On Tuesday 10 March, the European Finance Ministers debated the legislative package on market infrastructure and supervision (MISP) presented by the European Commission last December. According to the Cyprus Presidency of the EU Council, the debate was constructive. However, the discussions revealed persistent differences between EU countries on the issue of centralising financial supervision at EU level, as advocated by the Commission (see EUROPE 13766/17).
“The debate confirmed three essential elements on which the Ministers agree: the strategic importance of the package, the need to maintain the momentum and make rapid progress, and the importance of guaranteeing a high-quality result”, said Cypriot Minister Makis Keravnos at noon on Tuesday, at the end of the ‘Economic and Financial Affairs’ Council (Ecofin) held in Brussels in the morning.
Earlier, the European Commissioner for Financial Services and the Savings and Investment Union, Maria Albuquerque, had reminded the Ministers of the importance of the proposed reform to “ensure Europe’s ability to sustain its growth, prosperity and autonomy”, calling on EU countries to act with ambition, integrity, and speed.
“We need you to provide the necessary political impetus to achieve that vision”, she told them.
Despite the European Commission’s stated ambition, Tuesday morning’s ministerial-level exchanges revealed reserved positions on the need to transfer more prerogatives to the European Securities and Markets Authority (ESMA) for certain large market infrastructures and for crypto-assets service providers, the flagship part of the package (see EUROPE 13766/17).
Luxembourg, Ireland, Hungary, Sweden, Germany... are defending convergence. The Irish Deputy Prime Minister, Simon Harris, felt that direct supervision should remain the responsibility of the national authorities, “closest to the markets”, but called for ESMA to strengthen its role in coordinating and applying the rules.
Luxembourg’s Finance Minister, Gilles Roth, felt that market integration should not be confused with centralised supervision. He warned against transforming ESMA into a centralised supervisor, which he felt would add “complexity, bureaucracy, and costs”.
The Czech Minister, Alena Schillerová, felt that a major transfer of powers to ESMA was “not the right solution”, stressing the importance of the expertise of national supervisors.
The German Secretary of State, Jeanette Schwamberger, advised caution. According to Berlin, priority should be given to the convergence of supervisory practices, avoiding “double supervision, additional costs, and administrative burdens” for financial players.
The Hungarian Minister said he was “rather sceptical” about centralisation, citing the risk of higher costs for local players and a weakening of national markets, particularly for SMEs and retail investors.
For the Swedish Minister, Johanna Lybeck Lilja, the legislative proposal on supervision calls for clarification of the division of responsibilities between the national and European levels, particularly “in times of crisis”.
“This package is not the most important thing to make capital markets in the EU bigger. There we know that national reforms are key”, said Mrs Lybeck Lilja, referring to reforms to pension systems (see EUROPE 13810/1) and retail investor participation.
According to the Belgian Minister, Jan Jambon, it would be preferable to end up with a supervisory mechanism “in which national competent authorities retain a meaningful decisional and operational role while ESMA provides stronger steering and coordination”.
Spain, France, Portugal, Croatia... in favour of changes to the institutional framework. For Spain’s Secretary General of the Treasury, Paula Conthe, strengthening ESMA’s supervisory mandate “will be decisive in reducing fragmentation, improving consistency and enhancing investor protection”. And she added: “That being said, we must also ensure that the design of this authority preserves its operational agility and guarantees its cost-effectiveness”.
“Croatia also supports supervisory centralisation with a clear and targeted criteria focused on a large cross-border and systemically important entities”, said Croatian Minister Tomislav Ćorić, while the Director General of the French Treasury, Bertrand Dumont, deplored the existence of “27 national supervisors”, a mode of operation that hampers the integration of European markets.
In addition, Mr Dumont, Mr Ćorić and the Portuguese Minister, Joaquim Miranda Sarmento, all three recalled the experience of the Single Supervisory Mechanism (SSM) in the banking sector.
“Coming from a country that experienced many problems in its banking sector after the 2008 financial crisis [...], I can only say how important it was that the supervision of the main banks became a responsibility of the SSM and the ECB, rather than remaining solely with a national central bank”, said the Portuguese Minister. And she added: “We therefore fully support the SSM model and centralised supervision”.
“We view the SSM which has demonstrated its efficiency and strong performance as a possible model for ESMA”, said Mr Ćorić, for his part.
Other items. Discussions also focused on adapting the regulatory framework to the growth of financial technologies. On Tuesday, a number of Ministers welcomed the review of the DLT pilot scheme, which should make it possible to broaden experimentation with tokenisation and blockchain-based market infrastructures, as well as the measures proposed to remove obstacles to the cross-border activity of investment funds within the single market.
Timetable. The legislative work should continue over the coming weeks at a technical level.
A meeting of experts on the future role of ESMA is scheduled for Monday 30 March.
Nicosia hopes to be able to present tangible progress on the package as a whole by the end of its term as Presidency of the Council of the EU. (Original version in French by Bernard Denuit)