The EU’s banking regulator should have stopped its own executive director from becoming a lobbyist, according to the European Ombudsman Emily O’Reilly.
The official said, “Public authorities cannot allow themselves to become proxy recruiters for the industries they are regulating.”
Her comments come after she led an inquiry into Ádám Farkas’ exit from the European Banking Authority (EBA) to become chief executive of the Association for Financial Markets in Europe (AFME).
The EBA will have to reply to the Ombudswoman´s recommendations within the next three months.
In January, the European Parliament adopted a resolution condemning the move, calling on MEPs to avoid meeting Farkas and requesting that he should not obtain the badge necessary to enter the Parliament’s premises.
It also rejected Gerry Cross as successor for the post of the Executive Director at the EBA for his links to AFME, a former employer of his.
The findings - based on a complaint - were welcomed by German Greens MEP Sven Giegold who said, “I will now send a letter to each and every EU institution and agency, calling for the recommendations to be implemented and for decisive action to be taken to prevent conflicts of interest in job changes of staff.” He added, “the whole process is embarrassing.”
O'Reilly ruled that the EBA should not have allowed Farkas, its former executive director to become CEO of a financial lobby association and it has not immediately put in place sufficient internal safeguards to protect its confidential information when the planned move became clear.
"In allowing its former executive director to join a major financial lobby association, the EBA risked perpetuating one of the core regulatory problems it was created to fix" European Ombudsman Emily O’Reilly
She said, “The EBA was created from the ashes of the 2008 financial crash – a crisis, in part, defined by regulatory failure and so-called ‘regulatory capture’ by the financial industry. In allowing its former executive director to join a major financial lobby association, the EBA risked perpetuating one of the core regulatory problems it was created to fix.”
“The so-called ‘revolving door’ challenge is difficult for many public administrations. There is a fundamental right to work but it’s a right that may be qualified by consideration of the interests of the general public. That interest is not always adequately understood or else is downplayed. EU institutions must however always maintain the highest standards and assess revolving door cases in terms of protecting that wider public interest.”
“This case involved the executive director of an EU agency, which is tasked with devising rules to regulate and supervise European banks, moving to a lobby group that represents the wholesale financial sector. This group quite obviously wishes to influence the drafting of those rules in its members favour. If this move did not justify using the legal option, provided under EU law, to forbid someone from moving to such a role, then no move would.”
"The EBA must now swiftly revise its internal rules to prevent such serious conflicts of interest in the future" Sven Giegold MEP
“The ‘right to work’ is important but has to be interpreted in line with the public’s right to trust in EU banking supervision and the right to an administration of the highest standards, particularly when it comes to those holding, or having held, senior positions. As we enter a new global economic crisis, there is a greater need than ever to protect the public interest, and the EBA should be to the forefront in doing so. Public authorities cannot allow themselves to become proxy recruiters for the industries they are regulating.”
“The EU has, in many ways, stronger restrictions than many member states in this area, however the EU especially should always do its utmost to maintain the highest standards.”
Reaction was swift with Giegold saying, “The recommendations are a milestone against revolving door practices between European public authorities and lobby organisations. This is a great success for the longstanding fight against one-sided lobbying influence. The EBA must now swiftly revise its internal rules to prevent such serious conflicts of interest in the future.”
The complainant, the Change Finance Coalition, a civil society NGO, agreed with its member Kenneth Haar, saying, “The Ombudsman recognises that top officials at the EBA have been allowed to maintain very close ties with the financial industry.”
"There is a lot of work to do for the EBA, and I don’t see how they can avoid a major cleaning after today’s decision" Kenneth Haar, a member of the Change Finance Coalition and researcher at Corporate Europe Observatory
“Hopefully, the decision will be the beginning of the end of that era. There is a lot of work to do for the EBA, and I don’t see how they can avoid a major cleaning after today’s decision,” added Haar, also a researcher at Corporate Europe Observatory.
Jana Leutner, also from the Change Finance Coalition, said the decision “is a step in the right direction” and called for “strong actions regarding the fight against the overwhelming lobby influence in all EU institutions.”
“As this is not an isolated case of revolving doors or undue lobby influence, we think further action is needed and call on the EU Commission to work out.”
She called for “clear rules” on how the lobby power of the financial industry can be minimized in all European institutions concerned with financial oversight and regulation.
“An independent EU ethics body and more balanced advisory groups, for example in the European Central Bank, would be two important steps forward.”