ESMA 2019 work programme was recently issued (please find it here).
In light of ESMA’s increasing responsibilities and broader role to be played at European level, with particular emphasis on regulatory supervision and convergence, the aim of this post is to highlight some of ESMA foundations, what is regulatory convergence and how ESMA 2019 work programme designs strategies to fulfil ESMA mission at the time of Brexit.
ESMA mission, objectives and activities at a glance
Founded in 2011 to replace the Committee of European Securities Regulators (CESR), the Paris-based authority is independent and has been entrusted with the onerous task to safeguard the stability of financial markets in Europe. With full accountability towards the European Parliament as well as the Council of the European Union, ESMA achieves its objectives by assessing the risks to investors and the stability of financial markets, promoting convergence amongst securities regulators and across financial sectors, developing a single rule-book in Europe for the financial services and directly supervising specific financial entities. By leveraging on its unique position, ESMA can identify emerging trends, vulnerabilities in the system as well as market developments that can threaten financial stability in European markets.
- Mission: enhance investor protection and promote stable and orderly financial markets;
- Investor Protection
- Orderly Markets
- Financial Stability
- Promoting Supervisory Convergence
- Assessing risks to investors, markets and financial stability
- Completing single rule-book for EU financial markets
- Directly supervising specific financial entities
Notwithstanding that ESMA was established to continue the work and the mission of its predecessor, it has been granted with new competencies and additional powers when compared to the ones the CESR was used to have. One area of significant departure is related to the position that ESMA occupies in the law-making process at European level. In fact, where CESR merely prepared draft technical advice for the European Commission, ESMA has instead been assigned the task of preparing draft laws. Accordingly, the European Commission has the task to ensure that such draft laws are in line with the interest of the European Union and are broadly compatible with the EU law. The European Commission receives ESMA’s draft laws with a view of adopting such with little to no amendment at all where possible. Also, where CESR had available a simple mediation mechanism, ESMA has instead been vested with ample powers to settle disputes and issue legal decisions, binding on the receiving competent authorities and compelling them to either take or refrain to action in order to settle a specific matter.
ESMA is called to play a bigger role in supervisory convergence as part of an organic growth of its competences and the ESMA 2019 work programme reflects that clearly. Since ESMA establishment in 2010, supervisory convergence will prove to be an area where efforts and work will be concentrated in the coming years. And this is also a natural consequence of the work done at EU level since the financial crisis in 2008. Whilst at inception ESMA dedicated more effort in building the European rule-book, today that a rule-book is in place and also very articulated, its role is shifting to ensure that the multitude of regulatory provisions are applied consistently across Europe.
We hear increasingly more these days about convergence in the exercise of regulatory supervision and that means ensuring that the same regulatory and supervisory outcome is obtained in similar circumstances. Supervisory convergence in Europe ensures that a homogeneous and levelled environment is created for regulation and supervision, where there are reduced possibilities for regulatory arbitrage within different areas of financial services across Europe. Convergence is a consequence of the changed landscape of the European regulation on financial services, after nearly ten years have lapsed from the last financial crisis.
Especially in the context of Brexit, ESMA 2019 work programme will see ESMA engaged even more with NCAs across a varied broad spectrum of activities and foster debates on real cases as well as organise peer reviews on certain specific areas in order to manage efficiently the complexities of the existing EU regulatory book. ESMA 2019 work programme makes supervision and regulatory convergence – on the topic of relocation of UK firms to the EU 27 – a priority for the coming year and will ensure that an ever-intensive exchange of information continues to take place amongst senior enforcement experts as well as national supervisors in order to tackle strategic issues more efficiently.
ESMA will also continue on leveraging on technology to achieve the goal of regulatory convergence. The Interactive Single Book is a project consists of publishing on ESMA’s website electronic versions of key level 1 directives or regulations within ESMA’s remit, with embedded hyperlinks allowing easy access to all related applicable regulatory or implementing measures such as technical standards, Guidelines, Opinions or Q&As. ESMA 2019 work programme also sees continuous works for the development of an Interactive Single Book that will facilitate consistent application of the EU single rule-book in a set of specific areas beyond the already covered UCITS Directive and CRA regulation to encompass MiFID II and MiFIR.
According to the ESMA 2019 work programme, efforts of supervisory convergence will also be deployed in the area of investment management. In fact, ESMA 2019 work programme intends to achieve for the coming year greater convergence and consistency in the practice and approach adopted by National Competent Authorities (NCAs) across Europe with a specific focus on application of the UCITS and AIFM directives. It is envisaged that additional work will be required on these directives too in the course of the coming year. ESMA 2019 work programme envisages continued and concentrated effort to ensure that these directives are applied and implemented consistently by means of additional Q&As documents as well as guidelines and other supervisory convergence tools.
ESMA 2019 work programme will also require a certain level of effort deployed in managing, from a European Union perspective, the withdrawal of the United Kingdom from the EU 27. This will be a very important event for European markets and will also have impact on future ESMA activities, because of the multitude of risks involved for the orderly functioning and stability of European financial markets as well as investor protection. Stronger and even more disciplined internal coordination and external output will be required in response of forthcoming changes for the markets as well as bigger communication effort towards institutional and other market stakeholders.
There has been a diffused scepticism in certain European countries over the powers that increasingly ESMA has received over the past years. News of increased powers for ESMA weren’t well received by some regulatory authorities in Central Europe, which didn’t seem to believe that a shift of regulatory supervision authority from a local to a centralised European level was justified or even required. On the one hand, however, the complexities of the EU rule-book have been increasing over time. The most recent EU legislative initiatives on the regulation of financial services – some of which very ambitious and ever encompassing in scope – have been creating overlaps and idiosyncrasies within the EU rule-book as a whole that are hard to reconcile and be solved only at a local decentralised level. Brexit, on the other hand, has required more centralised coordination in order to ensure that regulatory arbitrage risk is contained to a minimum.
We cannot help but notice that ESMA renewed powers, far from being a necessary evil, are instead a necessary consequence of both the organic evolution and the contingent political situation in Europe.