European System Of Financial Supervision Research Articles

Article 29a – Towards a new Strategic Dimension in Supervisory Convergence?

Abstract 409As part of the 2019 reform of the European System of Financial Supervision, the three European Supervisory Authorities were granted a completely new convergence tool in Article 29a to promote a common supervisory culture. This tool allows them to identify up to two Union Strategic Supervisory Priorities that the National Competent Authorities shall take into account when drawing up their work programme. The article provides a doctrinal legal analysis of each procedural step in Article 29a; from information gathering to assessment of national work programmes and follow-up measures. On this basis, it is argued that Article 29a has expanded the scope of the ESAs’ existing toolkit; from the operational to the strategic level. Hereby the USSPs have essentially brought a new strategic orientation to the former level 3 of the Lamfalussy process. However, this institutional development also raises several key challenges related to the ESA/NCA relationship that call for attention in the further development of this convergence tool.410

Legal Conference – Panel II – Role, Scope of Review and Significance of Internal Administrative Review Bodies in the Banking Union and in the European System of Financial Supervision

Legal Conference – Panel II – Role, Scope of Review and Significance of Internal Administrative Review Bodies in the Banking Union and in the European System of Financial Supervision

The Economic and Monetary Union (EMU): status quo and the way forward

The present paper, structured in three sections, contains a brief presentation and analysis of the foundations and development of the European Economic and Monetary Union (EMU) and of the policies implemented therein. Section A (“Key Design Elements of the Economic and Monetary Union (EMU)”) sets out the institutional foundations of the EMU. The following Section B (“The Impact of the Four Major Crises During the Period 2007-2022”) develops, through the lens of the (2007-2009) global financial crisis (GFC), the subsequent fiscal crisis in the euro area, the pandemic crisis and the recent (since 2022) inflation crisis, on three aspects: how the single monetary policy by the European Central Bank (ECB) within the Eurosystem has been implemented; how the Economic Union has been strengthened (inter alia, regarding sovereign crisis management); and what is the role of the ECB, beyond the exercise of its monetary policy and other basic tasks within the Eurosystem, within the European System of Financial Supervision (ESFS) and the first pillar of the Banking Union (BU), which were, respectively, “children” of the two first above-mentioned crises. Finally, Section C (“The Way Forward”) discusses current trends and developments in relation to the implementation of monetary policy; the ongoing reform of the economic governance framework and the link between monetary and fiscal policies; as well as the ‘unfinished’ agenda in relation to the Banking Union.

A history of continuous power delegation: the establishment and further development of the European system of Financial Supervision

ABSTRACT International and Regional Regulatory Institutions (IRIs) have, throughout history, been created and reshaped by crises. This article argues that this phenomenon can be explained through rational choice neo-institutionalism, which argues that crises shift policy equilibrium and allow for greater political will towards solving the root causes of the crisis – in turn, this usually involves some degree of power delegation from the national to the supranational. This article applies this theory to the creation and further development of the European System of Financial Supervision in three cases: the post-2009 crisis; the post-sovereign debt crisis; and the European Union’s shortfall in anit-money laundering compliance and supervision. This article concludes that by delegating power after every crisis and debacle, countries attempt to solve cooperation, coordination, trust, and uncertainty problems. However, relying on crises to generate political will makes IRIs reactive not proactive – ultimately, this might have implications over global financial soundness, as exemplified by the case of crypto-assets.

The Broadening ‘Soft Law’ Powers of the European Banking Authority

The European Banking Authority (EBA), one of the pillars of the European System of Financial Supervision, has a power to issue guidelines and recommendations, both representing soft-law instruments, in order to achieve effective and common regulatory and supervisory standards in the banking industry. In the recent decision (15 July 2021), the Court of Justice of the European Union clarified the power of the EBA to issue soft law instruments, a decision that has important repercussions on all European supervisory authorities. Court of Justice of the European Union, European Banking Authority

Public International Law as a Refuge of (Euro-)Member States During the Financial and Economic Crisis

The EU reform project ‘Banking Union’ has dominated the discussion on EU banking law in recent years. After the establishment of the European System of Financial Supervision (ESFS) comprising inter alia the European Banking Authority (EBA) in 2011, the Banking Union was proclaimed by the Commission in September 20121 and since then has been gradually implemented. While the European Deposit Insurance Scheme (EDIS) is highly contested and has been stuck in the legislative process for years,2 the two other columns of the Banking Union have been set in place. These are the Single Supervisory Mechanism (SSM) on the supervision of banks with a strong involvement of the European Central Bank (ECB) and the Single Resolution Mechanism (SRM) on the resolution of banks. With the SRM-Regulation,3 adopted in July 2014, a new European agency,4 the Single Resolution Board (SRB), was established. What is more, a Single...

