24 May 2013

ESMA/Maijoor: ESAs – Achievement and challenges

Challenges

So far, I have been silent on supervisory convergence, which is another important objective of ESMA. While good progress has been made in this area, it has not been as significant as in the areas previously mentioned. The publication of opinions in such areas as IFRS financial reporting, pre-trade transparency waivers, and UCITS have resulted in convergence of supervisory practices, and the potential threat of a Breach of Union law procedure has had some disciplining effect on supervisory practices across the EU. Still, we need to consider how we can move faster in this area.

Why has progress been more difficult in the area of supervisory convergence? A first straightforward explanation is that the regulatory reform, driven by the G20 commitments, was a priority for ESMA as for many other securities regulators around the world. This has required focusing energy and resources on developing the single rule book. Secondly, while I think the governance of the ESAs works quite well for the single rule book and direct supervision, it is not surprising there are more tensions in the convergence area as it requires judging the supervisory practices of one or more colleagues in the Board. Hence, I think we should reconsider the organisation and governance of our convergence work and how we can improve the tools available to the ESAs in this area.

Talking about the strong focus on the G20 commitments and the single rulebook, I would like to point out two other areas where there is a risk of imbalance. First, in the years ahead, we need to ensure the right balance between regulation and supervision. Regulation is only credible when it is also effectively supervised and we cannot have a model where we increase the regulation of financial markets without an accompanying increase in supervisory activities and the availability of adequate resources to supervise and enforce the new rules.

The second risk of imbalance I would like to mention concerns the strong focus of the regulatory reform on stability and prudential issues and on financial institutions, like CRAs, CCPs and hedge funds. Regulatory reform has not had the same direct impact on improving the protection of the financial consumer. In the years to come we need to restore the balance between stability-prudential concerns and investor protection concerns. I am optimistic that with the upcoming legislation in areas like PRIPS and MiFID/MiFIR, we can make a stronger contribution to financial consumer protection. One practical example concerns the envisaged powers to ban in exceptional circumstances detrimental products or services, which would give ESMA and the NCAs the possibility to contribute directly to the protection of financial consumers.

Another challenge I would like to mention is the funding model of the ESAs. The way we are now funded appears to have become an important problem for the development of ESMA. The current model where NCAs partly fund the ESAs, imply that more funding for the EU supervisor implies less funding for the national supervisor. This results in tensions as it is inconsistent with the current regulatory reform agenda which requires the strengthening of regulation and supervision both at EU and national level. Possible solutions to consider here are decreasing the level of funding by NCAs, and increasing funding from the EU budget, or from market participants. On the latter, while we are already partly funded by market participants, not all ESMA activities directly related to market participants are yet funded by them.

To conclude on the challenges, I would like to comment briefly on the organisational status of the ESAs in the EU system. The ESAs’ current organisational status is unique reflecting as it does the wish to establish the ESAs as independent authorities, while exhibiting the standard characteristics of an EU agency. This mixed status has resulted in a lack of clarity and should be addressed in the current evaluation. At a practical level we see some conflicts between our founding regulations and the regular requirements for EU agencies. More importantly, I think the ESAs should be funded through an independent budget line in the General Budget of the EU to reinforce their status as independent authorities.

When the ESFS was established an important question was whether the new system was sufficiently different from the existing system of the three Level Three Committees. Having worked in the new environment for more than two years, the answer is clear to me that there has been a fundamental change. However, considering the even more severe conditions in financial markets, we should raise the bar and ask the question whether that fundamental change is sufficient and whether further improvements are needed.

Full speech

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