Direct Supervisory Powers of the European Securities and Markets Authority (ESMA) in the Realm of Credit Rating Agencies – Some Critical Observations in a Broader Context

Abstract

Since its establishment in 2011, the European Securities and Markets Authority (ESMA) has considerably shaped the regulation and supervision of European capital markets. Being part of the European System of Financial Supervision (ESFS ), the three European Supervisory Authorities (ESA s) – ESMA, the European Banking Authority (EBA ) and the European Insurance and Occupational Pensions Authority (EIOPA) – share its main objective: safeguarding the stability of the European financial system. ESMA however is outstanding with respect to its role as direct supervisor particularly of credit rating agencies (CRA s) in the European Union (Union). Whereas many analyses of the regulatory and supervisory regime for CRA s in the Union mainly focus on its design and effects on CRA s and the credit rating market the present paper aims to focus on ESMA as direct supervisor in this sector. The paper is organised as follows. It starts with some methodological preliminaries and remarks on the role of legal academia in the realm of financial markets regulation and supervision thereby aiming to put the paper in the broader context of the relevant legal literature. Against the backdrop of some fundamentals on rating-directed regulation and supervision it discusses the fitness of ESMA’s institutional set-up for its role as direct supervisor of CRA s in the Union. The paper then explores and assesses the performance of ESMA as direct supervisor of the CRA s in the Union since 2011. This is complemented by some observations as to ESMA’s regulatory powers and performance in the European sector of CRA s. The paper then concludes with an outlook arguing in particular that ESMA in its role as direct supervisor of CRA s in the Union might well be considered a tried and tested example of a legitimate agencification at Union level paving the way towards the concept of a single capital markets supervisor.