On Wednesday 20 September, the European Commissioner for Financial Services, Valdis Dombrovskis, presented the Commission's legislative proposal revising the three European financial supervisory authorities (ESAs): ESMA, EBA and EIOPA, which supervise the financial markets and the banking and insurance sectors respectively (see EUROPE 11864).
Whilst the text makes no reference to a single European supervisor - an idea that has been raised on a number of occasions, for instance when the Capital Markets Unions was first mooted - Dombrovskis said that the approach adopted by the Commission, which is both ambitious and realistic, aims to reflect this idea.
Another idea that has been rejected due to insufficient support, Dombrovskis said, is the so-called 'Twin Peaks' approach, merging the EBA and EIOPA.
Finally, the proposal maintains unchanged the supervisory architecture with three separate European authorities and makes only modest changes, for instance to tighten up the convergence of supervision throughout the EU. As announced by EUROPE, the Commission is not proposing to extend the EBA's competences, with very few changes for EIOPA, which may gain a more prominent role in moving the approvals for internal models used by certain insurance companies to calculate their required solvent capital closer together, but also proposes to increase ESMA's direct supervision in several areas.
This would give ESMA the new responsibilities of: - authorising and supervising the use of third-country benchmarks for use in the EU; - approving certain prospectuses drawn up in the EU and all prospectuses established in third countries under EU rules; - accrediting and monitoring certain investment funds bearing the EU label, and; - a greater role in coordinating investigations into market abuses.
To accompany these new competences, the Commission is also proposing to reform the governance and financing of the ESAs. As regards governance, the creation of an independent executive committee within each of the three authorities, responsible for making decisions on coordinating supervisory practices, would not be expected to affect the balance of responsibilities with the national supervisors, according to a European source.
The Commission also maintains that the proposal will not affect the balance between Eurozone members and those outside the single currency. For the EBA, it stipulates that the safeguards set in place will be maintained and that decisions will require the support of the majority of national authorities that are not members of Banking Union.
A new financing system has been tabled, requiring financial players to contribute to the funding of the European authorities' activities. The Commission considers that this system will give the ESAs greater independence and flexibility, by reducing the impact of the constraints related to contributions from the member states.
Although at the moment, it is hard to say what level of contributions will be necessary, the authorities' new activities and responsibilities will inevitably lead to higher spending and therefore a higher budget. According to the same European source, the budget of each of the authorities is expected to rise by some €10,000.
Anticipating the industry's criticism on this point, Dombrovskis stressed that the financing question had been largely debated and, in particular, put for public consultation. He considers the system to be balanced.
Silence on British access to the EU financial market post-Brexit
The proposal does not attempt to settle the matter of the relocation of the EBA, currently based in London, after Brexit, the Commissioner said. He added that this will be for the member states to decide under the relevant criteria and hinted that the decision may be made at the European Council of November.
The Commissioner also took the opportunity to reiterate that although this revision was scheduled before the Brexit vote, this new prospect has forced the Commission to redirect its reflections on the subject and was the reason behind its decision to lay emphasis on the convergence of supervision within the EU, in order to avoid “some kind of race to attract businesses from London leading to some race to the bottom”.
On the question of the equivalence of third-country rules with those of the EU, the European institution asks the ESAs to carry out a regular monitoring of the development of the regulatory framework in third countries with one or more equivalence decisions (see EUROPE 11734) and to report back to it in confidence once a year.
Disappointment for retail investor organisations
The proposal was unanimously welcomed by the three ESAs and by certain stakeholders on the financial and insurance markets, such as the Association for Financial Markets in Europe and Insurance Europe. Consumer protection bodies, on the other hand, were somewhat disappointed.
The European Consumers' organisation (known by its French acronym, BEUC) and the organisation Better Finance, which defends the interests of retail investors, argue that the proposal further limits the role of the authorities in protecting consumers, which has been relegated to the national level, where protection standards vary enormously.
The two organisations also expressed concerns regarding the measure that allows the Commission to ask ESAs to withdraw the guidelines it has issued, by request of the majority of members of the expert groups tasked with advising the ESAs. They describe this as an “anti-democratic” approach, as these groups are dominated by representatives of banks and providers of financial services, who will now be in a position to block recommendations more easily.
The co-legislators, who must now take position on the legislative proposal, had a more mixed response. In a press release, the French Ministry for the Economy and Finance welcomed the Europeanisation of the governance of the authorities and said that France intended to start talks at the Council with the aim of an ambitious result, reinforcing the integration and supervision of the financial markets still further.
At the European Parliament, the S&D group said that the proposal was a step in the right direction, while the Greens criticised the planned changes to the procedure for appointing the presidents of the ESAs. The Commission is planning to select candidates for the posts of presidents itself, by issuing a call for applications. As for the Council, it would be responsible for appointing full-time members, with the Parliament only informed of these appointments.
MEP Sven Giegold (Greens/EFA, Germany) slammed the move as an “attempt to undermine democracy on the European level”, by limiting the Parliament's rights. When asked about this, Commissioner Dombrovskis stressed that Parliament will have a role to play, but declined to be drawn any further. (Original version in French by Marion Fontana)