"The process and timing of the various stages of making draft Technical Standards should be improved. For the delivery of high quality Technical Standards, including appropriate involvement of stakeholders through consultations, ESMA requires at least 12 months after publication in the Official Journal. In addition, I would like to recall the general expectation that draft Technical Standards are endorsed by the Commission within deadlines envisaged in the ESAs Regulations, based on which the Parliament and the Council can exercise their scrutiny. Also, I would very much welcome better coordination and communication to improve ESMA’s understanding of the co-legislators’ intentions to further improve the alignment between Level 2 and Level 1 work;
"We need to have an instrument similar to the no-action letters – available to other financial markets regulators. While changing Technical Standards is quicker than amending a Directive or Regulation, in some cases the time required is still too long. For example, in the case of quickly evaporating liquidity it is important to have an instrument to allow the rapid termination of a clearing or trading requirement; and
"ESMA needs to have the power to impose higher fines on supervised entities. In the last four years ESMA has issued one censure and three fines on supervised entities, both CRAs and TRs. However, the fines we can impose need to be higher to ensure that our enforcement is seen as a credible support to our supervision."
Supervisory convergence
"Since ESMA’s establishment, the convergence tools have improved, compared to those available to our predecessor, but experience shows that the current supervisory convergence tools are too weak. This point is illustrated by the case of CFDs and binary options, highly speculative products with a low chance of positive returns, which continue to create consumer detriment across the EU. The offering of CFDs and binary options to the EU retail market is mainly concentrated in one EU member state, where investment firms use aggressive marketing campaigns and large call centres to sell their products. While ESMA has undertaken various convergence activities on this matter, and the NCA concerned has stepped up its supervision and enforcement activities, our tools are not sufficiently effective to ensure that the risks to consumer protection are sufficiently controlled or reduced."
Framework for third countries
"The EU framework for third countries rightly tries to achieve consistent regulation and supervision of global financial markets, and to strengthen the EU as a stable global financial region where it is attractive to conduct financial activities where investors are protected.
"It is clear to me, based on this experience, that the EU third country framework needs to be overhauled. First, there is no generic third country framework: it is a patchwork of arrangements varying across the various pieces of legislation. No arrangement is identical and they are mixtures of equivalence, endorsement, recognition, third country passporting or no arrangement at all. While some differentiation seems inevitable to respond to the different nature of various financial market activities, based on the experience of the past few years it would be beneficial to see greater consistency.
"Second, the third country framework is time and resource intensive as it requires detailed assessments of the regulatory and supervisory regimes of third countries, lengthy negotiations if a third country is initially not equivalent, and the assessment of applications for third country entities that need to be recognised. ESMA, at a minimum, should be in a position to charge fees to third country entities requiring recognition to cover some of the resources involved.
"There are also more fundamental problems with the EU third country framework. I will illustrate these problems with the equivalence system as applied under EMIR. When the regulatory and supervisory outcomes are determined to be equivalent, subject to certain conditions, a third country CCP can be recognised and provide its services to EU clients. However, under this regime there is a heavy reliance on the home regulator. In its 2015 EMIR review reports, ESMA raised two main concerns regarding the equivalence mechanism.
"First, the main benefits of the equivalence system materialise when all main jurisdictions apply this approach: an internationally active CCP would mainly be supervised by its home regulator. This is beneficial from the perspective of avoiding duplications and inconsistencies in supervision and regulation.
"However, the EU is an island of third-country reliance in a world that has mostly opted for individual registration of CCPs that want to do cross-border business. Therefore, third country CCPs have benefited from the EU’s system, while internationally active EU CCPs must be authorised and are subject to the supervision of third country regulators. This was not the intended result when designing the equivalence mechanism.
"The second concern relates to the strong reliance on the home country regulator: do we have sufficient assurance that risks of the third country infrastructures’ activities in the EU are adequately assessed and addressed by the third country home regulator? While we have excellent cooperation with our international colleagues, we have no assurance that a third country regulator has the right incentive to appropriately assess and address the risks associated with the activities of its supervised entities outside its jurisdiction. Additionally, ESMA has very limited opportunities to see the specific risks that third country CCPs might be creating in the EU as we have very limited powers regarding information collection and risk assessment, and no regular supervision and enforcement tools.
"Therefore, we need to rethink and overhaul the framework for third countries in financial markets legislation. The point of departure should stay the same: achieving consistent regulation and supervision of global financial markets, and strengthening the EU as a stable global financial region. An important element to consider in such a new system is ensuring that risks posed by the activities of third country entities in the EU can be adequately assessed and addressed. This is especially relevant the bigger the third country’s financial markets and the more interconnected with the EU’s financial markets. A final consideration is that the risk of regulatory competition is reduced when execution of the third country framework is conducted at EU level."
Full speech
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