As part of the Capital Markets Union (CMU) Action Plan, the European Commission has launched a consultation on the supervisory convergence and the single rulebook. In this article, we present the background to this consultation, as well as our detailed position as the ABBL on the most important aspects.
Background to the consultation
The Action Plan states that the Commission should:
- Put in place an improved single rulebook for capital markets, assessing the need for further harmonisation of EU rules and monitoring progress on supervisory convergence.
- Take stock of what has been achieved by the fourth quarter of 2021 and consider measures to strengthen supervisory coordination or direct supervision by European supervisors.
- Assess the implications of the Wirecard case for EU capital market regulation and supervision and address any identified gaps in the EU legal framework.
Issues already addressed in the European Supervisory Authorities (ESA) review
The consultation, while described as “focused”, covers a wide range of issues that were addressed in the 2017 ESA Review, for example progress on supervisory convergence, the adequacy of ESA governance, additional direct supervisory powers for ESMA and the assessment of the Single Regulation.
The ESA revision, which has given rise to controversial discussions at political and technical levels, was finalised in 2019 and entered into force on 1 January 2020.
The ABBL’s position
The ABBL has responded to the consultation, stressing the following key messages:
- The current regulatory framework governing the ESAs is a good basis for a continued development of the ESAs’ activities. That in turn speaks for an approach of “consolidating successes” without introducing radical changes at this point of time.
- The ABBL considers that the most important tasks fulfilled by the ESAs relate to those areas where they provide guidance to the National Competent Authorities (the NCAs) and actively promote the supervisory convergence between the NCAs.
- Supervisory convergence should also respect the diversity of business models across the EU as well as of local market traditions. The NCAs, with their closeness to local markets and actors, are an important keystone in European supervisory regulations and hence their role cannot be understated.
- The recent ESAs review has equipped the ESAs with new and improved tools to foster supervisory convergence (e.g. coordination groups, enhanced peer reviews). At this stage, it is premature to assess the impact of these new tools, which have been implemented very recently. Once deployed, these tools will bring significant benefits in terms of supervisory convergence.
- The ABBL thinks that a more adapted and inclusive Q&A tool will be an important cornerstone to fostering supervisory and regulatory convergence in the EU markets.
- As for the supervision of outsourcing/delegation arrangements to third countries, the ABBL warns against an overly protectionist attitude of the EU, which could be detrimental to the attractiveness of the EU financial markets.
- The ESAs must not go beyond their mandate to regulate areas and instances where they have no formal power. The overflow of guidance, guidelines, opinions, and other Level 3 tools makes it difficult and costly to comply with relevant regulation.
- The risk of over-regulation through soft law is a factor of increased complexity and of increasing costs. Indeed, inflating regulatory costs put at risk the viability of the banking sector while bringing little marginal benefits in terms of financial stability. We note that banks’ IT budgets are more and more absorbed by regulatory projects, leaving limited resources to develop business-orientated solutions that are nevertheless crucial to keep pace with the competitive environment.
Also, direct or centralised supervision at the level of the ESMA is not a silver bullet for forcing supervisory and/or regulatory convergence for the following reasons:
- We strongly believe that financial markets and products follow a different logic, where licensing and supervision of financial products are better handled at national level, closer to consumers.
- The mere existence of cross-border activity is not a reason for centralised supervision and ESMA should capitalise on the expertise of NCAs in highly specialised local markets. By eliminating this expertise, the EU as a whole would loose a competitive advantage, as ESMA would have to develop expertise for 27 local markets to understand the features of certain cross-border activities.
- Harmonised regulation is the key driver behind a true level-playing field within the Single Market and centralised supervision will not help in eliminating regulatory arbitrage. It is only harmonisation itself that will make regulatory arbitrage disappear.
- The ABBL has not identified, as of today, proven deficiencies in the European supervisory framework that would require or justify a review of the direct supervisory powers of ESMA.
- Finally, granting more centralised supervisory powers to ESMA would blur the lines between its regulatory and supervisory functions, which must be distinguished to ensure coherence and clarity within the European institutional framework.
By Gilles Pierre and Gilles Walers