The financial markets regulator of the European Union (EU), the European Securities and Markets Authority (Esma), aims to increase its authority to regulate large stock exchanges and other key components of the EU’s financial infrastructure, with an aspiration to mirror the US Securities and Exchange Commission (SEC). Verena Ross, Esma chairperson, has noted a “political appetite” within the newly-formed European Commission for a more unified supervision of EU financial markets, in an effort to rejuvenate the region’s struggling capital markets.
Opposition to this concept, primarily from smaller EU countries including the Republic and Luxembourg, relates to concerns of the potential impact on their thriving financial sectors. Ross suggests that the areas which could transition to a central EU supervision require a closer examination, particularly those affecting significant cross-border infrastructure.
Established in 2011, Esma was designed to standardise regulations across the EU, however, the majority of its financial market activities are still monitored by the union’s 27 national authorities. Esma, based in Paris, directly oversees a limited number of organisations, including credit ratings agencies, securitisation repositories, and non-EU central counterparty clearing houses.
Increasing the powers of Esma, transferring them from national entities, has grown in popularity in recent months, with officials in Brussels seeking methods to stimulate capital markets activity, and help fund an estimated extra investment requirement of €800bn.
Former President of the European Central Bank, Mario Draghi, last month called for Esma’s transformation into an entity comparable to the SEC in order to boost Europe’s capital markets. Draghi recommended that Esma expand from a body coordinating national regulators to become the sole regulator for all EU security markets, with jurisdiction over large multinational issuers and all central counterparties.
Notwithstanding dissent from a few smaller member states, Ross is adamant that this shift would enhance the performance of Europe’s financial markets for both investors and issuers. She remarked, “Success in creating an effective regulatory and supervisory structure has a significant effect on the functioning of a single capital market, something that currently doesn’t exist in Europe.”
Addressing criticism from smaller nations, she expressed preference for incrementally increasing the power of Esma rather than quickly transforming it into a dominant European SEC. She stated that we should remember the European markets’ significant legal diversity compared to the American ones and urged for the establishment of central EU supervision where it is most relevant at present.
She proposed the initiation of this process by entrusting Esma with more authority to oversee major cross-border entities like Euronext and Deutsche Börse. These entities cater not just to a few countries but genuinely provide services to investors across Europe. She assured that smaller markets and companies would still be locally regulated.
Referring to the EU’s landmark crypto markets law, coming into effect late this year, she hinted a missed chance as national authorities will still control company oversight. She questioned the effectiveness of establishing it at an EU level, a point that was previously debated by the board.
Meanwhile, Mr Draghi argued for Esma’s augmenting independence from the national authorities that hold the majority of board voting positions, proposing the inclusion of independent members like those of ECB’s supervisory board monitoring major Eurozone banks. Ms Ross dismissed this suggestion, stating the existing governance structure was functional and emphasised the importance of national supervisors’ participation in decision-making processes since implementation occurs mainly at national level. – The Financial Times Limited 2024.