EU financial rules 'must not undermine national sovereignty'

New European powers to supervise banks and financial institutions in the wake of the economic crisis must not be used to undermine national sovereignty, an MEP warned yesterday.

Conservative Kay Swinburne was speaking after the European Parliament approved what Chancellor George Osborne has called a "new financial supervision architecture for the EU".

The vote ends months of negotiations between MEPs, EU finance ministers and the European Commission, and ushers in a new system of central financial supervision, although the deal leaves day-to-day control over banks and other financial institutions in the hands of national authorities.

However, eurosceptics have warned the legislation could see the erosion of effective national responsibility.

Swinburne said: "This deal ensures that cross-border markets can be supervised by cross-border institutions which co-ordinate the work of national regulators. It provides the markets with a common rule book and greater certainty over the key questions of who will regulate what and where.

"(However,] this package must be seen as the high-water mark of European financial supervision and not the first step towards handing over these powers to Brussels."

The rules create three new European Supervisory Authorities (ESAs) and a European Systemic Risk Board (ESRB), designed to ensure fair and open competition between cross-border financial institutions.

The three new authorities will be responsible for tightening surveillance of the banking, securities and markets, and insurance sectors.

The one overseeing banks - the European Banking Authority - will be based in London.

All three will have power to mediate in cross-border disputes between national supervisors and will monitor how national authorities implement EU legislation.