpretations of EU rules. Whether we're talking banking, insurance or capital markets, regulators can no longer act in silos but will have to coordinate their work."

Osborne says the terms of the accord preserve the City's competitiveness as a financial centre. During the negotiations he fended off efforts to oblige the UK to give Brussels sight of his Budget plans ahead of Parliament.

Instead, as made clear in the agreement, he will continue to announce the Budget to the Commons first.

Open Europe, a group campaigning for EU reforms, claimed this month that the supervisory controls amounted to a clear shift in power from the UK, giving EU officials a mandate to "interpret, apply and even enforce EU laws at the expense of national regulators".

Open Europe director Mats Persson said: "Once established, the EU supervisors are likely to extend their powers incrementally, since the proposal is designed to allow for more and more laws to come under their authority."