Risks and Benefits of the Increasing Role of ESMA: A Perspective from the OTC Derivatives Regulation in the Brexit Period

Abstract

In the last decade, financial regulations have focused on issues posed by systemic risk. The derivatives market has been the subject of structural reforms which have involved both the post-trade—Regulation (EU) No. 648/2012 (‘EMIR’)—and the trading phase—Directive 2014/65/EU (‘MiFID II’) and Regulation (EU) No. 600/2014 (‘MiFIR’). In particular, the post-crisis regulation is characterized by the increasing role of the EU authorities both as a supervisor and as a regulator. The paper focuses on the role of ESMA in light of its new intervention powers. This paper analyses the regulations on over-the-counter derivatives introduced in Europe, with the goal of underlining the costs and benefits of this approach. To fully achieve its objective, the paper proposes, in the first section, a logical path that starts from an overview of the regulatory response to the crisis; then, in the second section, it focuses on ESMA’s growing role in light of the recent reforms. The third section points out the strengths and weaknesses of the law-making process with a particular reference to a highly technical topic. Finally, the analysis concludes by speculating on the potential ‘Brexit’ impact on the ESMA’s reform proposal, due to the role played by financial institutions and the activism of interested Member States.