The strengthening of the powers of the European Securities and Markets Authority (Esma) is presented as the corollary of the completion of the capital markets union. Emmanuel Macron, the French president, wants this to be achieved as quickly as possible. His dream is to make Paris the leading centre for European finance, a role abandoned by the City. And the fact that Esma is headquartered in Paris is for him a plus for this strategy.
The French president’s eagerness to move towards centralising financial supervision in Europe has raised many suspicions. These suspicions relate to the fact that by asking for more power in relation to national supervisors, Esma would be playing into the hands of the large member states in general and Paris in particular.
Opponents of this strengthening, the smaller European countries, led by Luxembourg, hand in hand with Ireland, but also Germany, believe that a single regulatory framework does not need a powerful central supervisory authority, but rather coherent rules that could be monitored more effectively at national level.
Esma is first and foremost a European supervisory authority.
That fear of bias was dismissed by Esma chair Verena Ross, who during an interview in Luxembourg this week stressed that “Esma is first and foremost a European supervisory authority”.
Ross stated: “It is truly European in nature and the position paper with 20 proposals that we published a few weeks ago on creating more efficient capital markets was supported by the entire Esma board. That means all 27 national supervisory authorities. For me, it’s about creating the good capital market that Europe needs collectively. And that’s what we need to work on. And to achieve this, we need the support of national governments and finance ministers. They all need to think not only about what they need to do at national level--yes, it’s important to develop national markets--but also about what they need to do together to create a truly common European capital market that will make Europe as such attractive to global investors, we need to create pan-European regulated sectors. And to do that, we need to work together.”
Esma’s objective is first and foremost “to converge the controls in the current system and therefore to bring together all the national supervisory authorities to ensure that the results we are trying to achieve are aligned,” she stated. “We need to ensure that we have a common basis that everyone respects. We must avoid regulatory arbitrage. Companies that want to do business in Europe must respect these basic rules.”
A single but not omnipotent supervisor
Reassuring still, Ross insisted that a single regulatory framework requires a single supervisor. But not an omnipotent one.
“Today, a large part of the European supervisory framework is very much focused on local companies that actually provide services in their national member state. And it makes perfect sense for the majority of the financial system to be supervised at national member state level. What we are saying, however, is that if you really want to change scale, if you want to create a single European capital market, you must also at least consider that, in certain areas that are generally pan-European, you can achieve greater efficiency, greater regulatory and supervisory alignment by also looking at what is the most effective supervisory framework going forward. This does not mean that supervision of everything should be transferred to the European level. Rather, it means looking at specific areas where, on a case-by-case basis, it might make sense.”
Ross cited pan-European market infrastructure or the supervision of crypto asset service providers as examples of relevant centralisation.
The need for simpler and more effective rules and supervision.
Another criticism of centralised supervision is the risk of over-regulation.
This fear was echoed in Paperjam by Luxembourg’s finance minister, (CSV). “The main obstacles to the free provision of financial services and investment by European citizens are regulatory in nature and do not fall within the remit of the supervisory authorities”, he explained.
That is an argument that Ross understands. “Gilles Roth is right to say that there is still a lot to be done to create a genuine common regulatory framework in Europe. At the moment, we still very often have directives rather than regulations. Implementation at national level therefore creates different regulatory frameworks. But what we are also seeing is that even when regulatory frameworks are aligned, the fact of having supervision in 27 different national markets still creates barriers and fragmentation. I think regulation in itself is probably not enough. It is important to change the framework to make it more agile, more effective and more efficient. But we also need to ask how we can further align supervision, convergence and, in some cases, whether we need to go even further.”
As for the risk of deregulation itself, Ross said “we at Esma are aware that one of the areas to which we also need to pay close attention is the need for simpler and more effective rules and supervision to ensure that Europe remains an attractive place for businesses and investors. That’s why we’re also looking to reduce the administrative burden on businesses and make the system simple and easy to use. This is absolutely essential.”
Hand in hand with the market
The third criticism levelled at Esma is that of a distant regulator, locked away in its ivory tower and far removed from the realities on the ground.
That is an argument that Ross again dismisses. “For Esma, it is important to have a regulatory system that supports business development. A strong, clear and well-adapted regulatory and supervisory system can indeed support business development. For us, the importance of creating a better capital market is exactly that, trying to ensure that businesses can grow and that they can find the finance they need to develop. For me, a good and effective regulatory and supervisory system is what we need to stimulate and support the development of businesses in Europe. The regulator and the supervisor must be very open to discussions with stakeholders, with the market. This is what we are doing in our work.”
Ross said: “We need to strike a balance between the interests of the industry and those of consumers and investors. So it’s a very collective commitment by the stakeholders, who we believe need to work hand in hand with the regulator and the supervisor to reach a common solution. We want to be very open. We're trying to reach out, we’re organising lots of consultations, workshops and public hearings to get information, because as regulators we don’t want to stay in an ivory tower, we want to be on the ground, understanding how companies work and not hinder innovation.”
Originally published in French by and translated for Delano