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EPFSF Briefing
“Review of the European Supervisory Authorities”
Background
Since the financial crisis began in 2007, Europe’s financial regulatory architecture has undergone
significant reform. This continuing process was formally initiated by Commissioner Barroso, who in 2008
established and mandated an expert group – chaired by Jacques de Larosière - to advise on the future of
European financial regulation and supervision.
As recommended in the group’s final report published in February 2009, regulations establishing a new
European System of Financial Supervision (ESFS) comprising a new European Systemic Risk Board
(ESRB) and replacing each of the three Level 3 Lamfalussy Committees with three sector-focussed a
European Supervisory Authority (ESA):
 Committee of European Banking Supervisors (CEBS)  European Banking Authority (EBA).
 Committee of European Insurance & Occupational Pension Supervisors (CEIOPS)  European
Insurance and Occupational Pensions Authority (EIOPA).
 Committee of European Securities Regulators (CESR)  European Securities & Markets
Authority (ESMA).
The ESFS seeks to address both micro and macro prudential weaknesses of the previous system. It was
fully operational on 1 January 2011 with its principal focus remaining the creation of a single EU rulebook and improved coordination between national supervisors, whilst raising the quality of supervision
within Member States and promoting the convergence of supervisory outcomes.
The ESFS Review
The regulations establishing the ESAs and the ESRB provide for the European Commission to review
their structures and performance three years after their establishment and at regular intervals thereafter.
In each case, the Commission shall produce a report and forward this to the European Parliament and
Council of Ministers, together with any accompanying proposals, as appropriate. In the case of the
ESRB, the Parliament and the Council shall examine the Regulation on the basis of the Commission’s
report and, after having received an opinion from the ECB and the ESAs, shall determine whether the
mission and organisation of the ESRB need to be reviewed.
On 26 April 2013, the European Commission launched a public consultation on the effectiveness of the
ESAs and ESRB within the ESFS and on the ESFS as a whole. This was organised into five sections:
i.
ii.
iii.
iv.
v.
ESAs (Effectiveness and efficiency of the ESAs, Governance)
ESRB (mandate and experience with systemic risks; institutional framework and governance of
the ESRB; access to data; external relations and communication)
Cooperation and interaction between the ESAs (micro) and ESRB (macro)
Structure of the ESFS
Miscellanea
The Commission received 94 responses1. Its review, expected at the end of February / beginning of
March 2014, will also address the potential impacts of the creation of a single supervisory mechanism
(SSM) on the ESAs, the ESRB and the ESFS as a whole, given the core role attributed to the ECB, and
will assess whether this necessitates further adaptations to the legal framework underpinning the ESFS.
In addition, the European Parliament’s Committee on Economic and Monetary Affairs (ECON) is working
on an own-initiative report (Rapporteur: Sven Giegold, Greens/EFA) to provide the Commission with its
1
http://ec.europa.eu/internal_market/consultations/2013/esfs/contributions_en.htm
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recommendations on the review of the ESFS. The recommendations of the final report will not be legally
binding but will feed into the general consultation process. ECON will most likely vote on the report in
mid-February with a plenary vote expected for March/April. The ECON vote will already give a clear
signal of where the European Parliament is heading politically and can be taken into consideration by the
Commission before it publishes its review.
Focus on the review of the European Supervisory Authorities
Some areas that have been suggested would benefit from improvement are:
ESAs objectives: The extent to which the ESAs have fulfilled their objectives, including improving the
functioning of the internal market; protecting depositors, investors, policyholders, consumers and other
beneficiaries; ensuring the integrity, efficiency and orderly functioning of financial markets. At this
relatively early stage in the life of the ESAs, examples include ESMA’s monitoring of financial products;
ESMA’s investor warnings (including joint warning with EBA on “CFDs”; EIOPA’s work on IMD2, ESMA’s
Work on EMIR and MIFID II. While EBA has played a more limited role in consumer protection to date,
according to the IMF’s Financial Sector Assessment Program for the EU (March 2013), among the ESAs,
as would be expected, the EBA has played the most active role in handling the European banking crisis.
This includes the June 2011 stress tests and the June 2012 recapitalization.
Resources: current limits on resources could impact the ability of the ESAs to discharge their growing
responsibilities and in delivering the detailed rule making that is critical to the broader process of
European regulatory reform. This is especially the case for the EBA and ESMA, whose work programs
include the completion of the Single Rulebook as well as the development of the Single Supervisory
Handbook and delivery of detailed rule making for example for CRR and MiFID/R. Currently, the ESAs’
funding is based on different models. The budgets of EBA and EIOPA are part of the Commission’s
budget, with 40% coming from the EC section and 60% coming from the NCAs. ESMA has three sources
of funding: a subsidy from the Commission (46%), a contribution from the NCAs (30%) and a fee levied
on CRAs under its direct supervision (20%). The budget process and its subordination from the
Commission has important implications for the ESAs’ staffing policies and flexibility to react to market
events. According to some stakeholders this constraint could be addressed by creating a specific budget
line in the Community budget which would finance the ESAs.