Adapting the European System of Financial Supervision (ESFS) to the EEA Two-Pillar Structure – A Workable Solution?

In response to the global financial crisis, the European System of Financial Supervision (ESFS) was created in 2010. Supranational bodies were established for different financial sectors to act as supervisors of sorts for national-level supervisors in EU Member States. This article focuses on how the system was adapted to three EFTA States that are not part of the EU but form the internal market along with EU Member States through the EEA Agreement – Iceland, Norway and Lichtenstein (EEA EFTA States). The aim is to clarify how ESFS has been incorporated into the EEA agreement and to discuss whether this a workable solution for the EEA EFTA States that have not transferred their sovereignty by name in the same manner as the EU Member States. One issue is whether the adaptation has gone beyond the limits of the two-pillar structure, as all initiative and work stem from the EU supranational bodies and not the EFTA pillar.

Patterns of Networked Enforcement in the European System of Financial Supervision: What is the New Role for the National Competent Authorities?

Enforcement of the European System of Financial Supervision (ESFS) has undergone a three-step process over time, leading it to a current networked configuration of powers and tasks between the EU and the national competent authorities (NCAs). In light of this, this paper has a twofold aim. First, it analyses the actual configuration of enforcement mechanisms in the ESFS, arguing that different patterns emerge across the three branches (banks, securities markets and insurance): as governance becomes more complex in terms of number of actors and functions, verticalisation of enforcement increases. Second, by taking into account the three Italian competent authorities, it assesses the concrete changes occurred both in organisation and in perceived effectiveness, through quantitative data and qualitative surveys. It therefore argues that the more institutionalised and verticalised is the enforcement governance, the less reluctant will NCAs be to transfer shares of their enforcing powers to the EU level and to change their practices and organisational structures concretely, according to harmonisation requirements by the European supervisory authorities and the European Central Bank.

The Brexit Reform of European Financial Supervision: Lost in Transition?

This article reviews the impact of Brexit on the European System of Financial Supervision (ESFS) and claims that the withdrawal of the United Kingdom will lead to more centralisation of supervision at EU level and a tightening of the supervision over third countries’ markets actors. This conclusion is based on a study of both the European authorities’ activism and the amendments recently adopted by EU legislators to reform the functioning of European financial supervision. Brexit has highlighted the extent of the remaining gaps in European financial supervision, which are partly due to the role that the UK played in designing European financial supervision. The reform is also geared towards mitigating the “costs” for the European economy incurred by Brexit. By analysing these developments, this contribution argues that Brexit has been seized by the European Union as an opportunity to significantly strengthen European financial supervision.

Europejski System Nadzoru Finansowego jako instytucja zapewniająca ochronę konsumentów

Celem niniejszego artykułu jest analiza organizacji oraz działania Europejskiego Systemu Nadzoru Finansowego – instytucji zapewniającej zaufanie do systemu finansowego jako całości oraz odpowiedniej ochrony konsumentów. Autor postanowił przeanalizować stwierdzenie, że Europejski System Nadzoru Finansowego jest odpowiednią instytucją nie wymagającą zmian, która zapewnia konsumentom odpowiednią ochronę. W artykule przedstawiono na podstawie analizy literatury przedmiotu, istotę działania Europejskiego Systemu Nadzoru Bankowego, zdefiniowano pojęcia dotyczące nadzoru finansowego oraz wskazano jak wpływa ten organ na ochronę konsumenta. Dokonano podsumowania, w którym została zawarta tabela z porównaniem instrumentów ochrony konsumenta stosowanych do poszczególnych europejskich urzędów nadzoru oraz Komisję Nadzoru Finansowego.

