On Tuesday 5 May, the European Finance Ministers held a second policy debate on the vast ‘MISP’ legislative package proposed in December by the European Commission to reform the architecture of the EU’s Financial Markets in order to improve their competitiveness (see EUROPE 13825/24). Discussions focused on the scope of supervision to be granted to the European Securities and Markets Authority (ESMA) and the challenge of reforming its governance.
“Overall, Ministers recognise the need to deliver on the goals of the market integration and supervisory package”, concluded the Cypriot Minister, Makis Keravnos, on Tuesday afternoon, while Nicosia, as part of its mandate as Presidency of the Council of the EU, is seeking a common “political direction” from the EU27 on the delicate debate on more centralised financial supervision (see EUROPE 13857/8).
"Many stress that it was important to avoid the duplication of efforts and increase cost, as well as the need to strike the right balance between ambition and speed”, says Mr Keravnos.
Perimeter. With regard to the ideal scope of direct supervision by ESMA, in particular by defining which market participants should be considered sufficiently important to fall under the remit of the European authority, three trends emerged during the debate.
On the one hand, France, Spain, the Netherlands, and Greece have confirmed their desire for a broad scope, in line with the approach advocated by the European Commission, which focuses on cross-border and systemic players.
“We fully support a higher degree of centralisation and are also ready to support the proposed scope of direct supervision of ESMA”, said the Secretary General of the Spanish Treasury, Paula Conthe.
“It is necessary that we move to a single supervision of all pan-European cross-border operating market parties above the significance threshold proposed by the Commission”, added the Dutch Minister, Eelco Heinen.
“A targeted approach, for example, excluding key market players or sectors (...) risks increasing the administrative burden and duplication of supervisory responsibilities and delivering exactly what the sector does not want and what Europe does not need”, he continued.
On the other hand, a significant block of EU Member States have expressed more restrictive positions, arguing for a strictly targeted perimeter, limited to truly systemic entities with proven cross-border activity.
“The scope of centralised supervision should be strictly limited to entities that are truly significant from an EU perspective”, said Slovakian Minister Ladislav Kamenický.
Even more critical, Luxembourg Minister Gilles Roth strongly criticised the models discussed: “Efficiency gains linked to direct supervision are highly questionable. Costs of double-layered supervision are tremendous”.
“The EU Council’s Legal Service has also recently acknowledged legal issues linked to the ‘Meroni’ doctrine [a principle of EU law limiting the discretionary powers of European agencies, Editor’s note]. This raises serious questions about the overall calibration of the Commission’s proposal”, objected Mr Roth.
The case of ‘CASPs’. The general inclusion of crypto-asset service providers (‘CASPs’) in ESMA’s scope of supervision is a particular bone of contention.
Several Ministerial delegations - including Slovakia, the Czech Republic, Austria, Lithuania, Estonia, Luxembourg, and Belgium - were critical on Tuesday morning, arguing that such a reform would be disproportionate in terms of the principles of subsidiarity and proportionality, as well as the costs that ESMA supervision would entail.
“We would favour a more targeted scope. This would point to crypto-asset service providers (CASPs) providing only crypto services, trading venues and clearing houses (CCPs), while excluding hybrid infrastructures such as central securities depositories (CSDs) with a banking licence”, said Belgian permanent representative Peter Moos.
“We should assess whether alternative supervisory models beyond the one proposed by the Commission could achieve the necessary convergence in a more balanced and proportionate way”, he added.
Reflecting rather intermediate positions, Portugal, Denmark, Ireland, Italy, and Finland insisted on the need to define clear materiality criteria for the entities that would be supervised by ESMA and to preserve an operational role for the national authorities.
Governance. The debate on ESMA’s governance pitted those in favour of an independent executive board, considered necessary to enhance decision-making efficiency (France, Spain, the Netherlands, Greece), against several Member States attached to maintaining the central role of the Board of Supervisors and the national authorities (Luxembourg, Slovakia, the Czech Republic, Austria, Lithuania, Estonia, Malta, Hungary). (Original version in French by Bernard Denuit)