The European Parliament on Thursday rejected a proposed interim agreement that would have given US authorities access to European financial data to help combat terrorism.
MEPs argued that the privacy risks posed by the agreement, which would have allowed US investigators access to financial data held by the Swift banking network, were not in proportion to the security benefits to Europeans.
Supporters of the proposed agreement, including the European Commission, said the European Parliament's decision would have a significant negative impact on anti-terrorism activities.
"The Commission regrets the fact that the highly valuable information that this instrument would have provided for the fight against terrorism will not be available," it said in a statement.
The European Parliament resolution rejecting the agreement was approved by 378 votes to 196, with 31 abstentions, rendering the interim agreement signed between the US and the 27 EU member states legally void. The parliament said it proposed to negotiate a new agreement, and asked the Commission and the European Council to begin work on a longer-term agreement with the US on the issue.
"The Council has not been tough enough on data protection," stated Jeanine Hennis-Plasschaert, a Dutch liberal MEP.
Swift is a Belgium-based banking co-operative that handles transfers across borders. Until 2009 the organisation stored data on servers in the US, and this data was accessed by US authorities following the 11 September, 2001 terrorist attacks.
Last year, Swift shifted all its European data to Switzerland, which required the Commission and the Council to come to a fresh agreement on rules for US access to Swift's data.
The interim agreement had been due to last for nine months.
The Commission said it intends to work on a new Swift agreement which will be able to gain the European Parliament's approval.
"We need to co-operate with our US partners in order to fight terrorism effectively, and enhance security for our citizens," said commissioner for home affairs, Cecilia Malmström. "This must be done — and can be done — while ensuring the protection of civil liberties and fundamental rights."
The Commission said it would adopt draft guidelines for a long-term agreement "in the coming weeks".
In the meantime the EU and the US have a Mutual Legal Assistance agreement in place that allows for the exchange of data within the framework of EU member states' national laws, according to the European Parliament.