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Development of a Single Rulebook
As well as its coordination role, ESMA took on its new role as EU securities markets standard-setter with responsibilities regarding the development of technical standards and advice for new, or soon to be revised, pieces of legislation. These dealt with markets (MiFID), their infrastructure (EMIR), transparency (TD, PD, IFRS) and orderly functioning (short-selling, MAD), along with rules for financial market participants such as CRAs and investment funds (UCITS, AIFMD). It feels at times like being the regulator for acronyms.
One priority area where ESMA has been active, and which has also recently made headlines, has been in relation to the Alternative Investment Fund Managers' Directive - AIFMD. In November 2011, we delivered to the Commission our advice on the implementation of aspects of the Directive. This was a top priority for 2011 and I believe we provided a high-quality submission, covering a broad range of subjects, which had benefitted from constructive submissions from a wide variety of stakeholders.
However, we have recently seen attempts, based on an unpublished draft of the Commission’s final text, to portray ESMA and the Commission as being at loggerheads over the treatment of our advice in the final text which will be presented to the European Parliament and Council. I would like to take this opportunity to reiterate that, while the Commission has requested ESMA’s technical advice on this topic, the Commission has final responsibility for how the Directive is interpreted and is under no obligation to accept any of our advice, never mind all of it. The fact of the matter is that the vast majority of ESMA’s advice has been accepted by the Commission without amendment, and those divergences that do exist are a matter for the Commission. However, we believe that ESMA’s overall approach, resulting from broad consensus amongst the 27 EU national supervisors and the input of many stakeholders, remains the best option. My final word on the issue is that the final text is not due to be published until July so there may still be changes, however this is no longer in ESMA’s hands but firmly in those of the executive and legislature. Later in my speech I will come back to the AIFMD when discussing ESMA’s international activities.
Supervisory Convergence
Part of ESMA’s raison d’être is to foster supervisory convergence, thereby reducing the risk of regulatory arbitrage which has the potential to undermine not only the integrity, efficiency and orderly functioning of markets but ultimately financial stability. While the single rulebook will contribute to this convergence, and is still very much a work in progress, ESMA has been active in a number of areas which should create the environment in which this common approach can take root.
I would now like to touch on a number of ESMA activities that have contributed to this supervisory convergence. The most high profile action taken to date was our coordination, last August, of simultaneous bans on net short positions in Belgium, France, Italy and Spain. Throughout the period of the bans, ESMA played an active coordination role in the adoption of the emergency measures, aligning the interpretation and implementation of the measures and assessing whether to lift or maintain them. The ability to take emergency measures regarding short selling remains with national authorities for the moment. However, ESMA has demonstrated by its coordination of these measures that it has the necessary expertise to soon take on the powers to take action on short-selling that it has been granted under the new short selling regime.
The financial crisis has had a major impact on the financial performance of publicly traded companies, particularly in the financial sector. As a result of the sovereign debt crisis, ESMA focused its attention on its impact on the accounting practices of listed companies in Europe, specifically financial institutions, with respect to their sovereign debt exposures. Last July, we issued a statement stressing the need for enhanced transparency and the application of the relevant IFRS, and ESMA also encouraged issuers to disclose their stressed sovereign debt exposures on a country-by-country basis in their financial statements. Following that, we assessed the accounting treatment of Greek sovereign debt in the half-year financial statements of EU-listed financial institutions and, to promote consistent application in the year-end statements, published advice in November on its treatment. We also issued an Opinion on Accounting for Exposure to Greek Sovereign Debt.
Supervision
ESMA is the only ESA currently exercising direct supervisory responsibilities of market participants, having taken on in July 2011 the responsibility for the registration and supervision of CRAs wishing to conduct business in the EU. Bringing CRAs under the umbrella of EU supervision is a milestone achievement which will contribute to a sounder rating process and thus more resilient markets and improved investor protection. We have also undertaken our first on-site inspections in December 2011, which will become a regular feature of our oversight of this market sector, and published the findings in March.