The EU’s banking agency should have blocked its executive director from becoming the head of a lobbying group that represents some of the world’s biggest financial groups, according to an EU watchdog investigation.
The European Ombudsman, an independent authority tasked with probing complaints against the EU, found that the European Banking Authority should have vetoed Adam Farkas’s move this year to become chief executive of the Association for Financial Markets in Europe, which brings together banks such as JPMorgan, Société Générale and UBS.
“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 ombudsman Emily O’Reilly said in a statement on Monday that accompanied the decision. “Public authorities cannot allow themselves to become proxy recruiters for the industries they are regulating.”
The ombudsman’s findings echo complaints from the European Parliament and civil-society groups about Mr Farkas’s move. MEPs adopted a resolution this year urging the EBA to “review” its decision to allow the switch of jobs.
The parliament advised the EU’s institutions to refuse contact with Mr Farkas for two years. MEPs also rejected the EBA’s proposal that Gerry Cross, a Central Bank of Ireland official and former AFME employee, succeed Mr Farkas.
Mr Farkas’s switch is the latest example of controversy over the revolving door between the EU and the private sector. Other cases that have attracted public criticism included the former European Commission president José Manuel Barroso’s decision to move to Goldman Sachs in 2016 — which prompted EU officials to launch a public petition in protest.
The commission toughened the EU’s code of conduct for senior staff in response to the outrage over Mr Barroso’s appointment, but its handling of the affair was in turn criticised by Ms O’Reilly.
The Change Finance Coalition, a civil-society coalition that asked Ms O’Reilly to investigate Mr Farkas’s appointment, said the EU had still not got its house in order. It called on the commission “to work out clear rules on how the lobby power of the financial industry can be minimised in all European institutions concerned with financial oversight and regulation”.
The furore over Mr Farkas is also another blow for the EBA, which has come in for criticism for failings in the fight against money laundering. The agency was rebuked in 2019 for shelving an internal report into breaches of union law that contributed to a laundering scandal at Danske Bank.
Ms O’Reilly said Mr Farkas’s move presented clear conflicts of interest that the EBA had failed to tackle. The authority had placed restrictions on Mr Farkas’s activities that it could not hope to robustly enforce, notably when it came to his potential use of confidential EBA information, she added.
“The ombudsman finds that the EBA’s decision not to forbid its executive director from becoming the CEO of a financial industry lobby was maladministration. Forbidding the job move would have been a necessary and proportionate measure in this particular case,” Ms O’Reilly’s report said.
The EBA is responsible for fleshing out European financial regulations and putting them into operation, as well as carrying out EU-wide bank stress tests. Mr Farkas was executive director of the Paris-based group for nine years, a position which put him in charge of the authority’s day-to-day activities. The EBA is directly lobbied by AFME on regulatory issues.
Ms O’Reilly said the EBA had committed a second act of maladministration by being too slow to cut Mr Farkas’s access to sensitive material after he formally handed in his resignation on August 2 last year. He ceased to have access to privileged information on September 23.
The EBA said in a statement that it would take on board the ombudsman’s recommendations, which included that the agency should set out criteria for when it will forbid job moves. “We take note of and respect the ombudsman’s findings,” it said. “We are confident that the restrictions we have put on the former executive director to limit the conflict of interest were commensurate and proportionate.”
Among others, those measures included putting Mr Farkas on a period of paid leave, banning him from contacting EBA staff for two years after his move and insisting that he refrain from assisting AFME members on topics directly linked to his work during his final three years at the EBA.
But the ombudsman’s report said: “Even assuming the best efforts of the former executive director, he cannot be made to forget the confidential information that he is aware of, which must be assumed to be significant.”
The AFME declined to comment.