Development and Finance from issue 2009/1

István Farkas

The Growing Responsibility of Financial Supervisory Authorities

- Abstract -

JEL G-18

Supervision based on monitoring must be replaced by forward-looking activities.  In addition, the main purpose of coexistence with the market must be seen as being for the supervisory authorities to gain an understanding of the institutions’ business models. These are the essential steps required if the supervisory authorities are to succeed in imposing a longer-term view instead of short-term market solutions. Durable legislation is important, but in a rapidly changing situation durable rules can only be drawn up once the most important qualitative elements are fixed. This, however, still leaves an area which, in the spirit of the rules, and in a transparent and accountable manner, has to be filled by the regulatory role of the supervisory authorities. The most significant change required is that longer-term interests must take precedence over short-term interests. One aspect of this is a change in the way issues of interest are handled, but greater controls must also be introduced for institutions which are critical to the system, such as auditors and rating agencies. One way of reducing chauvinism in the sector would be to have more integrated rules and supervision, whilst a solution to the issue of the self-interest of national supervisors could be a uniform European system with limits on legislative exceptions and European level supervision.

István Farkas, Chairman of the Board (Hungarian Financial Supervisory Authority)

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