Product Intervention Measures in the European System of Financial Supervision

The European System of Financial Supervision (ESFS) sets a framework of financial supervision in the European Union. Its main objective is to ensure that the rules applicable to the financial sector are properly implemented in all the Member States to preserve the financial stability of the financial sector, promote trust and guarantee consumer protection. The new powers refer to investment-related products, offered by both financial institutions and insurance undertakings. Each European supervisory authority is endowed with the power to apply supervisory measures, including the product intervention, which means the power to issue a decision binding in the European Union to temporarily prohibit the provision of certain financial products, conducting some activities or practices which threaten the proper operation and integrity of financial markets or the stability of the financial system in the European Union. In 2018 the product intervention measures were adopted by ESMA for the first time in two decisions, namely on the prohibition of the provision, distribution and sale of binary options to retail clients and on the restriction of the provision, distribution or sale of contracts for differences (CFDs) to retail clients. These precedent decisions will set the new directions for the EU supervision of financial institutions, mainly because of the issuing authority, which is not national, but European, and whose decisions are automatically applied in the territories of the Member States.

Actions and inactions in the investigation of breaches of Union law by the European Supervisory Authorities

This article takes stock of one of the major innovations under the European System of Financial Supervision (ESFS): the breach of Union law procedure. Under this procedure, the European Supervisory Authorities (ESAs) have a key role to play in policing breaches of Union law, but they have rarely taken formal action. Many decisions are decisions not to act, i.e. declining to open investigations following a request by a complainant. Some of these “inactions” have been scrutinized before the Joint Board of Appeal of the ESAs (BoA). One was appealed before the EU judiciary, which denied “ordinary” complainants procedural safeguards, including rights of appeal before the BoA and the EU courts. This article seeks to shed light on the ESAs’ decisions not to act under the breach of Union law procedure, focusing on the ESAs’ very substantial discretionary right not to initiate an investigation, and suggesting that the procedural position of some ordinary complainants should be revisited.

The European System of Financial Supervision from an EEA Perspective – A Complex Compromise

The global financial crisis in 2007 and 2008 revealed many flaws in European financial markets – including the financial supervisory system. In accordance with the recommendations made in the de Larosiere Report, the Commission proposed to set up a European System of Financial Supervision (ESFS). On 24 November 2010, the new system was established. For Iceland and the other EFTA states that form the internal market along with EU Member States through the EEA Agreement, this new system posed some problems. The system did not quite fit into the so-called two-pillar structure of the EEA agreement, which did not envisage such transfer of powers to ‘supranational’ bodies in the same way as the EU Member States. It was, therefore, necessary to adapt the new system to the EEA two-pillar structure, which meant a more complex system for the EEA EFTA states. The aim of this article is to clarify how the new European System of Financial Supervision has been incorporated into the EEA agreement and to describe how the supervisory structure has developed throughout the years from an EEA EFTA state´s perspective.

The Case for Truly Independent EU Regulatory Authorities in the Field of Financial Regulation

In the wake of the financial crisis, the European Union established the European System of Financial Supervision (ESFS), a ‘hub and spoke’ network of national and Union supervisory authorities, aimed at ensuring a stable and single Union financial market for financial services by linking national supervisors within a strong Union network. The ESFS is composed of three European Supervisory Authorities, as well as a Joint Committee of the European Supervisory Authorities and an European Systemic Risk Board. This article makes two arguments. The first is that the European Supervisory Authorities should be reformed. In order to work more effectively they should possess final regulatory and supervisory powers and, more generally, a higher degree of independence. The second claim is that EU Treaties allow such reforms, provided that they meet the constitutional requirements concerning the delegation of power as clarified in the case-law of the Court of Justice of the European Union.

Legal Aspects of the European Central Bank (ECB) - The ECB within the European System of Central Banks (ESCB) and the European System of Financial Supervision (ESFS)

The present study is structured in two Chapters – the first containing three Sections and the second two – as follows: (a) Chapter One focuses on the European Central Bank (ECB) within the European System of Central Banks (ESCB): • the first two Sections (A and B) briefly discuss the definition and the sources of the law of the Economic and Monetary Union (EMU), as well as the structure and operation of the ESCB, and • Section C presents then the general and the temporary (unconventional) framework governing the ECB’s single monetary policy within the Eurosystem (a sub-system of the ESCB, under 1-3). It also discusses the role of the ECB in the provision of emergency liquidity assistance (ELA) to solvent credit institutions in the euro area on the basis of the recent (2017) related ECB Agreement (under 4). (b) In Chapter Two the focus turns to the ECB within the European System of Financial Supervision (ESFS): • Section D discusses recent and ongoing developments in European banking law, identifying in particular the specific tasks conferred upon the ECB firstly with regard to the macro-prudential oversight of the EU financial system (under 1.2) and then for the micro-prudential supervision of credit institutions established (mainly but not confined to) in the euro area within the Single Supervisory Mechanism (SSM) (under 3.1), while • the SSM is presented in more details in Section E.

