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The ESA Review confirmed the importance of the European Supervisory Authorities and the European Systemic Risk Board, established 10 years ago, but only led to limited changes in their structure. European Securities and Markets Authority was given new competencies, but they remain limited in terms of the objective of creating a capital markets union.
Beyond any doubt, the ESFS has been a big step forward in European supervisory cooperation. Given the lessons of the 2007 and 2008 financial crisis, with its intense regulatory competition and lack of information exchange between supervisors in the EU, incompatible data templates and improper oversight, a strengthened structure for European regulatory and supervisory cooperation was long overdue. What has been achieved after only 10 years with limited means and a relatively small structure is remarkable.
The objectives at the start of the ESFS were to ensure more coherent and efficient financial supervision in the EU, at the micro as well as at the macro level. It established three different functional ESAs, and the European Systemic Risk Board (ESRB). The role of the European Banking Authority (EBA) was overtaken by the SSM, which was launched two years later, but both have managed to remain distinct and complementary.
Overall, the main focus of ESAs in the first decade was regulatory convergence, with the single rulebook as the leitmotif. The effort spent on preparing level 2 legislative measures, regulatory and implementing technical standards (RTS and ITS), was enormous, as was the effort spent on guidelines (level 3). Related to the guidelines were the Q&As on legislative acts within the remit of the ESAs. They have become a widely used tool to ensure a common EU-wide interpretation, endorsed by the Board of Supervisors.
The ESAs have made an important contribution to establishing a European supervisory culture, mostly through peer pressure. A multi-layered structure has been established, from the Board of Supervisors and the management board of each ESA, to the joint Committee of the ESAs, the various standing committees and the stakeholder groups. The ESRB is somewhat separate from that structure and is fully integrated into the European Central Bank (ECB).
Back in 2010, the ESFS was created almost from scratch, with important responsibilities given to four new entities. 10 years later, the ESAs and the ESRB have become essential elements in the EU’s financial regulatory and advisory machinery, employing together over 700 people, and have become focal points for the sector. The ESAs have coordinated a wealth of regulatory standards, reports and guidelines. They have also slowly stepped up their supervisory work, most importantly in the case of ESMA with its unique supervisory tasks, but also its growing actions in the markets. This can be expected to expand further as a result of the amendments to Art. 9 regarding consumer and investor protection, following from the evidence of its first exercise of product intervention powers.
The decision-making in the ESAs remains very much oriented towards the member states, with the exception that the chair of an ESA now has a voting role in the Board of Supervisors and a stronger control of the agenda for decisions in the Board. But overall, member states’ interests will prevail on sensitive issues, and a more EU-wide approach may be precluded. This was also clear from the debate on the new supervisory tasks. The calls for a more integrated structure and more streamlined decision-making will thus persist.
For the most important new supervisory task, the supervision of CCPs, it is to be regretted that the structure has become so byzantine, between ESMA’s CCPs Supervisory Committee, the ESMA board and the national competent authorities. Such a structure is also maintained in the draft recovery and resolution procedures for CCPs, which is currently being discussed. This does not augur well if decisions have to be adopted rapidly, as will be the case when a CCP gets into trouble. It also makes little sense to leave so much power with member states, over a financial market infrastructure that is so concentrated and interconnected, with about 17 entities in the EU (and 13 without the UK). But also in other areas, member states have stood up to protect their prerogatives, which is prejudicial to European market integration.
The ESA Review was a complex legislative exercise, which is also related to the fact that, 10 years after their creation, the different authorities and the ESRB have become fairly distinct entities. Bringing the Review together in one legislative file is a confusing exercise, which confirms what we have previously called for, namely, that in the future, reviews should be carried out separately for the 3 different ESAs, and for the ESRB. The organisations have evolved differently over the first 10 years of their existence, and each of them requires a distinct treatment in further reviews. This also makes it difficult to argue that the EU has moved closer to a twin peaks supervisory model. The creation of the SSM in the ECB was a big step in that direction, but the ESAs are headed more towards strengthening sectoral supervision, incrementally and at different speeds according to the sector, but not necessarily in a consistent way.
Any future review should start with a vision of what the EU wants to achieve in the financial sector and adapt the desirable European supervisory structure to that.