Governance: Some stakeholders feel that there is a need to reform the governance of the ESAs in order
to make them more independent, both from the European Commission and from national authorities and
boost the ESA’s role in for instance mediation, participation in supervisory colleges, direct supervision,
supervisory convergence and highlighting breaches of EU law. This could include a review of their voting
system. In fact, along with the establishment of a Single Supervisory Mechanism, the EBA regulation has
been partially amended by envisaging a new voting-system, according to which a double-majority is
necessary for the approval of several types of decisions, among which decisions on mediation, in order to
ensure that they are backed by both a majority of the SSM and the non-SSM countries. While
acknowledging that the amendment was introduced to ensure member states not participating to the
banking union would not be outvoted, according to some stakeholders and the EBA chairman this new
system risks to make more complicated than in the past the exercise of EBA’s mediation role to solve
possible conflicts and making it less likely that EBA will act at its own initiative to start an infringement
proceeding against a national competent authority.
At the moment the ESA governing bodies are composed of an overwhelming majority of members who
are full-time employed by the national supervisory authorities. If this is seen as a constraint, one way of
addressing the issue could be by changing the composition of its bodies with members to be nominated
at the European level (balancing the number of national representatives). More specifically, some
suggest replacing the ESA’s Management Board with an Executive Board. These could be composed of
full time individuals which would need to commit to independence and be full-time long-term and nonrenewable jobs, along the lines of the ECB Executive Board. The Board of Supervisors (BoS), currently
composed of the ESA’s Chairperson with no voting rights and one representative for each national
supervisory authority who are currently the only voting members, could include the members of the ESA
Management Board.
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Rule making: some stakeholders question whether the EFSF as a whole has helped to maintain an
effective balance of power between the co-legislators, the ESAs and the Commission in which the
independence of the ESAs, the rights of the Commission and the rights of scrutiny of the co-legislators on
Level 2 measures can be taken effectively into account.
Impact assessment: many stakeholders call for impact assessments to be fair and realistic, with clarity
on the marginal costs and benefits of specific proposals and their net benefit to society / the economy..
The experience of the co-legislators, industry and interest groups of the new supervisory architecture
should equally help to identify the priority areas going forward.
Legal certainty and implementation times: the experience to date seems showing that there have
been instances in which there has been insufficient legal certainty or unforeseen circumstances which
affected the ability of industry and end-users to comply or otherwise has left insufficient time to implement
Level 2 measures. In such cases, some stakeholders question whether a temporary relief from regulation
should be considered as a possible solution and if so, ask how would such a process work and what
would be the role of the ESAs.
EU convergence: aside from the development of regulations and standards, it is often considered also
that the ESAs (and ESMA in particular) could play a more active role in ensuring a consistent application
of EU law and supervisory practices through a wider use of their powers in this field (e.g. peer reviews,
breach of Union law procedures). Admittedly, this would also constitute a call on resources.
International convergence: it is generally acknowledged that the ESAs need to play a more relevant
role in helping to deliver an international level playing field for financial services, by giving them adequate
powers to interact with third-country regulators. The continuing discussions between the EU and the US
on extraterritoriality in cross border derivatives regulation illustrate the practical difficulties of conducting
international negotiations and the issues than can arise as a result of differences in legislative process
and objective, scope and interpretation
Focus on the review of the ESRB
Whilst the ESRB is designed to take a broad view of the concentration of risk in the EU financial system
as a whole (which includes the banking system as well as any potential risk transmission through the nonbanking system), the ESRB is currently composed largely of banking supervisors. There have been
instances of recommendations including application of tools designed for banking supervision (such as
capital) to be deployed in other areas of financial services, with potentially profound impacts on business
models and the ability of entities such as asset managers, insurance companies and pension funds to
serve their clients2. A broader-based composition of the ESRB to include expertise in insurance, asset
management and pension funds is a potential solution. An additional suggestion might be to have an
independent chair to ensure that EU–wide concerns – for example about the integrity of the Single Market
– are adequately addressed. In terms of process and governance, many commentators agree on the
need to strengthen and simplify the way the ESRB operates and improve its visibility.
Any reform of the ESRB governance should aim to ensure: an appropriate balance between national,
Eurozone and wider EU interests, including the integrity of the Single Market; and the capability for
macro-prudential to be used at both national, Eurozone and EU levels to prevent or mitigate risks to
overall financial stability.
In this respect, it is crucial that the ESRB pay adequate attention to the role that the ECB will play within
the SSM in the exercise of macro-prudential powers and tools. This could include a progressive
integration of national macro-prudential objectives and policies within the SSM, with a view to avoiding
fragmentation along the lines of national interests and ensuring the overall EU financial stability.
2
See for example ERSB recommendation on Money Market Funds (20 December 2012):
http://www.esrb.europa.eu/pub/pdf/recommendations/2012/ESRB_2012_1.en.pdf?da67c161c0b112b5594c54d5ba5f
caaf
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Conclusion
This review of the ESAs - although early in their existence - is a welcome opportunity to take stock of the
evolution of the ESFS.