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

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.

The European system of financial supervision – regulatory impact assessment

Complexity and uncertainty in the application of the regulations of the European system of financial supervision are due to the fact that its particular elements were implemented over a period of time. First, it was a system of European financial supervision authorities i.e. the European Banking Authority (EBA), the European Insurance and the Occupational Pensions Authority (EIOPA) and the European Securities and Markets Authority (ESMA), whose main objective was to coordinate national actions. Then there were established the European Banking Union, including the Single Supervisory Mechanism (SSM), the Single Resolution Mechanism (SRM), as well as the European Stability Mechanism (ESM), which constitutes also a part of the system of support for endangered banks. Legal interpretation problems are a result of differences in the scope of competences of these entities. For example, there is uncertainty whether the regulations refer to the eurozone or the whole European Union and if they refer to banks only or to other financial institutions as well. An analysis of the SSM, the SRM or the ESM does not always offer a clear answer to questions such as: who, when and using what tools should act; when, for example, the ECB may and should correct the decisions of national supervisors; what is the role of the ESRB, if we take account of the enhanced competences of the ECB in the banking union; if and when banks may question supervisory decisions concerning, for example, establishing a buffer or classifying an institution as SIFI, etc. Similarly, the role of the EBA or the ESM is unclear in the context of the establishment of the banking union, the SSM, the SRM, the ESM and the delegation of power of the ECB and the European Commission to regulatory agencies (Meroni doctrine) or the practice of establishing regulatory agencies outside the bounds of the treaty (Pringle doctrine). Therefore the regulatory landscape in this context requires impact assessment.

Aspects of the European system of financial supervision

The study presents the main stages of the development of the European financial supervisory regulation and the current European System of Financial Supervision. The financial economic crisis highlighted the weaknesses in the supervisory system and the fact that the supervisor has an important role in consumer protection and in the mitigation of risk-taking by financial institutions. The European Union has developed a new financial strategy known as Banking Union, which has a three-pillar framework. These three pillars are the Single Supervisory Mechanism, the Single Resolution Mechanism and the Common Deposit Guarantee Scheme. This system is intended to achieve a single economic and monetary union at supranational level and to avoid the emergence of a new crisis as far as possible.

Institutional Change of the Supervisory System of the EU Financial Market

The global financial crisis caused public discussions on the efficiency of the supervisory institutions of the EU financial sector. This paper identified the changes of the EU financial supervisory system and evaluated the directions for improvement of the reform. The logical method is used for making a substantiated generalization of the collected facts and formulating transitional as well as final conclusions of the research. Seeking to evaluate the existing banking regulation in Lithuania and the EU, the method of systematic analysis is applied. The results of the study show that the recent integrated supervision models failed to quickly and efficiently respond to the financial crisis. Ordinary European System of Financial Supervision (ESFA) is insufficient to prevent splitting of the European financial market.

Legal Boundaries of European Supervisory Authorities (ESAs) in the Financial Markets

The financial crisis urged the establishment of a European System of Financial Supervision (ESFS) aimed at promoting the stability of financial markets by ensuring a consistent and coherent mechanism of financial supervision at the EU level. Three EU regulatory agencies, the European Supervisory Authorities (ESAs), were established with the aim of supervising and contributing to the regulation of the sectors of banking, securities and markets, and pensions and insurances. This article aims to explore the boundaries to the powers of these EU agencies in order to understand the limit and the potential of their action and to highlight the legal tensions that prevent the development of true regulatory agencies in the area of financial markets. The focus is on both constitutional boundaries and the institutional ones. When analysing the constitutional limits to ESAs’ action, the aim is to question the sustainability of the so-called Meroni doctrine in the current framework of the ESAs’ powers. Under the institutional boundaries, instead, the external limits to the ESAs’ regulatory action are explored within the complex framework of EU financial market regulations, caught between the subsidiarity approach and the centralization of responsibilities and tasks.