Proposals to significantly reform financial regulation in Europe by the end of 2010 could have unforseen consequences for Ireland if the legislation is rushed through, an Oireachtas committee said today.
A report published by the Oireachtas Committee on European Scrutiny said that while the new plan was welcome, there were concerns over the speed of its introduction and recommended the proposals be scrutinised at both European and national level.
"While acknowledging the urgency of the situation in relation to the financial crisis the Committee is worried that the legislation is being rushed. The short timeframe has undermined the capacity of national parliaments to properly scrutinise the draft legislation," said committee chairman John Perry.
"The lack of thorough analysis could result in unintended consequences which might have a negative impact on the competitiveness of financial services, especially on niche activities which are very important to smaller countries like Ireland."
Under the proposals, a European Systemic Risk Board would be established to monitor risks to the financial system and issue warnings to member States and institutions. Three new authorities - the European Bank Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority - would also be created, given powers to make and enforce rules, and force financial institutions to take specific actions, develop new harmonised standards and improve investor protection.
"The global financial crisis highlighted major shortcomings in the system of financial regulation both at EU and national level. We feel that these new directives will significantly beef up the role of the EU in financial supervision," Mr Perry said.
The Committee believes that this new rule book and common set of standards should help to deliver a more harmonised, better regulated market which will help protect investors and assist in making Ireland more competitive in the financial services market."
The committee said it believed the restructuring of the Central Bank of Ireland along with the proposed reforms should improve the effectiveness of financial regulation both in Ireland and across the EU.
A more "robust" regulatory system could increase Ireland's competitiveness in financial services, it said, particularly the ability of the IFSC to maintain and attract jobs and investment.
The report said day to day regulation of individual financial institutions will remain with national regulators. However, it said Ireland needed to remain cautious "given the inevitable reduction in national autonomy and control".