A lesson of the crisis is that the system needed to change and there is widespread approval of the
decision to create the ESAs as part of the ESFS. That said, there are a number of additional factors to
consider as part of this review.
First, that institution-building takes time and resources and it is arguable that the ESAs so far have not
had enough of either. Second, that the introduction of the ESAs has affected the balance of rights and
responsibilities of the European Commission and the co-legislators and that this needs to be recognised
and any weaknesses addressed going forward. In addition, the closer links being created between the
Eurozone countries has implications for the balance of rights and responsibilities between the Eurozone
countries and the remainder of the EU Member States. The relationship between the EBA and the ECB,
for example, is a crucial part of the equation.
The future challenge will be to ensure effective implementation of the regulation that has been negotiated
and to consider more the external dimension as Europe seeks to forge workable agreements with
regulators from third countries. In this way, the ESAs can contribute to the preservation of stability and
enhance the opportunities for growth. The ESFS with the ESAs at its heart has a crucial role to play in
this process and it is therefore essential that the system as a whole carries the broadest possible support
from the widest group of stakeholders.
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Briefing notes are prepared by the Financial Industry Committee to the European Parliamentary
Financial Services Forum. For further information on the subjects raised in the briefs please
contact the Chairman, Members or Secretariat of the Financial Industry Committee.
Chairman Financial Industry Members
Guido Ravoet, EBF Chief Executive
Avenue des Arts 56, B-1000 Brussels
Tel: +32 2 508 37 11 / Fax: +32 2 502 13 30
E-mail: g.ravoet@ebf-fbe.eu
Steering Committee
Burkhard Balz MEP
Sharon Bowles MEP
Antonio Fernando Correia de Campos MEP
Philippe De Backer MEP
Herbert Dorfmann MEP
James Elles MEP
Frank Engel MEP
Sari Essayah MEP
Diogo Feio MEP
Elisa Ferreira MEP
Vicky Ford MEP
Ashley Fox MEP
Jean-Paul Gauzès MEP
Ana Maria Gomes MEP
Sylvie Goulard MEP
Roberto Gualtieri MEP
Malcolm Harbour MEP
Roger Helmer MEP
Monika Hohlmeier MEP
Gunnar Hökmark MEP
Danuta Maria Hübner MEP
Anne Jensen MEP
Ivailo Kalfin MEP
Othmar Karas MEP
Sean Kelly MEP
Mojca Kleva MEP
Wolf Klinz MEP (SC Chair)
Philippe Lamberts MEP
Boguslaw Liberadzki MEP
Baroness Sarah Ludford MEP
Olle Ludvigsson MEP
Astrid Lulling MEP
Arlene McCarthy MEP
Gay Mitchell MEP
Bill Newton Dunn MEP
Antonyia Parvanova MEP
Sirpa Pietikäinen MEP
Godelieve Quisthoudt-Rowohl MEP
Paul Rübig MEP
Antolín Sánchez Presedo MEP
Olle Schmidt MEP
Richard Seeber MEP
Peter Skinner MEP
Theodor Dumitru Stolojan MEP
Kay Swinburne MEP
Michael Theurer MEP
Ramon Tremosa i Balcells MEP
Emilie Turunen MEP
–––––––
Angelika Werthmann MEP
Auke Zijlstra MEP
Secretariat
Catherine Denis, EPFSF Director
Avenue des Arts 56, B-1000 Brussels
Tel: +32 2 514 68 00 / Fax: +32 2 514 69 00
E-mail: cdenis@epfsf.org
Financial Industry Committee
Association for Financial Markets in Europe (AFME)
Banco Bilbao Vizcaya Argentaria (BBVA)
Banco Santander
Barclays
BlackRock
CitiGroup
Chartered Financial Analyst – Institute (CFA)
Commerzbank AG
Crédit Agricole
Danske Bank
Deutsche Bank AG
Deutsche Börse AG
DTCC – The Depository Trust and Clearing Corporation
Euroclear
European Association of Public Banks (EAPB)
European Banking Federation (EBF)
European Central Securities Depositories Association (ECSDA)
European Federation of Accountants (FEE)
European Fund and Asset Management Association (EFAMA)
European Mortgage Federation (EMF)
European Payment Institutions Federation (EPIF)
European Savings Banks Group (ESBG)
European Structured Investment Products Association (EUSIPA)
Federation of European Securities Exchanges (FESE)
Futures and Options Association (FOA)
Goldman Sachs International
HSBC
ICAP
ING
International Swaps and Derivatives Association (ISDA)
Insurance Europe
Intesa Sanpaolo
JP Morgan
KBC
KPMG
Lloyds Banking Group
NASDAQ OMX
NVB – Dutch Banking Association
PensionsEurope
PricewaterhouseCoopers
Prudential Plc
Royal Bank of Scotland
Société Générale
Standard & Poors
State Street
UBS AG
UniCredit Group
VISA Europe
Western Union International Bank
Zurich Insurance Company
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